Wednesday, June 19, 2013

CBO Estimates Immigration Reform Will Boost Economic Growth, Raise Middle Class Wages

Yesterday the Congressional Budget Office scored the immigration reform currently under debate in the Senate. They estimate that in the long run, immigration reform would lead to a one-time increase in GNP of between 4.1 and 4.6 percent (for reasons somewhat beyond me, the report prefers using GNP to GDP). Because reform would lead to a larger US populaton, per capita GNP would increase by somewhere between 0.2 and 0.6%.

In addition, the CBO tried to examine the impact of immigration reform on income distribution. Due to the fact that immigration reform will produce a disproportionate share of extremely highly educated and extremely poorly educated new residents, they estimate that wages would rise slightly for those with incomes between the 20th and 80th percentiles of the income distribution, but they would fall slightly for those with very high and very low incomes. So if you're earning the median household income for a middle-aged household of roughly $65000, immigration reform would raise your real wages by somewhere between $100 and $500, with the exact amount dependent on luck as well as how the immigration reform impacts the wage distribution. An important caveat is that immigration to the US results in a tremendous wage increase for the immigrants themselves, and, in the long run, a monumental increase in potential living standards for their children. In sum, reform has a small positive impact for current residents, and a tremendous positive impact for new residents.

This is a more useful headline than the one that filled my RSS Reader yesterday, which trumpeted the deficit-reducing nature of immigration reform. That may be valuable for political purposes given our deficit-obsessed elites, but not really useful information in a larger sense. The United States government exists to serve its citizens; it runs a deficit in order to provide them with services. As long as bondholders are willing to lend the government money at fantastically low interest rates, there's no real reason to think much about deficit reduction at all.

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