Ever since the creation of the United States, we have called our country a “melting pot” where immigrants from all countries have come to take advantage of the opportunities offered by a growing nation. Although the U.S. has created a culture of its own, we continue to see many people moving into the country. Since the growth rate of the nation has slowed we must be conscious that these new immigrants may pose a financial burden to the existing residents of the U.S. The government must take a position that not only maintains its open country policy but also does not hurt the welfare of its existing citizens by admitting more immigrants.
Through the 1990’s, more immigrants have entered the U.S. compared to any other decade in history. We house 800,000 immigrants annually and also some 200,000 immigrants who enter the country illegally. Through studies of public data from the U.S. census from 1970-1990, Borjas and Trejo found that immigrant households were more likely to participate in welfare programs than native households were. In addition to this general conclusion, they observed that more recent immigrant waves are more likely to receive aid than earlier waves and that the welfare participation rate of an immigrant cohort increases over time. The existence of these conclusions provides troubling evidence that the U.S. will face a larger financial burden from the increasing immigrant population unless a solution can be reached. Are the immigrants paying their way in America?
Borjas and Hilton observed that certain ethnic groups tended to receive particular types of benefits while shunning other welfare programs. Is it possible that networks exist between ethnic groups that transmit information about certain programs to new immigrants? Studies have indicated that ethnic communities do disseminate information regarding welfare programs to potential immigrants. This has led to the higher probability that new immigrants will participate in the welfare programs that many of their ethnic partners do. Therefore, by controlling the types of welfare programs that immigrants use, we can control what programs future waves of immigrants will choose.
In order to analyze the data in the U.S. and determine the impact of immigrants on America’s economy, we must first decide how to sort the data. Borjas analyzes the numbers in terms of households with immigrant households being those in which the head is an immigrant. The year of immigration for the household is determined by the household head’s year of arrival in the U.S. In the 1980’s, the welfare gap between immigrant and native households expanded significantly. The welfare participation rate of immigrant households is on the rise. This increase in welfare participation among immigrant households can be explained by two factors. More recent waves of immigrants have a higher welfare participation rate than earlier waves and the welfare participation rate for a specific wave increases over time.
In addition, it was also found that refugee households have much higher rates of welfare participation than non-refugee households do. A reason for this is that there is a high probability that refugee households enter the welfare system because of government policies that are designed to facilitate their transition into the U.S. People who enter the U.S. as refugees or political asylees can instantly gain aid from social services and programs that legal immigrants and natives cannot access. The percentage of immigrants who are refugees has risen and could be the reason that we see the cohort trend of increased welfare participation described earlier.
Borjas finds that immigrant households are more likely to participate in every kind of welfare benefit program in comparison to native households. These include Medicaid, voucher programs, and housing assistance. However the measurement of immigrants’ welfare participation by tracking their household consumption may be misleading. The reason for this is that immigrant households are slightly larger than native households are, therefore they account for a disproportionately large fraction of the costs of welfare programs.
We have seen that the rise in immigration is likely to increase the amount of welfare supplied by the government, consequently the costs of immigration must be analyzed to determine the impact of a larger immigrant population. From his data, Borjas concluded that the dollar costs of immigrant welfare participation are rising since these households are receiving more in cash benefits each year. When breaking down the immigrant population, we see that there is an increasing gap between the public assistance received by refugee households when compared to that received by non-refugee households on welfare. From this data, we can make some interesting observations about the behavior of refugee and non-refugee households with respect to welfare. Non-refugee households assimilate into welfare while refugee households have a high probability of welfare participation throughout their entire life cycle.
Since the country will be spending more to support the large increase of immigrants, it is important to ask why so many of these people enter the welfare program. The main reason that there is a higher welfare participation rate among recent immigrants is that the education attainment of these people is lower. Also, immigrants who have the same characteristics as natives are less likely to receive welfare. Therefore it is not being an immigrant that leads to a high welfare propensity but it is the characteristics of these immigrants that makes them probable welfare participants.
The percentage of welfare households with immigrants as their head has been rising. In addition, the percentage of cash benefits distributed to these households as compared to all welfare households is also increasing. Therefore, immigrants are receiving a disproportionately high share of welfare benefits. The income earned by immigrant households is typically lower than that of other welfare households, which means that they are paying lower taxes than these other households are. The high use of cash benefit programs by immigrant households combined with their low tax payments is testament that they do not pay their way in the welfare state.
Since we are finding that immigrants are not contributing more than they are withdrawing from the system, we must ask why this is occurring. It is possible that the current welfare system reduces the incentive for immigrants to work. Conversely, the U.S. benefits from unskilled workers since the presence of cheap labor for American companies allows for lower prices for consumers. Since there are both advantages and disadvantages of immigration, the main question to answer is whether the costs of immigration outweigh the benefits.
Not only will immigrants affect the cost of welfare in the U.S., but also they will bring about problems associated with a growing population. One of these major issues is the crowding of the existing social structure, which includes roads, libraries, airports, and other public services. Because of this cost, it would make sense to be certain that each immigrant will contribute more to the society than he will cost. With this in mind, Smith analyzed the cost of immigrants from the first, second, and third generation. He found that elderly immigrants are the most costly since they are eligible to receive Medicaid and Social Security Income. However it is also important to remember that any estimation of cost involves many assumptions that may or may not be correct and there are major points illustrating both the advantages and disadvantages of a large immigrant population.
First and second generation immigrants are more costly during childhood because of high educational expenditures. Across all ages, immigrants pay the fewest taxes with the second generation paying the most and the other generations paying median amounts. As a result of this, the age distribution of immigrants can have a large impact on the fiscal budget. When looking at the effects of immigrants on a federal and state budget level, we must take into account the offspring that they produce. First generation immigrants positively contribute to federal and state budgets, however their young children have a large negative impact on these budgets, thus negating their parents’ positive contributions. Overall, the average native family pays more in taxes in order to support immigrants. On the flip side, first and third generation immigrants contribute more to social security and Medicare than they receive in benefits. The second-generation immigrants receive $3,700 more per capita per year than they pay the system. Normally second generation immigrants are very old and few of them work, leading to this disproportionate figure. The existence of so many disparities in contribution to society between different generations of immigrants shows that any data analysis of the situation must be interpreted carefully.
Borjas and Hilton established a value system for each immigrant. They calculated the present value of taxes paid by an immigrant and his descendants minus the present value of all the costs they impose. The present value accounting method gives future effects of an immigrant less importance than current effects. The results of the study indicated that young educated immigrants had the highest net present values while old and uneducated immigrants carried negative values.
If the U.S. wanted to maximize the positive fiscal impact of immigrants, it would only admit immigrants with the highest education. The largest difference between natives and immigrants lies in the amount of taxes they pay. Since immigrants have less education than natives do, they earn less and pay less in taxes than natives. At the federal level, the impact of immigrants is mostly positive whereas at the state level it is mostly negative. Therefore there are positive and negative impacts of immigrants of all ages so the situation must be analyzed carefully before measures are taken.
1) George J. Borjas, "Immigration and Welfare, 1970-1990". National Bureau of Economic Research Working Paper No. 4872, 1994.
2) George J. Borjas and Lynette Hilton, "Immigration and the Welfare State: Immigrant Participation in Means Tested Entitlement Programs", Quarterly Journal of Economics, , 1996, pp. 576-604.
3) National Research Council, "The Future Fiscal Impacts of Current Immigrants" in The New Americans: Economic, Demographic and Fiscal Effects of Immigration, edited by James P. Smith and Barry Edmonsten, National Academy Press, Washington, D.C., 1997, Chapter 7, pp. 297-354.