A more constructive immigration policy...would aim to make the U.S. economy more productive while limiting immigration costs and keeping enforcement spending contained.

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Illegal immigration's overall impact on the U.S. economy is negligible. But it does offer clear benefits for employers and unauthorized immigrants while yielding slightly depressed wages for low-skilled native workers, according to a report by a University of California, San Diego economist released by the Migration Policy Institute (MPI).

The report, The Economics and Policy of Illegal Immigration in the United States , authored by UC-San Diego Professor of Economics Gordon Hanson, examines the effect of illegal immigration on the economy.

Unauthorized workers gain the most with very substantial income gains after migrating. (A young urban male in Mexico who has completed nine years of education can earn 2.5 times as much annually in the United States, even after controlling for cost-of-living differences.)

U.S. employers also gain from lower labor costs and the ability to use their land, capital and technology more productively. Small losses are felt, however, by native-born low-skilled workers who compete with unauthorized immigrants.

"Illegal immigration produces a tiny net gain to the U.S. economy after subtracting U.S.-born workers' losses from U.S. employers' gains," said Hanson, who is Director of the Center on Pacific Economies at UC-San Diego. "And if we account for the small fiscal burden that unauthorized immigrants impose, the overall economic benefit is close enough to zero to be essentially a wash."

But policy change can convert immigration flows from illegal to legal, increasing the positive contribution that low-skilled workers could make to the U.S. economy.

Employers would likely prefer authorized workers, the report argues, if the immigration system more effectively met their needs for legal low-skilled workers. Illegal immigration supplies needed workers; the current legal immigration system cannot. Legal flows for low-skilled workers are both very small and relatively unresponsive to economic conditions. Green cards are almost entirely unavailable to low-skilled workers. The two main low-skilled temporary visa programs (H-2A and H-2B) vary little over the economic cycle.

Only roughly 150,000 workers are in the United States legally at any one time on temporary low-skilled visas--a fraction compared to the 8.3 million unauthorized immigrants working in the United States.

Unauthorized immigrants provide a ready source of manpower in low-end sectors at a time when the low-skilled native-born U.S. labor force has declined dramatically. Over the last 50 years, the United States has significantly raised the education level of its adult population: Half of U.S.-born working-age adults in 1960 lacked a high school diploma compared to just 8 percent now, the report notes.

A more constructive immigration policy, Hanson suggests, would aim to make the U.S. economy more productive while limiting immigration costs and keeping enforcement spending contained. He recommends a policy redesign that provides sufficient legal channels, fluctuating with economic needs, for entry of low-skilled workers while maintaining reasonable immigration enforcement.

"The report offers an interesting reminder that notwithstanding all of the public focus and controversy surrounding illegal immigration, the fate of the U.S. economy is not riding on the country's policy toward unauthorized workers," said MPI Senior Vice President Michael Fix. "However, as policymakers contemplate immigration reform, they should be mindful of creating a system that provides the workers necessary for the U.S. economy in a legal fashion that flexibly tracks labor market needs."

Source: Press release Migration Policy Institute, 12/2/2009. Contact: Michelle Mittelstadt. No copyright restrictions.

To Download the Report: The Economics and Policy of Illegal Immigration in the United States, by Gordon H. Hanson.