Findings We Never Found

George J. Borjas and Richard B. Freeman

The New York Times
Page 29
(Copyright 1997 The New York Times, Inc.)

Last May, the National Academy of Sciences released a long-awaited report on the economic impact of immigration.

As members of the panel that wrote the report, we have been distressed to hear public officials repeatedly misrepresent its findings as the immigration debate has evolved in the last seven months.

These officials have distorted the study's main point: that immigration has positive and negative effects on current citizens, effects that must be weighed in any assessment of whether to increase or decrease immigration levels. Instead, these officials make it seem as if immigration is a free lunch for Americans.

Most recently, Sen. Spencer Abraham of Michigan, chairman of the Senate subcommittee on immigration, quoted James Smith, the Rand Corp. economist who led the academy panel, as saying that immigration raises total gross national product by $200 billion a year.

Abraham then reasoned that immigrants would add $2 trillion to the GNP - the value of the output of goods and services - in the 1990s.

But these numbers appear nowhere in the academy's report. Instead, the report concluded that immigration raised the income of the native born by $1 billion to $10 billion a year - a minuscule amount in the $8 trillion American economy.

What explains this discrepancy? Numerical errors? Differences in economic models? No, Smith and Abraham simply failed to mention that the bulk of the increase in the GNP goes to the immigrants themselves as wages and salaries, not to the native born. To take the point to its absurdity, our GNP would skyrocket if we let in the entire world - but most Americans would surely lose.

Some Americans lose from immigration, particularly professionals in fields where immigration is high and the less educated who compete with less-skilled immigrants. Other Americans gain, mainly owners of businesses that hire immigrants and consumers of what such businesses produce. Overall, there is a modest income gain, but it is no bonanza for natives.

The academy also presented a model of immigration's effects on taxes paid by current residents. The model showed that immigrants are a burden for about 20 years. (In California, each native household now pays an additional $1,200 a year because of immigration.)

But after 20 years, immigrants provide a net fiscal benefit, and over the long run - 300 years! - each person admitted and his or her descendants pay $80,000 more in taxes than they cost us.

The 20-year tax burden turns into a plus because the model assumes that the federal government stabilizes the ratio of debt to gross domestic product in 2016, using a tax increase or a reduction in social spending. Immigration is then beneficial because we can spread the pain of higher taxes over a larger population.

But who knows if that model will hold up? The economy grew its way out of the budget deficit in the 1990s. If the expansion continues, we can grow our way to a fiscal surplus. Immigration would then have an adverse effect on natives because they would have to share the savings generated by economic growth with more people.

In short, any assessment of immigration must take into account the fiscal impact, but the long-term fiscal effects hinge on questionable economic assumptions. There is no such uncertainty about the short-term costs.

Overall, the academy report is not a one-sided pro-immigration tract. Immigration creates winners and losers. Low-income workers and taxpayers in immigrant states lose; those who employ immigrants or use immigrant services win, as do the immigrants themselves.

The critical issue is how much we care about the well-being of immigrants compared with that of the Americans who win and the Americans who lose.

George J. Borjas and Richard B. Freeman are economists and professors at Harvard University.