It's Really Two Immigrant Economies

Across the country, immigration is the subject of an impassioned and often bitter debate. At issue: Is the influx of more than a million immigrants a year a big plus for the U.S. or a net minus?

Anti-immigration forces argue that immigrants force overburdened state and local governments to pay more for welfare, schools, prisons, and health care. Indeed, California, Florida, and other states are demanding increased federal funding to pay for the cost of immigrants, while Governor Pete Wilson of California is supporting the "Save Our State" initiative, which would deny education and most health care to illegal immigrants. At the same time, advocates say immigrants add far more to the economy in the way of taxes and a productive workforce than they subtract.

But behind the cacophony, a fundamental truth about immigration is emerging from recent economic research. To the degree that there is an immigration problem, it is caused by two groups: immigrants who enter the country illegally and legal refugees uho are admitted because they come from ex-communist countries, such as Cambodia, Laos, Vietnam, and the former Soviet Union. These two groups, averaging about 300,000 to 400,000 immigrants a year, tend to have less education and lower wages than the average native-born American. And the refugees, especially, are much more likely to be on welfare than the typical American.

ON THE DOLE. By contrast, the other 700,000 to 800,000 immigrants who come in under the regular immigration system more than pull their own weight in the U.S. economy. These nonrefugee legal immigrants are generally well educated and depend little on welfare. And studies show that unlike the other two groups, they pay far more in taxes than they take in services. That means that efforts to fix the U.S. immigration system should focus on changing policies toward refugees and illegal immigrants.

Lumping all three groups together presents a distorted picture of the impact of immigrants. Take welfare: A study based on 1990 census data shows that immigrants, taken as a whole, get much more than their fair share of welfare. While only 8.4% of households in the U.S. are foreign-born, they receive 13.1% of public-assistance spending. That's according to George Borjas, an economist at the University of California at San Diego (box, page 76). In California, foreign-born households receive 32% of all cash assistance.

But look a little closer, and it turns out that most immigrants have nothing to do with welfare. The only immigrants that are heavy users of welfare are the legal refugees. Borjas found that 16.1% of refugee immigrant households are on welfare, compared with only 7.8% of non-refugee immigrants. For immigrants who arrived in the second half of the 1980s, the disparity was even greater. About 31% of recent refugee immigrant households are on welfare, far more than the 5% of nonrefugee immigrants.

The high welfare use by refugees is a legacy of the cold war. Since Fidel Castro took over Cuba in 1959, the refugee category in practice has been used almost entirely for people fleeing communism. Because of the political popularity of anticommunism, refugees have been treated very well. They're immediately eligible for welfare and a range of benefits exceeding even what native-born Americans get.

By contrast, other legal immigrants are not entitled to welfare until they have been in the country at least three to five years. Even after that, accepting public assistance makes it much more difficult to bring relatives into the country. "If you talk about welfare problems of immigration, then we need to look at integration policies for refugees," says Jeffrey Passel of the Urban Institute, who co-authored a recently released report entitled Immigration and Immigrants: Setting the Record Straight.

Another common fear about immigration is that the U.S. is being inundated by a wave of unskilled peasants from Third World countries. Once again, the raw statistics indicate reason for concern. About 41% of recent immigrants haven't completed high school, compared with 23% of native-born workers, according to the 1990 census.

But again, almost all of the "education gap" is due to legal refugees and illegal immigrants. In 1990, 75% of recent arrivals from Mexico, El Salvador, and Guatemala--the main sources of illegal aliens--did not have a high school diploma. About 46% of the immigrants from the main refugee-producing countries also had no high school degree, according to the Urban Institute study. The situation is far different, however, for the great mass of recent immigrants who are neither illegal nor refugees: About 33% have a college degree, compared with only 20% of native workers.

HOSTILITY. Perhaps the single most contentious topic in the immigration debate is whether immigrants contribute enough taxes to pay for the services they receive. The question exploded into the public eye in 1993, when Donald L. Huddle, a labor economist at Rice University, produced a report concluding that immigrants, including illegals and refugees, pay far less in taxes than they cost in government services. According to his latest calculations, the "immigrant deficit" nationally is about $42 billion.

Huddle's analysis received widespread attention, in part because it was widely disseminated by the sponsor of the study, the Carrying Capacity Network, a nonprofit group devoted to keeping down U.S. population growth. But Huddle was hammered by a wide range of economists. "I was surprised by the degree of hostility," he says.

The most direct response to Huddle came from Passel of the Urban Institute. Earlier this year, the think-tank demographer published a point-by-point rebuttal of Huddle's analysis, concluding that immigrants generate a net surplus of $27 billion, rather than the $42 billion deficit asserted by Huddle.

What accounts for this enormous difference? The main criticism of Huddle's study was that he far understated the taxes paid. For example, Huddle assumed that recent immigrants pay no Social Security, gasoline taxes, or unemployment taxes, which together account for some $28 billion in taxes a year. And according to Passel, Huddle underestimates the income of legal immigrants, which adds some $19 billion to the country's tax take.

But even Passel admits the balance sheet for illegals and refugees is not nearly so positive. By his calculations, illegal immigrants impose a net cost on government of some $2 billion, because their incomes are low and they are more likely to work in the underground economy, where they don't pay taxes. Refugees, too, have low incomes as well as high costs for welfare and other social services. Indeed, Passel is now doing a study for the Office of Management & Budget that will estimate how much states spend on prisons, education, and Medicaid for illegal immigrants.

There's little doubt that a tougher policy toward refugees and illegal immigrants could go a long way toward alleviating many of the immigration issues. But today, as in the past, the vast majority of immigrants bring skills and energy which help fuel the vitality of the U.S. economy.

      Origin  Percent of households
              on welfare, 1990
      CAMBODIA*       48.8%
      LAOS*           46.3
      DOMINICAN REP.  27.9
      VIETNAM*        25.8
      SOVIET UNION*   16.3
      CUBA*           16.0
      MEXICO          11.3
      CHINA           10.4
      HAITI            9.1
      KOREA            8.1
      JAMAICA          7.5
      COLOMBIA         7.5
      EL SALVADOR      7.3
      INDIA            3.4
      TAIWAN           3.3
      LEGAL REFUGEES  16.1%
      IMMIGRANTS       7.8%
      NATIVES          7.4%
      *Major sources of legal refugees
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