How Does Illegal Immigration Impact the American Economy?

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As a means of justifying the draconian immigration policies adopted by his administration, United States President Donald Trump has often claimed that illegal immigration hurts the American economy. Even though an astonishing amount of statements made by Trump are factually incorrect, there is some truth in his assertion about the economic impact of illegal immigration; some aspects, specifically enforcement, detention and due process, strain the federal budget funded by American taxpayers, many of whom happen to be undocumented immigrants themselves.

The most common argument made against illegal immigrants is that they negatively impact wages when they agree to undercut their own compensation, thereby making American workers less appealing to employers. Another argument is that undocumented immigrants make use of social resources such as healthcare and public schools, thereby straining state and federal budgets and increasing the deficit.

The two aforementioned arguments are valid to a certain extent, but they are mostly effective when discussed as stories, which means that they are ideal for spinning into political rhetoric. In other words, it is easy to say “they take our jobs, don’t pay taxes and use up our welfare resources.” The problem with this flawed political speech is that it does not conform to macroeconomic reality.

Research has proven that undocumented workers do not take the jobs of skilled workers unless they become skilled themselves; however, they have taken up to 7 percent of positions that are normally filled by Americans without high school education. A longitudinal research study conducted by the University of California from 1990 to 2007 shows that illegal immigration has actually resulted in higher wages for skilled American workers.

As for income taxation, a surprising percentage of undocumented immigrants obtain tax identification numbers for income withholding purposes. A TIN is not the same as a Social Security number, and since it is not possible to receive welfare benefits with TINs instead of SSNs, the argument about undocumented foreigners abusing the system is moot. In fact, the payroll taxes collected through TINs are used to strengthen Social Security, and yet immigrants cannot access these benefits unless they become legal residents.

Notwithstanding the information above, some welfare benefits do end up being granted to foreigners who do not have legal status in the U.S. In 2013, the Economic Policy Institute and the chief actuary of the Social Security Administration determined that undocumented immigrants receive about $1 billion in benefits, but they also contributed about $15 billion through their TINs.

As for the cost of enforcing immigration policy and protecting the borders, the impact to the economy is undeniable. The border wall promised by President Trump, for example, could cost up to $70 billion to build and about $150 million in annual maintenance. As for the budget that the Immigration and Customs Enforcement agency is requesting for 2019, American taxpayers can expect to contribute $8.8 billion. In 2016, a Congressional inquiry determined that each deportation costs about $10,084, and this does not include court costs when immigrants file lawsuits and appeals.

In the end, the macroeconomic impact of illegal immigration in the U.S. is actually positive; the negative impact can be found at the microeconomic level, particularly when looking at the cost of enforcement.