America Can't Afford to Offer Open Arms Or Cold Shoulders

On balance, immigration is an economic drag on the US economy, rather than an engine of growth

'IMMIGRANTS built America." You can't get very far into any discussion of immigration before someone brings up this old chestnut. Even former Texas Democratic Rep. Barbara Jordan paid lip service to it recently when introducing the recommendations of the US Commission on Immigration Reform, which she chairs. But her commission stunned official Washington by conceding, in effect, that the legal immigration system created by the epochal 1965 Immigration Act is broke and needs fixing - including a 30 percent cutback in influx levels.

Looked at more closely, the Jordan commission's findings make clear what its staff has been saying privately for some time: Immigration is probably at best neutral in its economic effects. One of the commissions lesser-noticed recommendations: reducing the number of slots specifically reserved for skilled immigrants - and punishing employers with a sort of tax for hiring them. Why? Because the economy does not particularly need skilled immigrants.

Of course, the economy has even less need of the continued annual influx that the commission envisions, at least half a million who will be mostly relatives of immigrants already here. But this "family reunification" is apparently politically sacrosanct.

Immigration is an emotional issue and concerns about it are often bitten back for fear of appearing racist. Thus Americans hear a lot about Vietnamese valedictorians (to choose an example at random) but not much about Vietnamese crime gangs or the 25 percent Vietnamese welfare participation rate - five times that of American whites. Yet immigration is something that absolutely needs to be judged on balance.

The debate about immigration's economic impact usually focuses on the fiscal issue - whether or not immigrants cost government more than they pay in taxes. Immigration enthusiasts, a distinct American type, have been steadily driven backward as successive Census reports have made it increasingly clear that the post-1965 immigrants are doing worse in the economy than earlier waves. Immigrants are now over 9 percent into welfare, on average, with some national-origin groups (for example, Dominicans - 28 percent into welfare) showing ominous signs of constituting a new underclass.

This issue of immigration's fiscal impact was more or less settled last fall by the leading scholar in the field, George Borjas of the University of California at San Diego, himself a Cuban immigrant. In a major article in December's Journal of Economic Literature, Mr. Borjas demonstrated that the current immigrant presence imposes a net cost on government of more than $16 billion annually.

The fiscal impact of immigration, however, is only part of the story. The real issue: Is immigration benefiting native-born Americans?

Currently, the foreign-born earn 6 percent of GDP (Gross Domestic Product). But how much do native-born Americans benefit from this immigrant presence? No one seems to have asked. Again, however, George Borjas, using a standard econometric technique, has come up with an answer (published in this spring's Journal of Economic Perspectives): perhaps 0.1 percent of GDP - maybe $7 billion. In other words, the native-born don't benefit much at all.

Nor is this result a surprise, actually, to anyone aware of the obscure "accounting for growth" literature, generated by economists trying to figure out why economies grow. The key finding: Increases in labor and capital together never explain more than half, and sometimes as little as a tenth, of economic growth.

What matters is innovation - which is why Japan has been able to outstrip the US in terms of economic growth by a factor of three since 1955, with no immigration at all.

For that matter, the US averaged a much faster growth rate in the immigrantless 1950s than in the quarter century since the 1965 Act became effective (4 percent vs. 2.5 percent)

Economies, it turns out, are very flexible in their use of labor. And trying to make an economy grow by injecting raw labor into it is like pushing on a string.

Particularly unskilled labor. Borjas estimates that Americans could be benefiting by as much as $50 billion if that immigrant work force were skilled. But the 1965 Act has caused a disastrous decline in immigrants' relative skill levels through its emphasis on "family reunification."

Indeed, however hurtful it may be to the pride of many descendants of immigrants, the plain truth may be that immigration was never as vital to America as in Statue of Liberty mythology.

Thus demographers estimate that, if there had been no immigration at all after 1790, the population of the US would still have been close to half of what it is now, because of high birth rates. There would be as many Americans as Japanese, twice as many Americans as Germans.

The innovations that drove American economic growth, such as mass production in manufacturing, were already celebrated worldwide by 1850 when mass immigration was only just getting under way.

Even two pro-immigration economists, Larry Neal and Paul Uselding, have estimated that, by 1912, immigration since 1790 had increased the US capital stock by an amount that would have taken the economy only 5 to 18 years' growth to replicate - astonishingly little, given the magnitude of the population movement involved.

So maybe immigrants didn't build America. Maybe they just climbed on the bandwagon.

But while immigration does not create much, if any, new income for native-born Americans, it still has a significant impact on the distribution of existing income within the native-born community. This is because it has retarded unskilled wage-rates on a nationwide basis, an effect economists are beginning to recognize.

Immigration is a class issue in America. Such benefits as there are accrue to the wealthy. The costs fall on the poor - another reason why the immigration debate has been so inhibited.

AND immigration is a race issue. American blacks tend to be unskilled. They are prominently represented among the unskilled native-born Americans that the 1990 Census found were fleeing California and the other immigrant-impacted states.

Black displacement is the dirty secret of American immigration history. Frederick Douglass and Booker T. Washington both complained about it in the 19th century. Conversely, the Nobel laureate economist Simon Kuznets used to argue that it was the cut-off of the last great wave of immigration legislated in 1924 that allowed blacks to move into northern industrial jobs.

Immigrants, of course, make jobs as well as take them. But what is often lost sight of is that this is true only in aggregate. Specific groups of native-born workers are obviously displaced. And there is no guarantee that the increase in aggregate output will benefit those displaced groups.

There is no economic case for current immigration policy. This does not mean, of course, that it cannot be justified. But immigration enthusiasts will have to explain their political motive for wanting to see America transformed.