The Economic Priority

Friday, June 27, 2014
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docstockmedia, Shutterstock

As the drive for US immigration reform becomes bogged down in election-year politics, one facet of the issue seems indisputable: An overhaul of the country’s immigration policy would be a boon to the world’s biggest economy. While much of the focus is on finding the “optimal” number of immigrants, a more economically important issue is the composition of who, among the millions of potential migrants, America welcomes. The percentage of employment-based migrants relative to refugees and family-based is lower in the United States than any other country in the Western World.

A sweeping reform should open the door to a significant number of highly-skilled noncitizens who could lawfully enter the country permanently. This would be a positive step toward economic growth, according to my recent study for Standard & Poor’s. If such immigration reform becomes law, it could add about 3.2 percentage points to real GDP in the next 10 years (2015 to 2024) and likely even more to growth in the following decade a meaningful bump for an economy still recovering from the Great Recession.

Over time, immigration reform would likely significantly increase the number of working-age people. An influx of young, skilled labor would spur economic growth, potentially add to innovation, and help offset the deleterious effects of an aging American population, among other things. In addition, if reform focused on highly skilled immigrants, the ripple effects on productivity, the tax base, and jobs would be even larger. This would help reduce Uncle Sam’s growing budget problems, cutting about $150 billion in real terms from the deficit in 10 years and possibly even more in the following decade.

While many see immigration reform as a boost for the economic recovery, others are sure that immigrants “steal” jobs, depress wages, and slow economic growth.

Some of these concerns are misplaced. The immigrants that come to the US typically complement the native labor force; they don’t substitute for American workers.

Highly skilled immigrants are particularly innovative. The Partnership for a New American Economy’s June 2012 study noted that 75 percent of the nearly 1,500 patents awarded at the nation’s top 100 research universities went to projects at least partly headed by immigrants. Nearly all of those patents were in the STEM fields (science, technology, engineering, and mathematics). From a business perspective, 18 percent of the Fortune 500 companies had at least one founder who is foreign-born. These companies generated $1.7 trillion in annual revenue and employed 3.6 million workers worldwide (Immigration Law Policy Center).

Because immigrants have created businesses and file patents at an especially high rate, this helps create jobs. According to a 2011 study from the American Enterprise Institute, each additional group of 100 foreign-born workers with advanced degrees admitted between 2000-2007 was associated with 44 additional American jobs. Each immigrant with a STEM background was associated with 262 additional American jobs.

Many politicians have said that immigration reform is a priority. In crafting the reforms, politicians would be wise to keep in mind fixes that help grow the US’s economic pie.