Legalising US Immigrants - can this have a positive impact on the economy?

Once an afterthought, the issue of immigration reform is now a top priority in the USA. Following President Obama’s re-election and his garnering 71 percent of the Latino vote, we can expect fulfilment of the promise which was set out to the De Moines Register by Obama days before the election: immigration reform will be the second priority policy objective of this term, only succeeded by deficit reduction.

Obama’s reasons for failure to tackle immigration reform in his first term are debateable, but the issue outstanding is a contentious one, involving the potential legalisation of 11 million unauthorised immigrants residing in the USA. Many are of the opinion that widespread legalisation will have a negative impact on US employment and the economy.

On the contrary, most research indicates that immigration – legal and illegal – benefits the economy and global development. Legalisation also provides opportunity to prosper for those who would otherwise be living in poverty.

Some of this research is based on the 1986 Immigration Reform and Control Act, which legalised 2.7 million immigrants. Based on the valuable data collected which indicates how legalisation affects income and poverty among immigrants, it was concluded across the political spectrum that generally an increase in legalisation increases immigrants’ wages by around 5%.

A study conducted by economists at the University of Michigan also found a trend between legalisation and increased wage – concluding a 6% increase from the 1986 authorisation. It must be recognised that whilst legalisation alone will not lift every US immigrant out of poverty, it would encourage them to emerge from residing in the shadows of the economy in order to pursue higher education and career opportunities.

The researchers at the University of Michigan also identified a “wage penalty” trend for unauthorised immigrants, who in order to maintain a low profile would undertake employment involving little investment or training, and requiring a minimal experience profile. This, in turn, would inhibit investment into the future for unauthorised immigrants – creating a perpetual cycle of immigrant employees shrinking away from opportunity due to risk of apprehension, and broadening the gap in wage differences.

This year, the libertarian Cato Institute undertook a study which reviewed the impacts of legalisation through nearly two decades, and exposing an even larger wage increase over this time period ranging from 6 to 13 percent owing to immigrant authorisation.

Although a rise in legalised US employees would provide labour market competitors for US born citizens seeking work, legalisation is also likely to encourage employer compliance with certain areas such as health and safety, opening up certain areas of the market to US born workers.