The High Cost of Low-Skilled Immigrant Labor

Mike Scruggs

      The late and highly renowned free market economist Milton Friedman once made the obvious point that a welfare state and open-door immigration are not fiscally compatible.

     In case you haven't noticed, the United States has become a welfare state. According to a recent Heritage Foundation study, the cost of government services and benefits rendered to the average household is $1,158 MORE per year than taxes paid. This doesn't count things like national defense, only the more direct services and benefits to households. Taxes, in this study, included all federal, state, and local taxes on individual income, property, and sales taxed purchases.

    The average household headed by an illegal immigrant is rendered services and benefits of $14,387 MORE per year than taxes paid.

     The huge deficit of benefits and services versus taxes paid is related to skill and educational levels. Fifty-one percent of illegal immigrant household heads do not have a high school diploma. The cost of government services and benefits to them is $20,485 MORE per year than taxes paid. The 10 percent that have college degrees actually pay $5,115 more in taxes than they receive in benefits.

     How about legal immigrants without a high school degree? Their cost benefit deficit is even larger than illegal immigrants, running a net tax benefit deficit of $36,993!

Why is this?  They are entitled to many more benefits including especially social security retirement, but pay only about $4,400 more in annual taxes. Legal immigrants with a college degree pay $24,529 more in taxes than benefits received.

     Importing unskilled workers with little education is not going to save social security. It will bankrupt social security and the whole federal government and many state and local governments sooner.

     Giving illegal immigrants amnesty would raise their average annual tax benefit deficit by 55 percent to $22,335.  Entitlements would soar, but taxes paid would by no means cover the additional entitlements, especially social security. Hence we cannot  afford most illegal immigrants, and we certainly cannot afford to give them the additional entitlements that would go with amnesty.

     The most important reason the United States is currently home to 12 million illegal immigrants is that is that our immigration laws are minimally enforced, and employers can pay illegal immigrant workers considerably less compensation than similarly skilled American workers. This has been highly profitable for many employers, and it is a clear economic improvement for the illegal immigrant workers, who are also able to take advantage of many healthcare and welfare benefits and other government services they do not enjoy in their home countries. This situation has been so profitable to many employers that they continually lobby Congress to legalize their illegal employees and bring millions more legal immigrant workers and guest workers into the country. Hence illegal immigration is averaging about 500,000 per year, and legal immigration of about one million per year is more than three times the 300,000 per year average prior to the 1986 amnesty.

     Inadequate border security is not really the main illegal immigration problem. More than 40 percent of illegal immigrants do not sneak across the border; they get a tourist, student, or temporary work visa and then go illegal by violating its terms. The big job magnet for illegal immigrant workers is higher wages, many government benefits regardless of being illegal, and minimal immigration enforcement at the employer level.

They don't have to “live in the shadows.” Except for modest controls at the border, Federal immigration enforcement is deliberately nominal. The Obama Administration has actually forbidden its Immigration and Customs Enforcement (ICE) agents to arrest illegal immigrants for border or visa violations. They also ignore false and stolen social security numbers and other identity fraud. 

     Employers who use illegal and legal cheap foreign labor want more. According to Harvard labor economist George Borjas, they are profiting $435 billion per year. However, American workers are being displaced, and their wages are being depressed by cheaper foreign competition right in their own country.

 The $435 billion business profit from using lower cost legal and illegal foreign labor depresses American workers' pay by $405 billion. Divided by 144.3 million employed American workers, this amounts to $2,807 per American worker per year.  Meanwhile, there are 21.8 million Americans who want a full-time job and cannot find one.

      In addition to the economic loss to American workers, the annual national fiscal deficit for illegal immigrant labor is estimated to be between $55 billion (Heritage Foundation) and $99 billion  (Federation of Americans for Immigration Reform--FAIR) These estimates do not include the cost of operating schools and businesses in two languages, the cost of illegal immigrant crime, or many other difficult to estimate costs.  

      How about low-skilled guest workers? Assuming they are high school graduates or less, pay all taxes due, and receive no more benefits than unlawful immigrants (a generous assumption), their annual household tax benefit deficit is at least $5,299 per household per year, but guest workers generally bring fewer dependents than other immigrants. Assuming no dependents, the figure is at least $1,606 per guest worker per year that must be picked up mostly by local and state taxpayers. This is probably an extremely low estimate. It is essentially a taxpayer paid subsidy for those businesses that employ guest workers. The other problem with guest-worker programs is that, just like illegal immigrant labor, they displace American workers, put downward pressure on their wages, and facilitate more illegal immigration.  

     Amnesties and huge increases in legal immigration and guest-worker programs will make things much worse for American workers and taxpayers and endanger the fiscal solvency of all levels of government.  We need to start enforcing our immigration laws and start weaning employers away from guest-worker and similar programs that are not consistent with the nation's broader interests. Immigration law ought to serve the broad national interests of all Americans including national security, real economic growth, and the fair treatment and prosperity of American workers.