How Will Obama’s Immigration Order Affect the Economy?
It’s the economy, stupid.
It’s a common refrain during election years, and it means that no matter what other issues seem important to voters, it all comes down to how the economy is doing.
Last Friday when Obama announced that he was issuing an executive order that would halt deportation of certain illegal immigrants and allow them to work, many thought that it was an obvious ploy to get more votes this election, especially from an increasingly powerful voting bloc of 50 million Latino voters.
But with household wealth declining and the stock market far from its frothy heights of 2007, would it even matter?
Actually, it might. That’s because, according to the data, Obama’s order could bolster the economy and help alleviate federal and state deficits.
Really? Yes, and we’ll explain why in a moment. But first, the basics.
Who Can Stay?
The administration’s executive order will apply to anywhere from 800,000 to 1.4 million young immigrants, who will be immune to deportation and will be allowed to work if they meet five requirements:
- They were brought to the United States before age 16
- They are now younger than 30
- They have been in the country for at least five continuous years
- They have no criminal history
- They graduated from a U.S. high school, earned a GED or served in the military
That means only immigrants who are young, have at least a high school education and are not criminals will be allowed to stay legally. So should you be scared or elated? Find out the surprising ways in which allowing these immigrants to stay could affect the economy.
Many fear that by allowing illegal immigrants to stay here and work, already scarce jobs will become even scarcer as low-wage workers snap them up. If this is true, deporting illegal immigrants would open up jobs to those who are still searching after the economic downturn. Alabama, which passed one of the toughest anti-immigration laws in the country, offers an excellent case study on what doing the opposite of Obama’s executive order–deporting illegal immigrants–does to economies.
Alabama’s Anti-Immigration Law in Affect
Alabama’s law, which went into effect in September 2011, works by making life as difficult as possible for immigrants. Provisions include:
- Police must check the immigration status of anyone they suspect might be here illegally
- Schools must ascertain whether children and their parents are legal citizens and report that information to the Board of Education if they are not
- Landlords are not legally allowed to rent to anyone who they know or should know is illegal
As a result, children have been disappearing from schools, immigrants have been fleeing the state, and if they do stay, they are afraid to leave the house or show up for work. The tough immigration law will cause an estimated loss of $10.8 billion to Alabama’s GDP, because:
- It reduces demand for goods and services provided by Alabama businesses, according to a study by economists at the Center for Business & Economic Research at the University of Alabama.
- According to Professor Samuel Addy, who led the study, the loss of an estimated 40,000 to 80,000 undocumented immigrants would result in 70,000 to 140,000 lost jobs overall because of this same loss in demand.
More poignantly, many farmers complained that they could not find workers who were capable of picking their crops, leaving tomatoes to rot in the heat and causing farmers losses in the hundreds of thousands of dollars. Native born workers who did show up quit almost immediately. It turns out they can’t stand up to the heat and strain of typical immigrant jobs.
The bottom line: Unless you work in a field that is typically occupied by immigrant workers–like agricultural work or low-paying restaurant jobs–your own job is probably safe from the effects of Obama’s executive order. In fact, you could even benefit financially, as empowered immigrants gain employment and feel safe going out and spending their money on goods and services.
Not only do immigrants not steal jobs from Americans, it seems they’re actually quite good at creating them. As we reported this week, 18% of small business owners in the U.S. are currently immigrants. More tellingly:
- Small business-owning immigrants in the restaurant and food services industry account for 37% of industry owners nationwide.
- Immigrants help rejuvenate local communities and create employment opportunities for their neighbors, according to a report by the U.S. Chamber of Commerce and the Immigration Policy Center of the American Immigration Council
- What we find especially encouraging is that nearly 30% of all immigrant business owners are women, and female immigrants are two times more likely to be small business owners than their U.S. native counterparts. Looks like we could learn from our non-native counterparts.
It’s not just small businesses that are popping up because of immigrants. According to the Partnership for a New American Economy, 18% of all Fortune 500 companies, including Google, Yahoo, Big Lots and BJ’s Wholesale Club, are the work of immigrant founders. They’re responsible for $1.7 trillion in annual revenue flowing into our economy, and employ 3.7 million workers worldwide.
This is strong evidence that, given the chance, many more immigrants would start companies, thereby creating jobs for Americans.
The bottom line: Allowing more educated immigrants to stay could help stimulate the economy by encouraging small business growth. That means more economic growth and more job opportunities.
More Taxes Paid Into the System
It may seem odd that illegal immigrants pay taxes, but by one estimate they pay $9 billion a year in Social Security taxes alone–benefits that they will likely never recoup. It’s difficult to estimate how much in overall federal taxes is paid into the system by illegal immigrants, but USA Today estimates that from 1996 to 2003, immigrants paid $90 million in federal taxes, even though they didn’t really have to. It wasn’t all one-sided, however. Illegal immigrants received $4.2 billion in refundable tax credits in 2010. They also take advantage of taxpayer-funded services ranging from roads to hospitals. Overall, experts disagree on whether illegal immigrants pay into the system as much as they get out of it.
However, under Obama’s executive order, as the estimated 800,000 to 1.4 million young workers gain eligibility for jobs that pay over the table, they will be filling out more W-4s and getting more taxes withheld. According to one case study, immigrants will also move into higher-paying jobs, and the net effect will be to pay more in taxes. The White House Office of Management and Budget says an additional 200,000 immigrants a year moving into higher-paying jobs and paying taxes would significantly lower projected budget deficits.
The bottom line: Legalizing immigrants is good for state and federal coffers.