TOPICS > Politics

Weighing Economic Pros and Cons of Legalizing Undocumented Workers

June 5, 2013 at 12:00 AM EDT
How will legalizing undocumented workers in the United States impact the economy, productivity and the wealth and wages of all American workers? In a continuing series, Inside Immigration Reform, Ray Suarez gets debate from Robert Lynch of the Center for American Progress and the Heritage Foundation's Robert Rector.
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GWEN IFILL: Next, we examine the economic impact of legalizing the country’s undocumented population. It’s part of our ongoing series, “Inside Immigration Reform.”

Ray Suarez has that conversation.

RAY SUAREZ: The immigration reform bill under consideration in the Senate would provide a pathway to citizenship for millions of undocumented immigrants currently living in the U.S. And depending on who is crunching the numbers, there are contrasting views on what immigration reform would cost, and whether it would help or hurt the U.S. economy.

The Center for American Progress, a left-leaning think tank, estimates that legalizing the undocumented could boost the country’s gross domestic product anywhere from $832 billion dollars to $1.4 trillion dollars, depending on the time frame for granting citizenship by creating new jobs and raising incomes and tax revenue. The conservative Heritage Foundation, on the other hand, calculates that immigrants gaining legal status would receive $9.4 trillion dollars in government benefits and services over their lifetimes, while paying just $3.1 trillion dollars in taxes, resulting in a net cost of $6.3 trillion dollars.

We’re joined now by the authors of both studies.

Robert Lynch is a professor of economics at Washington College and a visiting senior fellow at the Center for American Progress. And Robert Rector is a senior research fellow in domestic policy at the Heritage Foundation.

And, Robert Rector, if we took the millions who are already in the U.S. out of status and made a large number of them legal residents, what are the major costs involved?

ROBERT RECTOR, Heritage Foundation: Well, one of the things that the bill does, when you grant legalization, is you’re granting 10 to 11 million people who are currently legal access to a wide range of government benefits, virtually all of them, such as Obamacare, over 80 different means-tested welfare programs, such as Medicaid and food stamps, and ultimately to Social Security and Medicare.

The 11 million immigrants have an average education level of 10th grade, so they pay very little and will pay very little in taxes. They are inherently net beneficiaries. And, therefore, when you grant them access to all of these programs, it’s extremely expensive to other taxpayers in the United States.

RAY SUAREZ: Robert Lynch, do you agree that there are a lot of costs involved with bringing people into a legal framework?

ROBERT LYNCH, Center for American Progress: There are costs, but the benefits far exceed the costs.

What we know is that every time in the past when we have legalized immigrants who are here undocumented, we have seen tremendous increases in their productivity. They start producing much more, earning much more, paying much more in taxes. They pay much more in taxes not just because they earn more income, but once they become legalized, become aboveground and they start declaring their income, so we also see a tremendous increase in the declared income from these individuals, so that, overall, the benefits far exceed the costs.

RAY SUAREZ: Robert Rector, would you agree with Robert Lynch that once you bring people into the legitimate economy, not only do they pay more taxes, but their economic possibilities increase?

ROBERT RECTOR: Absolutely.

And we looked at the last amnesty that was done in 1986 very carefully, and we modeled into our estimate tax increases that come from — and income increases that come from legalization. But we find those absolutely dwarfed by access to all of these different government spending programs.

Just to give an example, we believe in the first years of the bill, that tax payments by the illegal immigrants will go up $15 to $20 billion dollars a year, but that they will also get the earned income tax credit, which costs about $12 billion dollars a year. And then later on, they get vast — many, many more programs.

So there will be tax revenue increases. There will be productivity increases. So, I agree with that completely. But those are dwarfed by a magnitude of about 4-1 by all the benefits and services and so forth that they will be able to access over their lifetimes.

RAY SUAREZ: What about that point, that there will be increased revenue …

ROBERT LYNCH: Right.

RAY SUAREZ: … clearly, because now they will in the legitimate economy, but also a lot more costs per individual?

ROBERT LYNCH: Right.

Well, I think, as everyone who has looked at this study has concluded, it has a series of methodological errors, and one he just mentioned right now. He says that we — the Heritage study does include increases in productivity, but they include a five percent increase in productivity.

The last legalization he looked at, 1986, had a 15 percent increase in productivity when they went just from illegal to legal. And subsequent studies have shown another 10 percent to 12 percent increase in productivity when they went from legal to citizen. So, in fact, you see about a 25 percent increase in productivity. His is only five.

And, therefore, he grossly understates how much extra revenue comes into the government. And, at the very same time, he overstates how much in public services those undocumented immigrants will take. Both those skew his numbers in a way that grossly inflate the cost of immigration reform.

RAY SUAREZ: But bringing people out of the black economy into the light is such a complicated thing.

And I’m wondering, Robert Lynch, if you include all the employers who have been making higher profits because they have been exploiting illegal workers. They don’t pay disability insurance. They don’t pay unemployment insurance. They don’t pay many payroll taxes. They don’t pay overtime in many cases.

ROBERT LYNCH: Yes, absolutely.

RAY SUAREZ: Do things like that go into your calculation?

ROBERT LYNCH: Yes, absolutely.

So, what happens is that when workers’ productivity increases 25 percent, you see a couple of things that happen simultaneously. On the one hand, you see a tremendous increase in the production of goods and services, expanding the American economy.

At the same time, the formerly undocumented are earning so much more, they’re spending much more. And that houses a demand effect where you see business sales increases. When their sales increase, they produce more and they hire more workers. And you see the jobs for Americans go up and the incomes of Americans as well.

So, you have to take into consideration not just what happens to the undocumented, but what also happens to native Americans, both employers and American workers.

RAY SUAREZ: Does it become more expensive to do business if there’s this big change in the nature of the American work force?

ROBERT RECTOR: Well, I don’t think it will be because the bill also imports large numbers of low-skill immigrants, in addition to those that are currently here.

So I actually think it will have an effect of pushing down the wages of the least-skilled American workers. I believe that the illegal immigrants, up to now, have reduced the average wage of a low-skill American worker by about $2,600 dollars a year.

But let me just say, how do I estimate how much they will cost? It’s a fairly simple method. I take each illegal immigrant, and then I compare him to a legal immigrant who has the same education level and the same age and so forth. And I say once you grant the illegal immigrant amnesty status and access to all these programs, which they do eventually get under the bill, then the receipt of benefits of the amnesty recipient will be very similar to those of a current legal immigrant who is of the same socioeconomic status.

And, once you do that, what you see is the expenditures on these individuals are simply going to skyrocket. Currently, they cost the taxpayers on average overall about $50 billion dollars a year, benefits minus taxes. I think, once you legalize them, that jumps up to around $160 billion dollars a year, based on the benefits that are currently received by similar legal immigrants.

RAY SUAREZ: Robert Lynch, it sounds like you have a fundamentally different view of not only the today of those workers, but their futures and the futures of their children.

ROBERT LYNCH: Right. Right.

This is one of the big problems with his analysis, is that it’s completely static in nature. What we know from following millions of examples of people who have gone from being undocumented to legal citizens is that, once they acquire that guarantee of permanent residency here in the United States, they start to invest much more heavily in their English-language ability and their education and training.

And so we see dramatic improvements in their productivity and rising levels of education and skill levels, which result in much higher incomes. His analysis considers that all static; that never happens.

We also see people moving into jobs where they’re more productive. We also see, once they become legalized, that the formerly undocumented can now get access to permits and licenses and credits, and they start businesses. And we know that newly legalized immigrants create new businesses and hire more workers at higher rates than native-born Americans.

And so any immigration reform that unleashes this entrepreneurial potential is going to create a bigger economy, more jobs, and a better government system, more — that is fewer, lower deficits than we have right now.

RAY SUAREZ: Well, I’m sure we will hear both these arguments on the floor of the House and Senate in the coming weeks.

Gentlemen, thank you both very much.

ROBERT LYNCH: Thank you.

ROBERT RECTOR: Thank you.

GWEN IFILL: We examine the different claims about the economic impact of immigration reform online, where you can add your voice to the debate. Find that and the other conversations in the series on our Immigration page.