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BPO Journal

Sunday, November 13, 2005

The Immigration Effect

The Congressional Budget Office (CBO) said in a report released yesterday that Latin American workers, with less education and wages than U.S. natives, have lowered overall average earnings in the U.S. Employment of low-skilled workers is concentrated in construction, restaurants, food manufacturing, janitorial and maintenance work, and the textiles sector.

The report highlights that given the growth of immigrants, the "commonly cited statistics on earnings growth can be misleading if used as indicators of progress during a period in which an increasing share of the workforce is foreign born". For example, from 1994-2004, the average earnings of male high school dropouts rose 2%, adjusted for inflation, while the average earnings of college university graduates rose 12%. But, the wage gaps between different levels of education was less for U.S. born workers than for the whole population. The average wages of U.S. born school dropouts rose 5.4% during this period.

I have blogged earlier about the economic effects of such wage containment including the rise of a goldilocks economy - lower wages but cheaper goods and services. However, the social effects are equally interesting - the CBO cited U.S. natives making a greater effort to graduate from high school, and new investment in areas where immigrants are concentrated. I would also include demographic realities. Jason Riley at the Wall Street Journal says in a dated article:

"Seventy-seven million Baby Boomers will start dipping into our pay-as-you-go Social Security system by the end of this decade, a phenomenon that will double the current number of retirees by 2030 and reduce the worker-retiree ratio from three to two workers per retiree. That's an enormous burden for a labor force expected to increase by less than 8% over the same time period. To cover the shortfall, payroll taxes would need to rise by at least a third to more than 18%."

The CBO report comes as Congress debates on the permanent residency status of illegal immigrants. One-third of immigrants in the U.S. are estimated to be illegal, in the wake of which, a sound immigration policy is needed more than ever. In his farewell address, President Reagan--who used to receive a third of the Latino vote that Tom Tancredo, Lamar Smith and other myopic Republican lawmakers are so eager to concede to Democrats--spoke about a Shining City that's "teeming with people of all kinds" and has "doors open to anyone with the will and the heart to get here." The COB report promotes a similar optimistic view. As Riley concludes, "the sooner the Republicans start listening to their inner-Reagan, the better off they will be".

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