How Unskilled Immigrants Hurt Our Economy

Steven Malanga For City Journal (Part V of VI)

A handful of industries get low-cost labor, and the taxpayers foot the bill.

Almost certainly, immigrants’ participation in our social welfare programs will increase over time, because so many are destined to struggle in our workforce. Despite our cherished view of immigrants as rapidly climbing the economic ladder, more and more of the new arrivals and their children face a lifetime of economic disadvantage, because they arrive here with low levels of education and with few work skills—shortcomings not easily overcome. Mexican immigrants, who are up to six times more likely to be high school dropouts than native-born Americans, not only earn substantially less than the native-born median, but the wage gap persists for decades after they’ve arrived. A study of the 2000 census data, for instance, shows that the cohort of Mexican immigrants between 25 and 34 who entered the United States in the late 1970s were earning 40 to 50 percent less than similarly aged native-born Americans in 1980, but 20 years later they had fallen even further behind their native-born counterparts. Today’s Mexican immigrants between 25 and 34 have an even larger wage gap relative to the native-born population. Adjusting for other socioeconomic factors, Harvard’s Borjas and Katz estimate that virtually this entire wage gap is attributable to low levels of education.

Meanwhile, because their parents start off so far behind, the American-born children of Mexican immigrants also make slow progress. First-generation adult Americans of Mexican descent studied in the 2000 census, for instance, earned 14 percent less than native-born Americans. By contrast, first-generation Portuguese Americans earned slightly more than the average native-born worker—a reminder of how quickly immigrants once succeeded in America and how some still do. But Mexico increasingly dominates our immigration flows, accounting for 43 percent of the growth of our foreign-born population in the 1990s.

One reason some ethnic groups make up so little ground concerns the transmission of what economists call “ethnic capital,” or what we might call the influence of culture. More than previous generations, immigrants today tend to live concentrated in ethnic enclaves, and their children find their role models among their own group. Thus the children of today’s Mexican immigrants are likely to live in a neighborhood where about 60 percent of men dropped out of high school and now do low-wage work, and where less than half of the population speak English fluently, which might explain why high school dropout rates among Americans of Mexican ancestry are two and a half times higher than dropout rates for all other native-born Americans, and why first-generation Mexican Americans do not move up the economic ladder nearly as quickly as the children of other immigrant groups.

In sharp contrast is the cultural capital transmitted by Asian immigrants to children growing up in predominantly Asian-American neighborhoods. More than 75 percent of Chinese immigrants and 98 percent of South Asian immigrants to the U.S. speak English fluently, while a mid-1990s study of immigrant households in California found that 37 percent of Asian immigrants were college graduates, compared with only 3.4 percent of Mexican immigrants. Thus, even an Asian-American child whose parents are high school dropouts is more likely to grow up in an environment that encourages him to stay in school and learn to speak English well, attributes that will serve him well in the job market. Not surprisingly, several studies have shown that Asian immigrants and their children earn substantially more than Mexican immigrants and their children.

Given these realities, several of the major immigration reforms now under consideration simply don’t make economic sense—especially the guest-worker program favored by President Bush and the U.S. Senate. Careful economic research tells us that there is no significant shortfall of workers in essential American industries, desperately needing supplement from a massive guest-worker program. Those few industries now relying on cheap labor must focus more quickly on mechanization where possible. Meanwhile, the cost of paying legal workers already here a bit more to entice them to do such low-wage work as is needed will have a minimal impact on our economy.

The potential woes of a guest-worker program, moreover, far overshadow any economic benefit, given what we know about the long, troubled history of temporary-worker programs in developed countries. They have never stemmed illegal immigration, and the guest workers inevitably become permanent residents, competing with the native-born and forcing down wages. Our last guest-worker program with Mexico, begun during World War II to boost wartime manpower, grew larger in the postwar era, because employers who liked the cheap labor lobbied hard to keep it. By the mid-1950s, the number of guest workers reached seven times the annual limit during the war itself, while illegal immigration doubled, as the availability of cheap labor prompted employers to search for ever more of it rather than invest in mechanization or other productivity gains.

The economic and cultural consequences of guest-worker programs have been devastating in Europe, and we risk similar problems. When post–World War II Germany permitted its manufacturers to import workers from Turkey to man the assembly lines, industry’s investment in productivity declined relative to such countries as Japan, which lacked ready access to cheap labor. When Germany finally ended the guest-worker program once it became economically unviable, most of the guest workers stayed on, having attained permanent-resident status. Since then, the descendants of these workers have been chronically underemployed and now have a crime rate double that of German youth.

France has suffered similar consequences. In the post–World War II boom, when French unemployment was under 2 percent, the country imported an industrial labor force from its colonies; by the time France’s industrial jobs began evaporating in the 1980s, these guest workers and their children numbered in the millions, and most had made little economic progress. They now inhabit the vast housing projects, or cités, that ring Paris—and that have recently been the scene of chronic rioting. Like Germany, France thought it was importing a labor force, but it wound up introducing a new underclass.

“Importing labor is far more complicated than importing other factors of production, such as commodities,” write University of California at Davis prof Philip Martin, an expert on guest-worker programs, and Michael Teitelbaum, a former member of the U.S. Commission on Immigration Reform. “Migration involves human beings, with their own beliefs, politics, cultures, languages, loves, hates, histories, and families.”