How does immigration affect the U.S. economy?

The U.S. economy is large enough that, over the long term, immigration doesn’t have much effect overall on wages or the employment rate. When we have seen short-run impacts, they’ve mostly been in narrow segments of the population—people working in a specific industry and geographic area, for example.

Before we go further, I need some general background on immigration.

More than 40 million people living in the United States were born in other countries, and an almost equal number have at least one parent who was born in another country. Together, immigrants and their children make up almost one in four Americans. Fifty years ago, 83% of the U.S. population was non-Hispanic white. Today that proportion is about 62%, and immigration is responsible for much of that change.

We shared some common assumptions about immigration with a group of diverse U.S. immigrants. Here’s what they had to say.

How do immigration numbers today compare to historical levels?

Current levels of immigration, though at record highs in absolute numbers, aren’t out of line with those we’ve seen for most of American history if you think about them relative to the total U.S. population. The United States has had successive waves of mass immigration that were at first considered crises but are now celebrated as major contributions to a “nation of immigrants.” And in the coming years, immigration will be the main source of labor force growth in an increasingly aging population.

Number of immigrants (orange bars) and immigrants as a percentage of the U.S. population (blue line) from 1850 to 2017. The percentage of immigrants rose sharply from 1970 to about 2007 and has since slowed. Today immigrants make up 13.6% of the U.S. population. Credit

Where are most immigrants from?

As might be expected of such a large group of people, immigrants and their children come from a broad range of backgrounds. Hispanics (people from Cuba, Mexico, Puerto Rico, South or Central America, and other Spanish cultures) have grown from just over 4.5% of the population in 1970 to about 17% today—the largest change within that timespan.

Since 2009, more Asians (people from China, India, Japan, Korea, or any original peoples of the Far East, Southeast Asia, and the Indian subcontinent) than Hispanics have been immigrating to the United States, and Asians are currently the fastest-growing immigrant group in the country. Asians represented less than 1% of the population in 1970 but 6% today.

Where do immigrants to the United States come from? U.S. Census Bureau data shows how the regions of origin for immigrants have shifted since 1960. Credit

In what ways does immigration benefit the economy?

The prospects for long-term growth would be quite a bit lower without the contributions of immigrants. They have helped the United States avoid the problems facing other economies that have stalled because of unfavorable demographics, such as an aging workforce and reduced spending by older residents.

Research shows that immigrants who work in child and elder care, food preparation, house cleaning and repair, and construction provide valuable services and lower the prices of many goods. This benefits immigrants and native-born consumers alike. In many cases, immigrants who provide these services also free up native born people to go after jobs that contribute to the size and growth of the overall economy.

In addition, highly skilled scientists, engineers, and computer programmers from other countries bring much of the innovation and entrepreneurship that have helped to build the high-tech and other sectors of the economy.

Where do we see immigration impacting wages?

Research shows that the arrival of immigrants with skills complementary to those of native workers may increase earnings for those native workers. For example, if foreign-born construction workers enter the market, causing construction workers’ wages to decrease, construction companies often respond by hiring more construction workers. That can trigger a need for more supervisors to oversee and coordinate the larger workforce, which in turn increases the demand for—and therefore the wages of—the supervisors.

Research also shows that immigration has, in some instances, slightly lowered the wages and employment prospects of people who compete directly with new immigrants for jobs. So the workers who lose ground when new immigrants arrive tend to be earlier immigrants and native workers with a high school education or less who have skills similar to those of the new arrivals.

Does immigration affect the unemployment rate?

Not much. As with wages, there’s some evidence that recent immigrants lower the employment rate of immigrants who arrived earlier, but there is little evidence that they affect the employment levels of native-born workers. One recent research finding, though, shows that immigration may reduce the number of hours worked by native-born teenagers, but not by enough to affect the overall employment rate.

How do immigrants affect federal, state, and local economies?

All segments of the U.S. population contribute to government funds by paying taxes and add to costs by using public services. But the levels differ. Research shows that an immigrant and a native-born person with similar education and background have about the same impact on government finances. But high levels of immigration can put stress on the budgets of state and local governments. States and cities with large numbers of immigrants often have to invest more money in public education and other services immigrants receive than they collect in taxes from those populations.

As adults, though, the children of immigrants are among the strongest economic and fiscal contributors in the U.S. population. That’s in part because of the earlier investment (an initial cost) in public education. On a per capita basis, because of their high employment rates and strong earnings, the second generation pays more in taxes than either their parents or the rest of the native-born population.

Does immigration eventually benefit the federal budget then?

More income tax revenue goes to the federal government than to state and local governments, so the federal government does tend to benefit financially from immigration. The elderly receive most of the federal benefits, so the relative youthfulness of arriving immigrants, who are often working and paying taxes, means that they tend to pay more to the federal government than they receive in benefits.

Where do data about U.S. immigrants come from ?

Information about immigration and the economy comes from a wide variety of sources, including the U.S. Census Bureau, national and state surveys, and administrative records kept by governments. These data sources cover basic facts, such as age, sex, marital status, educational attainment, occupation, employment status, income, and country of birth.

However, data sources on immigrants and their children still have big gaps. For example, information on how many immigrants are living in the United States, when they arrived, and their countries of origin can be surprisingly difficult to get.

To sum things up…

The United States prides itself on being a nation of immigrants, and it has a long history of welcoming people from across the globe. Immigrants and their children contribute not only to the economic vitality of the nation but also to a vibrant and ever-changing culture.

Take a Deep Dive

Ready for more detailed information on immigration and the economy? Check out The Economic and Fiscal Consequences of Immigration and The Integration of Immigrants into American Society.

Know it all? Prove it.