Obama’s immigration plan may give economy a little boost

President Obama’s immigration plan may help some illegal migrants find higher-paying jobs, helping spur some additional economic activity. Reuters

An estimated 11 million undocumented residents in the United States live in daily fear of deportation. This fear permeates nearly every aspect of their lives.

President Barack Obama’s executive actions related to immigration will improve the lives of some of them. Along with other announced changes, temporary relief from deportation is possible for qualifying parents of US citizens or Lawful Permanent Residents and people who were brought to the United States as children (but didn’t qualify under an earlier initiative called deferred action for childhood arrivals that delayed deportation for children that met certain criteria). This temporary relief will affect several million residents and their families.

Besides improving the immigrants’ well-being, what is the economic effect of the president’s plan? One direct impact is a likely increase in the wages of undocumented residents who qualify. When my co-author and I estimated the wage impact of the 1986 Immigration Reform and Control Act (IRCA) on those affected, we found a 6% increase in wages brought about simply because of legalization.

Wages rise because workers have access to promotions they may otherwise not have received, they are able to search for better jobs, they can get higher returns on their skills and because employer discrimination on the basis of legal status is more difficult.

No more fear

US citizens look for jobs using mostly economic criteria. If I were to look for a new job, I would look for one with a high wage, a good working environment and promotion and mobility possibilities. An undocumented worker’s priority is more likely to be a job that minimizes the risk of apprehension.

Working in a “safe” job can take precedence over economic considerations. Workers may remain in unsatisfactory jobs (with a fair employer or one that takes advantage of legal status to pay lower wages) to stay under the radar.

When the fear of deportation is removed, workers are free to move from, say, the invisible jobs at the back of the restaurant to the higher paying jobs at the front of the restaurant, they are free to look for jobs with other employers, and they are free to look for jobs that better match their skills. As a result, we expect that their wages will rise.

President Obama’s plan will allow millions of illegal immigrants to avoid deportation. Reuters

A wage rippling effect

This direct impact can ripple through the economy. While it is nearly impossible to estimate the size of indirect changes, there are several possibilities to consider. First, increased wages and productivity associated with better job matching are likely to increase wages for all workers. The Council of Economic Advisors (CEA) estimates a small increase in productivity and wages as a result of President Obama’s actions.

Further, although direct competition for jobs can occur, estimates of direct job competition are low. Low-wage workers spend nearly 100% of their income and if wages rise, spending rises as well.

Any direct job competition would likely be offset by a small increase in jobs elsewhere as a result of increased demand. CEA estimates a small increase in total output for the economy. There also may be a small price rise for specific goods or services because of the higher wages of some workers.

Bringing down poverty

President Obama’s changes could end up being a large and successful bootstrap anti-poverty program. A small increase in wages will not completely eliminate poverty but it will improve a family’s economic outlook. Not all undocumented residents are low-wage workers or poor, but it is estimated that about one-third of children in undocumented families live below the poverty line.

There are an estimated 4 million US-born children living with undocumented parents who may qualify for deportation relief. Increased wages for one or both parents will improve the lives of those children and generate all of the attendant consequences of poverty reduction for the entire family. Similarly, even a small wage increase for native workers will provide some poverty relief for their families.

The economic impacts are likely to be overwhelmingly positive, but the long-term effect of these executive actions is impossible to know in advance. We have not seen long-term negative effects of the legalization of millions of residents through IRCA. They were “brought out of the shadows,” began to work without fear of deportation and thrived.

Some of their children have been graduate students of mine, suggesting how the economic benefits can get transmitted through generations. One benefit provided through IRCA will not be gained as a result of President Obama’s actions. Most of the IRCA legalized are now US citizens – an option not available until and unless congress acts to provide a suitable comprehensive immigration reform.