Immigration and Poverty

January 22nd, 2014 at 4:31 pm

In recent posts, I’ve been examining some of the factors driving—and not driving—poverty in the US, focusing so far on growth, inequality, single parenthood, slack labor markets, and more.  In this post, I wanted to say a bit about immigration.

Not unlike the analysis of single parents and poverty, too much analysis of this question basically argues that since immigrants, especially non-citizens (i.e., not naturalized) tend to be poorer than natives, if we take them out of the mix, we’d have less poverty.  True: in 2012 (most recent data) the poverty rate for native born persons was 14.3% while that of the foreign born was 19.2%.

But that’s not much of an insight.  Since you could say the same thing about any group with below average incomes, it’s pretty much saying we’d have less poverty if only we had fewer poor people.  I suppose the anti-immigrant argument is that immigrants are not like other low-income, native-born groups because we don’t have to accept them here.  But while I agree that we and every other country should have the ability to control immigrant flows, no serious or realistic voices in this contentious debate are saying those flows should be zero.  Immigrants have been and will always be part of the American demographic landscape, so a more germane analysis–the more interesting and impactful question—is not “does immigration lead to higher poverty in a given year”—as noted, this is a simple “yes,” based on their lower average incomes.  It’s: what impact has immigration had on poverty over time and what might we expect in the future?

From the perspective of poverty, this is a question of a) the magnitude and economic status of immigrant flows, and b) “within group” trends.  Net immigration—inflows minus outflows—goes up and down over time, so the pressure on poverty rates from this dynamic is not constant.  Also, while immigrants are on average poorer then native-born persons, their impact on the trend in overall poverty is partially driven by their own poverty trends; if their higher poverty rates fall faster than natives, for example, that will put downward pressure on poverty trends.

Census data since 1993, plotted in the first figure below, show that as a share of the population, immigrant flows have been relatively flat in recent years, up a bit more than a percentage point over the last 10 years in the figure (from 11.7% in 2002 to 12.9% in 2012).  Moreover, all of that increased share has come from naturalized immigrants, and—this is important in getting at these dynamics—that group’s poverty rates are actually lower than natives.  As shown in the second figure, naturalized citizens’ poverty rates are consistently below those of the native born.  In 2012, 12.4% of naturalized immigrants were poor compared to 14.3% of native born persons.

immsh1

Source: Census Bureau

immpov1

Source: Census Bureau

So, collecting facts, we know that at a point in time, adding immigrants to the mix raises poverty rates, but over time, trends are pushing in different directions: immigrant flows have both slowed and are increasingly weighted toward those with lower poverty rates.

A simple way to quantify the impact of this push and pull on poverty is to recognize that the overall poverty rate is weighted average of immigrant and native rates, weighted by their population shares.  If we freeze those population weights in a base year, while allowing the poverty rates of both groups to evolve as they have over time, then we can compare the base-weighted simulated rate with the actual rate and assign the difference to the change in weights, i.e., the increase in immigrant shares of the population.

The results are in the table below.  The actual poverty rate in 2012 was 15%.  If we then freeze the population weights of natives and foreign born persons at their 1993 levels, and just let their poverty rates change, the simulated rate in 2012 is 14.8%, just two-tenths below the actual rate (see “Base, 1993″ line in the table).  So, by this simple (and admittedly incomplete) simulation, immigration increased poverty by two-tenths of a percentage point over 19 years.

The second line (“Base, 2000″) freezes their population weights in 2000, and again shows little impact on the trend by 2012.

The next two lines in the table tilt this re-weighting exercise toward trying to implicate non-citizens–since they have higher poverty rates–by holding only their weights constant in the base year (Non-cit, 1993 and 2000) and letting both poverty rates and population weights of the native born and foreign born naturalized citizens change each year as they did in actuality.  The simulated rate using the 1993 base is 14.7%, suggesting non-citizens added three-tenths to the poverty trend over almost two decades.  If I repeat this same he test using 2000 as the base weight, I end up with a simulated rate of 15%, suggesting no negative impact on the poverty trend from the net flow of non-citizens since then.

immshift

There are a number of reasons why this simple exercise is incomplete.  First, it ignores interactions.  For example, if increased immigrant shares are placing upward pressure on native poverty rates, say through labor market competition, this reweighting will be biased toward finding no immigrant impact.  Also, as I’ve stressed elsewhere, the official poverty rate is an inadequate metric for evaluating these questions since it doesn’t include noncash benefits and tax credits.

While I doubt they’d move the results in a big way, these are significant omissions.  While the labor economics literature shows little long-run impact of immigrant labor supply on the earnings of native-born workers, in this case, a few caveats are in order.   First, that literature does show that immigrant competition has hurt the least skilled in the native-born workforce, and second, in periods of weak labor demand, the increased supply of labor from any source will dampen wage growth.  In that regard, an attractive feature of recently proposed reform legislation builds in adjustments to the flow of low-skilled immigrants based on local labor market conditions.

Granting those caveats, and accepting the fact that, on average, immigrant households have higher poverty rates that natives households, immigration does not appear to be having much impact on poverty trends over time.  For the last decade, the increase in the foreign-born share of the population has been driven by naturalized citizens with lower poverty rates, while non-citizen flows have been relatively flat.

The fact that immigration isn’t placing much pressure on poverty rate trends suggests that if we want to reduce those trends, we’re less likely to get there by trying to reduce immigration.  A far better strategy would be to improve the earnings capacity–the skills, the availability of decent paying jobs, the work supports—available to all low-wage working families, regardless of their nativity.

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6 comments in reply to "Immigration and Poverty"

  1. Dave says:

    I would point out a possible misunderstanding in the data with regard to immigration and unemployment with low-wage workers.

    I believe the real cause here is that we just have an over abundance of immigration at the lower wages. Additional supply of labor on one end of the market can certainly cause higher unemployment and lower wages on that end.

    However, if immigration was spread evenly across market segments — meaning we allow a steady flow if immigrants in each wage range and each career segment, then you would be essentially growing supply and demand at the same time in proportion to the existing economy. Assuming those immigrants don’t have debt, it wouldn’t necessarily add to unemployment.

    Of course this is theoretical, because we’re going to have a much larger immigration at the low end for a very long time. But in theory, I think, immigration shouldn’t be a drag on the economy as long as you can give them a job a bit of credit to get going. This can’t be found in the data necessarily because it is hypothetical.


  2. Richard A. says:

    Let’s not forget that immigrants have kids while in the US, and those kids are considered as natives. We could have a selective immigration policy that weeds out those with less than high school education (or equivalent). Whatever criteria we use to let foreign workers in, they should have the same rights in the labor market as US workers.

    Labor shortages are caused by employers underpaying their employees. Rewarding such employers with the ability to import indentured labor relieves the pressure to pay higher wages.


    • smith says:

      Sorry to break the news to you, the proposed new immigration law vastly expands what you term “indentured labor”. In fact it replaces family sponsor based immigration with employer sponsor based immigration as the dominant immigration mechanism.
      Workers have zero bargaining power because entry into the country is conditional on accepting the the employers terms. If dismissed for any reason, they face deportation within three months. They are of course unable to start a business under these terms.

      There are no labor shortages (except in North Dakota). Labor shortages would cause wage increases and there are none.


  3. purple says:

    There are basically three sets of immigrants:

    The large influx from Mexico that is similar to the Irish 100 years ago and is done through family sponsorship and which has a significant non-documented cohort.

    Then there is the smaller skills-based and self-sufficient immigration that comes mostly from Asia (Self-sufficient in that they can get a green card because they pass that stringent criteria).

    Finally there is an even smaller group that are refugees from all over.

    The first and third groups are where you are going to find the poverty. The second group probably makes more than the average American.

    Immigration is pretty varied. Elon Musk is an “immigrant” as is a founder of Google. One can’t statistically compare their upbringing or status with a farmer from Michoacana.

    And there are some nasty class and status divisions between different immigrant groups.


  4. Kevin Rica says:

    Jared,

    I would suggest that the reason that “While the labor economics literature shows little long-run impact of immigrant labor supply on the earnings of native-born workers” is because labor economists are often working with a paucity of good, relevant data (substituting schooling levels for skills etc) and the use of inadequate econometric models (I realize that “inadequate econometric models” is redundant). In their jargon, their models can’t “discriminate.” (But where does Andrew Sum fall into your literature survey?)

    And even if it were true that, “While the labor economics literature shows little long-run impact of immigrant labor supply on the earnings of native-born workers” that does not mean that we won’t have to wait a couple of generations for the damage to heal. Do we have so long to wait? And don’t fall for the Card sleight of hand by distracting attention from the fact that the burden of uncontrolled immigration falls most heavily on previous immigrants.

    I recently finished what I regard as the best book on applied economics that I have EVER read. I do not exaggerate. It’s expressed in understandable prose. It doesn’t attempt to overwhelm the reader with scholarly prose or arcane theory. It presents a detailed story with facts that are organized and interpreted by solid economic theory.

    The book is Philip Martin’s “Importing Poverty: Immigration and the Changing Face of Rural America.” Martin is a Professor of Agricultural and Resource Economics at U. Cal-Davis. (Jared, the forward was written by your buddy, Ray Marshall.) The book describes how the revolving door of farm labor markets brings in immigrants to work for below-market wages for a few years until they move on to higher-paid jobs elsewhere in the economy. In effect, immigrant labor, below market rates, is just another agricultural subsidy to well-to-do owners.

    It’s not the quantity of the literature that counts; it’s the quality. Martin’s book is a standard, if not the standard.


  5. jerseycityjoan says:

    Immigration is something that changes our country forever. However, its effects take a long time to show up, as population growth increases over the decades, often long after the people who approved the higher immigration levels are gone.

    There is no field or industry in the private sector that is showing even a moderate increase in jobs for middle income workers. Where we are seeing the increase need for workers are in government and government-related fields (ie healthcare, which at this point gets more government money than nongovernment money) where more workers are needed due to higher population.

    The Senate immigration bill proposes to greatly increase legal immigration. We will end up legalizing the illegal immigrants we have one day, I am sure, and tens of millions of their overseas family members will arrive 5-10 years thereafter.

    I just do not buy any calculations that do not show that continuing to bring in very high levels of new people, year after year, is complete madness. What happened to my Democratic Party, which is supposed to be worried about American workers as its #1 priority?

    How can it be otherwise? As machines do more and more, and as they eliminate more jobs, the argument for a smaller population seems far more compelling than any arguments for a larger one. We do not get further ahead if we keep consumption high but have to support that consumption through unpredented levels of taxation and the use of government benefits.


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