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Impact of Immigration on the U.S. Economy

IMPACT OF IMMIGRATION ON THE U.S. ECONOMY 1

Impactof Immigration on the U.S. Economy

Introduction

Between the 20th and 21st century, the UnitedStates has grown to be a home to the largest immigrant population inthe world. Consequently, the immigration policy has become a majorpoint of debate in the American politics. The economic impacts ofimmigration on the United States has been pronounced in varioussectors. The impacts are mainly felt on issues of employment, housingprices, labor demand and supply, and wage rates. The paper looks intosome of the most prevalent impacts that have resulted from thedisturbances caused by constant flow of immigrants to the UnitedStates.

Review of Literature and TheoryHistory and Trends in the U.S. Immigration Crisis

Immigration trends in the United States have been through seasons offluctuations throughout history. The first immigrants to the countrysettled in the ‘New World’ for religious, economic and politicalconcerns. This was between the 1700s and 1850 in the course of theindustrial revolution era. This was the first wave of the immigrationprocess. The second wave (1850-1970) was determined by the rise ofthe Big Business and corporations during industrialization(Emigration Info, 2011).

It was during the second wave that policies and laws, especiallythose relating to Mexico, were changed to cater for labor shortage inthe United States. Effects of the Great Depression created asituation of labor scarcity in the U.S and immigration policies hadto be less strict to allow for the flow of labor into the country.The current trends, also referred to as the third wave, includes theimmigration patterns between 1970 to the present age. In the year2000, 47.2% of immigrants came from the Americas into the UnitedStates, 50% of which were from Mexico. In addition, 31.8% of themigrants flowed into the America from Asia and Oceana, 15.6% fromEurope and 5.4% came from Africa and the rest of the world(Emigration Info, 2011). In the 21st Century, however, theUnited States has experienced an immigration crisis mainly due tocivil wars, economic imbalances and diseases outbreaks.

Impact of Immigration on Employment LevelsEmployment Levels

Employment levels are significantly affected by the immigrationtrends in any country. From the study by Chassamboulli (2013) on theimpact of immigration, the researcher, through application of thesearch and matching model of the labor market, identified thatemployment trends vary with the immigration statistics. The impactsdepend on the skills of the migrants, existing labor force and thecharacteristics of the destination economy. The impacts also vary inthe short and long-run. According to the Migration Observatory(2013), unskilled migrants have impacts on unemployment levels sincethey tend to act as compliments to the available skilled labor in thehost country.

Borjas (2013) investigated impacts of the migrant crisis on theAmerican employees. In his findings, immigration tends to reduce theemployment opportunities for the natives, especially in cases whereskilled migrants move into the country. Competition for the same jobpositions tends to create a situation of high bargaining power amongthe employers. This leads to distributed employment of both thenatives and the non-natives.

Impact on Wage Rates and Unemployment

Overall, most of the empirical studies have identified that increasedimmigration into the U.S has limited impact on the natives’employment levels. However, impacts on the real wage rates and thereal unemployment levels tend to show significant changes over theyears. According to research by Nowrasteh (2014) supported by factsfrom the Centre for Immigration Studies (CIS), the author identifiedthat unemployment rates between the migrants and the native Americansmove in the same direction as indicated by the graph below, with acorrelation coefficient of 0.92. Despite the fact that employmentrates for the natives is not greatly impacted on, the unemploymenttrends for both groups tend to be uniform over the years.

Fig.1: Unemployment trends in the U.S. for natives and immigrants,1996-2014 (Nowrasteh, 2014)

Greenstone and Looney (2012) researched on some of the effects on thewage rates, as a result of continued immigration into the UnitedStates. From their study, the flow of immigrants has both positiveand negative impacts on the wages and salaries of the nativeAmericans. In the event that skilled labor flows into the UnitedStates, there is need to employ more workers with the same employmentopportunities. As a result of the high labor supply within a fixeddemand level, wage rates tend to decline.

However, in the case of semi-skilled and unskilled labor inflows,wage rates are not greatly affected. Instead, semi-skilled labor isused a complement for skilled labor to improve on operationalefficiency within firms. Skilled labor wage rates, however, remainunaffected by immigration movements in this case. On the aggregate,however, impact on real wage rates tends to be negative due tocompetition for the same job positions among skilled, semi-skilledand unskilled employees at distinct levels.

Impact on Real Estate Housing Rates

The 2007-08 financial crisis mainly arose from a hike in houseprices. The real estate sector in the United States is greatlyaffected by immigration trends. Using the theory of demand andsupply, the impact of high migrant numbers to the U.S. can be seen asa factor that leads to the rise in demand for housing. With highdemands and relatively constant supply levels in the economy, houseprices tend to rise at least in the short-run.

Foster (2016) in the Guardian reported that house prices inthe United Kingdom were likely to shoot up by 10% over a20-year-period starting 2012 due to immigrant crisis. The new housesbeing established in host country receive high demand from themigrants. As a result of the competition for good housing in the hostcountry, the house price levels shoot up. With fixed household incomelevels, the spending levels rise and the savings reduce.

The graph below shows trends across immigration, and house demand andsupply in the U.K. Like in the case of the U.K.’s real estatemarket price movements, Ottaviano and Peri (2006) indicated similartrends in the United States’ real estate sector. With increasedimmigrants’ flow into the United States, the housing prices show asimilar price hike due to higher demand than supply in the market.With population rise to the extreme, situations of homelessness maybe seen in the long-run.

Fig.2: Impact of Immigration on Housing Price, Demand and Supply(Pettinger, 2016)

Gap in Research

Immigration is a real crisis to the United States, especially in thecontemporary times. However, most of the studies on immigration arebased on historical facts dating between 1970s and 2000s. Inaddition, empirical studies on impacts of immigration on house pricesmajorly concentrate on the U.K.’s real estate market. There ishardly any information on the housing prices in the United States inrelation to immigration trends. This study seeks to fill in the gapby focusing on the most recent statistics relating to the U.Simmigration crisis. Data for the study originates from sourcespublished 5 years from 2010 at most. The paper will, therefore,contain comprehensive facts on unemployment trends, housing marketdemand and supply, wage rates and employment levels across the yearsas a result of immigration in the U.S. In addition, economic policyrecommendations will be drawn to provide possible solutions to theimmigration crisis that the country currently experiences.

Research StrategyDesign

The study will rely on secondary research. Empirical studiesconducted between 2011 and 2016 will be used as sources ofinformation. In addition, annual reports from immigration agenciessuch as the CIS will be used as supplementary data sources. To becomprehensive, the paper will rely on both qualitative andquantitative data for its findings. The study will not only reviewthe sources but also carry out a critical analysis of the dataobtained from them. Quantitative techniques such as t-tests andcorrelations will be used to establish relationships that existbetween research variables.

Data Collection Approach

Data for the research will mainly come from the online databases andjournal articles. These, in addition to peer reviewed sources, willform a strong background for the study since information will readilybe available. Online secondary sources are easier to locate and thiswill limit the costs incurred in research. In addition, the studywill only concentrate on the sources that relate directly to theUnited States.

Analysis

The analysis will directly depend on the selected design. Since thedesign caters for both qualitative and quantitative data, a mix ofanalysis techniques qualify to be used. For quantitative data,correlation and hypothesis testing techniques will be the bestapproaches towards linking certain economic principles to thesituation of immigration in the United States. However, fordescriptive statistics, tabulation and cross-tabulation will allowfor comparisons and easy deduction of meaning from the sources.

Possible Results and Discussion

Immigration has been a major challenge to the United States to anextent that extremists now call for a stringent policy changes tocurb the impacts. The effects experienced on employment and wagerates may not favor the natives in the long-run. Irrespective of theskill levels of the immigrants, some of the refugees would gain theskills with time and compete over the same job openings with thenatives. The employers would, therefore, have a relative advantageover the wage rates (Peri, 2010). The minimum wage policy, however,may not be directly affected by the immigration trends.

On housing prices, the demand for new houses would rise to exceed thecurrent supply levels. With higher demands than supply, the houseprices would rise in the United States. Due to reduced wage rates andhigher house prices, poverty levels are expected to rise in the eventthat no changes are made to the immigration policies andrestrictions. Unlike in the case of the industrialization era whenimmigration was beneficial in terms of labor sourcing, the 21stCentury shows different reactions to the continuous flow ofimmigrants to the United States (Kerr &amp Kerr, 2011).

The overall impact to the economy may not be severe, despite impactson real estate house prices, employment trends and wage rates. Thisis due to the fact that productivity would rise because wage rateswould move lower while productivity rises. Overall, the net nationalincome and the Gross Domestic Product (GDP) would show an upwardtrend since skilled labor would be in abundance and the real sectorwould benefit from this.

Conclusion

In conclusion, immigration has shown a changing trend in the UnitedStates since the 1700s. In the contemporary U.S. economy, immigrationhas more negative than positive impact on wage rates, employmentlevels and house prices. Consequently, it is important to implementpolicies and laws that regulate the flow of migrants into thecountry. With immigration regulation policies, such as lawfuladmission, unlawful admission and unauthorized aliens’ laws, itwould be easier to curb both the short-term and long-term impacts onthe U.S. economy. Political influence would be necessary to interveneinto the far-reaching impacts of immigration on the economy of theUnited States. From economic models and policies, the best solutionswould be generated for the immigration challenges.

References

Borjas, G. (2013). Immigration and the American Worker. UnitedStates: Centre for Immigration Studies. Retrieved fromhttp://cis.org/sites/cis.org/files/borjas-economics.pdf

Chassamboulli, A. (2013). The impact of immigration on theemployment and wages of native workers. Greece: Bank of Greece.Retrieved fromhttp://www.bankofgreece.gr/BogEkdoseis/Paper2013160.pdf

Emigration Info (2011). U.S. Immigration Trends. Retrievedfrom http://www.emmigration.info/us-immigration-trends.htm

Foster, D. (2016). Is immigration causing the UK housing crisis.United Kingdom: The Guardian. Retrieved fromhttps://www.theguardian.com/housing-network/2016/jan/25/is-immigration-causing-the-uk-housing-crisis

Greenstone, M. &amp Looney, A. (2012). What immigration means forU.S Employment and Wages. The Hamilton Project. Retrieved fromhttp://www.hamiltonproject.org/papers/what_immigration_means_for_u.s._employment_and_wages

Kerr, S.P &amp Kerr, W.R. (2011). Economic impacts ofimmigration: A Survey. Harvard: Harvard University. Retrievedfromhttp://www.hbs.edu/faculty/Publication%20Files/09-013_15702a45-fbc3-44d7-be52-477123ee58d0.pdf

Nowrasteh, A. (2014). Immigration’s real impact on Wages andemployment. Cato Institute. Retrieved fromhttps://www.cato.org/blog/immigrations-real-impact-wages-employment

Ottaviano, G. &amp Peri, G. (2006). Wages, Rents and Prices: Theeffects of Immigration on U.S Natives. University of Bologna.Retrieved from https://www.princeton.edu/~ies/Fall06/PeriPaper.pdf

Peri, G. (2010). The effect of Immigrants on U.S Employment andProductivity. FRBSF Economic Newsletter. Retrieved fromhttp://www.frbsf.org/economic-research/files/el2010-26.pdf

Pettinger, T. (2016). Immigration and housing. Retrieved fromhttp://www.economicshelp.org/blog/20107/housing/immigration-and-housing/

The Migration Observatory. (2015). The labor market effects ofimmigration. Retrieved fromhttp://www.migrationobservatory.ox.ac.uk/resources/briefings/the-labour-market-effects-of-immigration/