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CBO Report Says Immigration Bill Benefits the Middle Class (don’t listen to those claiming otherwise)

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CBO Report Says Immigration Bill Benefits the Middle Class (don’t listen to those claiming otherwise)

The recent Senate immigration bill, S. 744, passed for a reason: it’s good policy that conservatives, moderates, and liberals can all get behind. According to a recent CBO report, it will not only raise GDP but also benefit a broad swath of workers.

Unfortunately, even though the CBO report is clear about the overall benefits to the American economy and the middle class in particular, the effects of such a far-reaching economic policy are complicated enough that some people manage to misinterpret them. For example, in a recent article in The Weekly Standard Jay Cost argues that the immigration bill would cause “a decade of economic displacement.” He cites the CBO study as evidence, noting the report’s claim that “workers’ output, on average, would be lower for a time. That decline would reduce average wages relative to those under current law.”

Let’s go over the report’s major points. In the process we will see why focusing on this excerpt, and ignoring the rest of the report’s findings, is  misleading.

The first point the report makes is that there would be a significant increase in the size of the U.S. labor force, with most of the increase occurring in the low-wage workforce and a much smaller increase in the high-wage workforce. Almost none of the expected immigration is expected to compete for middle-wage work.

Second, the report predicts a decline in the average wage through 2025. This is the main claim that Cost cites to argue that immigration will not benefit middle-class workers—but this is not at all what the CBO report is saying. A reduced average wage is not the same thing as a declining middle class, because most of the new entrants into the labor force will be at the lower end of the income spectrum. That is, the average wage for everyone who was a citizen in 2013 could increase in the future, even while the average wage for everyone who was a citizen in 2013 plus new citizens who immigrated decreased over the same period. In effect, we are inserting a large amount of low-wage immigrant workers into the economy, which brings the average wage down while real wages of current citizens still increase. The “decrease in the average wage” claim neglects to mention that the populations being compared with or without the bill would be very different. In addition, the average wage is still projected to increase relative to current law after 2025.

The CBO report actually states that the immigration reform bill would help middle-class wages the most. Middle-wage jobs would benefit relative to high- and low-wage jobs, because most of the immigrant workers would enter high- or low-wage industries, lowering wages in those sectors modestly but leaving middle-wage jobs unaffected. This may seem like a specious claim—what good is a relative increase if it’s only due to decreases in other categories—but in fact the decreasing costs of other sectors make relative gains into real ones, because the costs of goods and services produced by low- and high-wage workers go down relative to what they would be with no immigration bill. Given our current shortage of STEM workers, the provisions for increased high-skill immigration would also slightly slow the projected increases in high-skill wages, bringing down income inequality.

The report also notes that extending citizenship rights to new immigrants as well as current illegal immigrants should exert upward wage pressure on low-wage work (despite an increase in the supply of low-wage workers that would tend to decrease the wage). The end effect here is hard to discern in advance, but there is reason to hope that low wage workers would see wage increases (in addition to significantly better working conditions). At the very least the country should see an increase in the coverage of the minimum wage, and studies have shown that minimum wages can exert upward pressure on wages through the rest of the economy.

The CBO report also argues that increased immigration would increase investment and total factor productivity, although many of the gains will accrue gradually, through 2020 and beyond. This increase is important for raising overall standards of living and U.S. competitiveness.

The report does expect increased immigration to slightly increase unemployment as the labor markets adjust to having new workers, but the effect is relatively small, only 0.1 percentage point over the next 5 years. After 7 years there is no projected difference.

Overall, the CBO report finds that S. 744 will have significant benefits for the overall U.S. economy, for middle-income workers, and for many lower-income workers as well. Don’t listen to those who cherry-pick evidence to claim the immigration bill will not be good for America.

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About the author

Ben Miller is ITIF’s Economic Growth Policy Analyst, specializing in the connection between technology, innovation, and everything else in the macroeconomy.