A Critical Analysis of the Economic Impacts of Immigration

Norman Matloff
University of California at Davis

footnote: Portions of this document have appeared in the author's op-ed piece in the Los Angeles Times, September 30, 1994, and in the author's testimony before the Subcommittee on Immigration, U.S. House of Representatives, April 5, 1995. The views expressed here are those of the author, not the University of California.

July 1, 1995

Executive Summary

Economic issues arise frequently in The Great Immigration Debate. Sadly, however, rarely are these issues discussed in any depth. In addition, once unfounded or misleading statements make their way into the media, they acquire a life of their own.

This document will present a critical analysis of claims made that immigration's economic impacts are mainly beneficial. In particular, the following points will be developed:

Before begining, a note on distinctions---or, more accurately, lack of distinctions---between legal and illegal immigration is in order. Throughout this report, the term ``immigration'' without qualifiers will refer to both legal and illegal immigration. We will usually use this all-encompassing term, because although the illicit nature of illegal immigration is offensive to most people, in economic terms there is very little distinction between the two types of immigration. An American who has lost his factory job to an immigrant suffers the same economic impact, regardless of whether the immigrant is in the U.S. legally or not.

footnote: In addition, If for example Mr. X immigrates ostensibly because he longs to rejoin his son who immigrated earlier to the U.S., but Mr. X then settles in a city 1,500 miles away from the son, we must question just exactly what we mean when we say that Mr. X immigrated ``legally.'' Mr. X may be following the letter of the law, but he certainly is violating its spirit.

Most of those who come to the U.S. under the auspices of family reunification do so non-family reasons, usually economic, rather than out of a yearning to be with a sibling or other family member. Even Stanford University law Professor Bill Ong Hing, a strident immigrant advocate, notes that Japanese Americans have sponsored their relatives to immigrate at much lower rates than have Americans of Filipino, Chinese, Korean and East Indian heritage (Making and Remaking Asian America Through Immigration, 1850-1990, by Bill Ong Hing, Stanford University Press, 1993, pp.106-107). He cites Japan's strong economy as the most important factor behind this difference. Similar themes may be seen in Min Zhou's study, Chinatown (Temple University Press, 1992, pp.50-54).

Ironically, immigration under family reunification laws often dis-unifies families. Consider, for example, a hypothetical Ms. Y who lives in Taiwan, as do three of her four sons, while the fourth is an immigrant in the U.S. If the son in the U.S. sponsors Ms. Y to immigrate to the U.S., in order to ``reunify'' with him, she is at the same time separating from her other three sons in Taiwan, who may or may not emigrate later themselves.

Author's Background

Dr. Norman Matloff is a professor of computer science at the University of California at Davis, where he formerly was a professor of statistics. He is a former software developer in the Silicon Valley, and has been a statistical consultant for the Kaiser Hospital chain. He writes frequently about minority and immigration issues.

Professor Matloff was a former Chair of the Affirmative Action Committee at UC Davis, and has long been active in work supporting minorities, particularly African-Americans and Latino-Americans, in programs such as MEP, MORE and SURPRISE.

He has been close to immigrant communities all his life. He spent part of his formative years in predominantly-Latino East Lost Angeles, and his father was an immigrant from Lithuania.

Professor Matloff is particularly close to the Chinese immigrant community. His wife is an immigrant from Hong Kong, he speaks Chinese, and he and his wife are raising their daughter to be bilingual. His contacts in the Chinese immigrant community range from working-class people, e.g. via his volunteer work in San Francisco's Chinatown, to professionals, via his friends from the Silicon Valley, where his wife is a software engineer.

The Failure of Formal Economic Analyses

The basic question of immigration's impact on ``the'' economy is flawed to begin with. Instead of viewing the economy as a monolith, one should recognize that immigration's impact produces both winners and losers. For instance, an increase in the labor supply helps the owner of a Chinatown sewing factory by reducing wages, but hurts Chinese-American workers for exactly the same reason. Thus, analyses of very broad macroeconomic variables such as Gross Domestic Product are simply asking the wrong questions.

Even more importantly, most analysts, though they are fine statisticians, do not live in immigrant communities, and thus do not know how to interpret the statistics they gather. They are sitting in front of their computer terminals, number-crunching, working blindly.

For example, consider the analysis of immigrant welfare use by the Urban Institute's Michael Fix and Jeffery Passel.

footnote: Public Welfare, Spring 1994, p.10.
In their analysis of the 1990 Census data, they found that there is a high rate of welfare usage among elderly immigrants. They surmise that the reason these seniors are on welfare is that they did not work in the U.S. long enough to qualify for Social Security benefits.

Had Fix and Passel been Chinese-speaking and immersed in the Chinese immigrant community, they would have known better. SSI, a welfare program for the elderly, has become famous in China, Hong Kong, and Taiwan as ``free money.''

footnote: For example, Dr. Lester Lee, a prominent Chinese-American in the San Francisco Bay Area, has stated (Asian Week, December 16, 1994) that ``Our welfare system is really a magnet which lures [Chinese] people into this practice.'' For further details, see the author's testimony before the Subcommittee on Human Resources, U.S. House of Representatives, March 1, 1994, an expanded and updated version of which is available as a report, ``Welfare Use Among Elderly Chinese Immigrants,'' from the author.
The Chinese seniors are on SSI for this reason, not because they lack Social Security.
footnote: By contrast, the rate among Mexican immigrant seniors is far lower than among the Chinese. Of Chinese immigrants who came to California between 1980-1987, 55% were on welfare in 1990. This was nearly triple the Mexican rate of 21%.

Moreover, because these analysts do not know immigrant communities, the analysts do not know which statistics to gather, i.e. which variables to look at. This point is of the utmost importance. One of the most frequent errors made in statistical studies in general is to study a pair of variables, say X and Y, while ignoring the effect of a third variable, or ``covariate,'' Z (or, more often, many covariates). This is a very serious error. For example, omission of covariates can change the correlation between X and Y from positive to negative or vice versa, thus resulting in completely wrong conclusions about relations. Similar effects can occur in virtually every type statistical analysis.

Again, this is a particularly serious problem in immigration studies, because the analysts do not know which ``Z's'' to account for. Since omission of covariates make positive effects look negative and vice versa, virtually any statistical economic study of immigration, pro or con, is highly suspect.

Job Displacement Caused by Immigration

Even many pro-immigration economists and immigrant advocates now concede that immigration does result in a significant degree of displacement of American workers, both U.S. natives and earlier-arriving immigrants. This displacement occurs both in low-skilled and high-skilled occupations. Minorities are particularly hard hit.

Here are a few examples:

In other words, the frequently-heard adage, ``Immigrants take jobs which Americans don't want,'' simply does not jibe with reality. In those hotel jobs described above, for instance, the African-Americans had wanted those jobs and indeed had been working in them.

And it is sad that many analysts who defend the current high immigration levels concede but dismiss the adverse economic impacts of later-arriving immigrants on earlier-arriving immigrants. Those earlier-arriving immigrants are now Americans, after all, and any concerns we have that immigration reduces economic opportunities for Americans must include these newer Americans. I find it odd that many who defend immigration do not defend immigrants.

As Cornell University economist Vernon Briggs has said, the effort ``to raise disadvantaged urban black Americans out of poverty was undermined from the beginning by the flood of cheap foreign labor.''

On the other hand, cheap wages do not tell the whole story. Another major factor is networked hiring. News of job openings are spread by tight social networks among immigrants, alleviating the employer of the need to advertise. As a result, says Richard Rothstein, a columnist for the Spanish-language La Opinion, ``In the garment districts of Los Angeles, New York, or Miami, entire plants are staffed by immigrants from the same village in Mexico, El Salvador or China.'' Significantly, Rothstein adds that ``Once such powerful networks are established, policy is impotent to break them.''

footnote: Dissent, Fall 1993.

And again, networked hiring is not limited to the low end of the wage scale. Chinese immigrant engineers in the Silicon Valley are also frequently hired via Chinese social networks. At the company where Ms. Yee works, for instance, virtually all the employees in her division are Chinese immigrants, mostly from Taiwan. Most hiring is done via word of mouth, so the Chinese immigrant social network ensures that the group will continue to be Chinese, with non-Chinese not even being aware of openings.

The company may be the loser in this process. The one time that Ms. Yee did suggest a U.S. native, Mr. Smith, for a position in the group, Smith was deemed below-standard by all the Chinese who interviewed him. Ironically, the day was saved for Smith by another immigrant, this one from India, who was impressed by him and insisted that he be hired. Smith has turned out to be a star, one of the top few engineers in the Silicon Valley branch of the company.

Many Chinese immigrants in the industry will admit privately that they discriminate against non-Chinese in hiring.

Job Creation by Immigrants

Immigrant advocates claim that immigrants (legal and illegal), through consumerism, are creating many jobs for native-borns. This is a serious oversimplification.

While we must avoid replacing one oversimplification by another, the following argument at least serves as a starting point: Immigrants have the same level of workforce participation as natives, but lower per-capita incomes.

footnote: See for example ``Immigrants in California: Finding from the 1990 Census,'' Hans Johnson, California Research Bureau, 1993.
The lower incomes of the immigrants should lead to a lower level of consumerism, thus a lower level of job creation, relative to natives. In other words, immigrants are creating fewer jobs than would the same number of natives, yet they are taking as many jobs as natives would---suggesting a net job loss for natives.

The claim that immigrant consumerism creates jobs for natives is further counterindicated by the nature of immigrant enclave economies. A large proportion of immigrant consumerism is directed at immigrant-owned businesses, with the jobs thus created being taken by other immigrants, not native-borns.

Consider a hypothetical Mrs. Chan, an immigrant from Hong Kong living in suburban Milpitas in the South San Francisco Bay. On a typical day, she might go to a local Chinese shopping mall. There she might patronize a Chinese grocery, have a nice noodle lunch at a Chinese restaurant, stop by the Chinese bookstore and finally rent a Chinese movie from a video shop there.

All of the employers and employees she encounters there at the Chinese mall will be Chinese. And the mall itself is likely to have been financed by a Chinese bank, and built by a Chinese construction company. The businesses in the mall are likely to have bought their capital equipment, such as stoves, telephones, computers, and so on, from other Chinese businesses as well.

Similar statements hold for businesses not owned by immigrants. The jobs created by immigrants in those businesses are again likely to be held by other immigrants of the same ethnicity. For example, our hypothetical Mrs. Chan, upon returning home, may be called by a Chinese phone canvasser from MCI, soliciting her long-distance patronage. If Mrs. Chan then decides to make MCI her long-distance carrier, she will then be talking to Chinese operators when she needs operator assistance. MCI will make sure to hire Chinese immigrants for these positions, both because Mrs. Chan may not speak English and also because MCI believes, correctly, that Mrs. Chan will feel more comfortable with them, not just linguistically but also culturally; she will feel more at ease with a fellow immigrant.

For the same reason, Mrs. Chan bought her home through a Chinese real estate agent, as is the case with most Chinese immigrants in the South Bay. In fact, had she chosen to do so, Mrs. Chan could have bought her house in a tract built by Chinese developer Jerry Chen near the Chinese mall, where one can find streets named Peking Drive, Shanghai Circle, Hong Kong Drive and Taipei Drive. And like many Honda buyers from Hong Kong, Mrs. Chan bought her Accord at Chinese-owned Grace Honda.

Thus a substantial proportion of jobs created by immigrants are held by other immigrants, not native-borns. To be sure, this does not mean ``all'' such jobs. Our Mrs. Chan, for instance may well visit Macy's after she leaves the Chinese mall, thus providing some jobs for natives (as well as for other immigrants). And her American-born children are patronizing McDonald's, Blockbuster Video and so on.

But the point is that though some jobs for native-borns are created as a result of immigration, the argument given at the beginning of this section suggests that immigrants are creating fewer jobs than they take.

One must also take into account the jobs lost due to reduced levels of consumerism of the displaced native workers. Consider our example of Mr. Smith above. Suppose he had not been hired, and that as usual, the Chinese social network had resulted in hiring a Chinese engineer instead, say Mrs. Chan's husband. Then while Mrs. Chan's patronage of Macy's ought to be taken into account, one must also take into account the fact that Smith will NOT be making many trips to Macy's while he is unemployed.

Immigrant Entrepreneurship

Proponents of the current high levels of immigration often praise the entrepreneurial activities of immigrants. Indeed, many immigrants do run successful businesses. However, the mere existence of a business is not necessarily an economic plus, for a variety of reasons.

First of all, many immigrants are willing to continue to run a business which has low revenue or is even losing money, for a number of reasons. Since many immigrant businesses rely heavily on labor by the immigrants' family members who work without wages, the business might survive in spite of low revenues. Or the immigrant may have started the business in order to secure an investment visa, so the revenue is secondary. Or he/she may simply be hoping that the real estate value of the property will appreciate.

Second, Timothy Fong, in The First Suburban Chinatown (Temple University Press, 1994), found that in many cases a large nonimmigrant business which is providing substantial tax revenues will be replaced by several smaller immigrant businesses with collectively smaller tax revenues. (An Urban Institute study also found that immigrants have 38% lower tax compliance rates than natives.)

Effect on Consumers

One might argue that the lowering of wages resulting from immigration is at least a boon for consumers. Yet as pointed out by Rice University economist Donald Huddle, the consumers are in effect paying high prices for those goods via taxes, due to the higher rate of government services used by immigrants (see below). Thus the boon is to the employers, not consumers. Huddle notes, ``If you add in the social costs, those jobs would have a very high wage. It's basically a free ride for the employer, with the taxpayer picking up the difference.''

footnote: Fresno Bee, November 6, 1994.

For example, studies show that the average undocumented couple in Los Angeles has an income of around $10,000 per year.

footnote: See David Heer, Undocumented Mexicans in the United States, Cambridge University Press, 1990, p.155.
They will pay little or no income tax in this bracket, and perhaps a few hundred dollars in sales and other miscellaneous taxes. Yet each of their children will use at least $4,500 in state and other tax monies per year for schooling (over $6,000 if the child has limited proficiency in English). In order to survive on this low income, they will also be forced to draw Medi-Cal (California's Medicaid), AFDC and so on. And this is not even counting the Earned Income Tax Credit for which the family is eligible.

Now suppose this family's $10,000 income comes from a $5/hour job for the husband. The family is receiving services on the order of double its income, so the real wage being paid to the husband (from the point of view of the consumer who buys the goods he produces) is more like $15/hour. Thus his ``low'' wages are in reality not low at all, and the claimed boon to the consumers of the goods he produces does not exist.

Use of Welfare Services

Immigrant advocates state that ``Immigrants come here for jobs, not welfare. Also, they pay more in taxes than they receive in services.'' This is misleading in multiple senses.

First, it must be noted that in general, statistics about immigrant use of welfare tend to be (intentionally or unintentionally) distorted, in many ways.

For example, consider welfare received by immigrants via their U.S.-born children, who are U.S. citizens. This produces a serious distortion in statistical comparisons of immigrants

footnote: I am referring to both legal and illegal immigrants here. Immigrant advocates often state that the latter are ineligible for welfare, which is misleading, because the U.S.-born children of the illegals are eligible.
with native-borns, since welfare usage by those ``citizen children'' gets counted on the native side of the accounting ledger, as opposed to the immigrant side, where it should be.

Another common source of distortion arises from restricting statistics to immigrants of working age. This ignores the fact that welfare usage by elderly legal immigrants skyrocketed by 400% in ten years.

footnote: Washington Post, December 19, 1993.

For these reasons, it is more realistic to use a household basis for analysis. The 1990 Census data show that about 12% of immigrant-headed households in California contain at least one person on welfare, versus about 8% of the native-headed households.

footnote: See again ``Immigrants in California: Finding from the 1990 Census,'' Hans Johnson, California Research Bureau, 1993. Here ``immigrant'' refers to both legal and illegal immigrants; the Census data do not distinguish between the two kinds.

The claim that ``immigrants pay more in taxes than they receive in welfare'' are extremely misleading. Taxes go to much more than just welfare---schools, roads, hospitals, parks, public transportation, police and fire services, and so on---so it is wrong to compare welfare use to taxes paid.

The correct comparison is that of immigrants to native-borns: All sides agree that on a per-capita basis, immigrants are paying less in taxes than the native-borns, yet are receiving more in welfare services than are the native-borns.

footnote: See for example ``Immigrants in California: Finding from the 1990 Census,'' Hans Johnson, California Research Bureau, 1993.
That is a net loss, because it implies that the immigrants are not paying their fair share for all those other government services; their taxes are disproportionately going to welfare.

Immigration and the U.S. Computer Industry

Immigrant advocacy groups, as well as politicians who oppose immigration reform, frequently claim the nation's computer industry as one of large-scale immigration's success stories.

For example, Ron Unz, a Republican candidate for California governor in last June's primary election (and a software entrepreneur) has made his pro-immigration stance the centerpiece in his political strategy. Noting that around 30 percent of the Silicon Valley's computer professionals are foreign-born, he says the Silicon Valley's sponsorship of foreign nationals for immigration is crucial to the industry's technical edge. He also cites several successful Silicon Valley companies founded by immigrants.

Conservative social commentator Francis Fukuyama and other analysts are even specific as to which particular nationality of immigrants is key to the industry's success, noting that 20 percent (that is, roughly two-thirds of the immigrants) of the Silicon Valley's professionals are ethnic Chinese.

Yet these claims do not jibe with reality. Indeed, they are not even logical. To say that because a certain percentage of an industry has a certain ethnicity hardly justifies a claim that the industry ``depends'' on those particular ethnics. For instance, 40 percent of our nation's small motels happen to be run by immigrants from India; yet no one would leap to the conclusion that without Indians there would be no motels.

The true situation has very little to do with the industry's quest for ``technical edge.'' During the 1980s, it became famous in Asia that the computer field was a route to emigration to the U.S., so many Asians flocked to the field. American employers were happy to hire them and sponsor them for green cards, because the foreigners represented cheap, compliant labor. Falcon International, a General Dynamics subcontractor, has even brazenly referred to the foreign nationals as having ``indentured'' status.

There is no question that some immigrant computer professionals have achieved prominence in their fields. For instance, An Wang, founder of Wang Laboratories, was a major contributor to early core memory technology. Our nation benefits greatly when employers bring truly exceptional foreign talents to the U.S., and this should be continued.

But at the same time, this view should not be extrapolated to foreign-born computer professionals in general. The vast majority are of ordinary abilities, hired into positions in which they perform ordinary work.

In other words, it is incorrect to attribute the major technological advances of the industry to immigrants. This can be seen in rough form, for example, in the awards given by the Association for Computing Machinery (ACM), the nation's main computer science professional society. Of the 39 recipients of the ACM Software System Awards, only one has been an immigrant. Of the 17 recipients of the Eckert-Mauchly Award, given for advances in computer hardware, none has been an immigrant.

Furthermore, the ACM awards contradict immigration commentator Francis Fukuyama's claim that the computer industry depends particularly on ethnic Chinese. Of the 56 award winners, there are no foreign-born Chinese and only one Chinese-American. Similarly, in spite of the large numbers of Chinese foreign students who use U.S. graduate study as a route to immigration, of the 35 ACM awards for outstanding Ph.D. dissertations, none of the recipients has been of Chinese ethnicity.

footnote: Five recipients have been foreign students from India, five from Israel and Europe, and the remaining 20 have been U.S. natives.
The rote-memory approach to learning which is prevalent in Chinese and other East Asian cultures (called tian yazi, ``stuff the duck'' by the Chinese) simply is not conducive to technical innovation.
footnote: Physicst C.N. Yang at SUNY Stony Brook went into the problem in great detail in his television interview with Bill Moyers. (Available in book form in Bill Moyers: A World of Ideas, Doubleday, 1989.)

Ron Unz also likes to point out that Intel, producer of the central processing chip for ``PC-family'' computers. Unz points to the fact that one of Intel's founders, Andy Grove, is an immigrant from Hungary. Yet the Intel case does not support Unz's pro-immigration argument at all, for several reasons:

Norm Matloff
Sun Jul 9 22:22:14 PDT 1995