The benefits of immigration reform

As an economist, an immigrant and a scholar of the effects of immigration on the U.S. economy, I find that few pieces of legislation have engaged me more than the proposal for comprehensive immigration reform that the full Senate will take up this week.

The most heated debates have been about the path to legal status for those undocumented immigrants who are already in the United States. But this bill does much more than that. It changes the rules regulating the future flow of immigrants and of non-immigrant, temporary foreign workers. These provisions deserve our full attention and our support. They have the potential to make a significant, long-lasting — and positive — impact on the U.S. economy.

First, consider high-skilled immigrants and workers. The bill increases the quota for H-1B (high skilled) temporary visas, from 65,000 to 110,000 a year, and it allows it to grow up to 180,000. Moreover, it adds 125,000 new “merit-based” permanent residency permits. Those will allow current and future H-1B visa holders more options to stay in this country indefinitely based on their valuable work skills and to eventually apply for citizenship. (That number can be increased to 250,000 if the demand for high-skilled workers is high.)

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If current demand for these workers and past experience are any guidance, most H-1B visas will go to scientists and engineers working in fast-growing sectors of the economy. Their innovations, entrepreneurship and discoveries will be a powerful engine of economic productivity and wage growth. In a recent study of H-1B workers in the U.S. from 1990 to 2010, I found that they accounted for between one-sixth and one-fourth of the total productivity growth in the U.S. That means all Americans are richer and more productive because of them.

The same study shows no evidence that the arrival of foreign scientists and engineers lowered native employment in similar occupations. Their contribution to productivity and growth more than compensated for their “competition effects.”

The proposed immigration reform provides for temporary visas for less-educated workers as well. The quota for these W visas is 20,000 initially and can be increased up to 200,000 after four years if demand from employers is sufficiently high. W visas are temporary but renewable; they allow families into the country. They are meant to ensure an adequate workforce in sectors where many jobs don’t require a college degree, such as construction, agriculture and personal and hospitality services.

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In recent decades, the high demand for these services and the pressure for keeping their cost low and prices competitive have generated incentives to hire undocumented workers. The reform creates a legal channel for employers to fill these jobs at competitive wages after they’ve been advertised to native workers.

As with high-skilled newcomers, research shows that bringing in foreign workers for these jobs won’t crowd out Americans. One reason for this is long-run demographic and educational trends: There is a decreasing supply of natives for these occupations because the U.S. population is aging and becoming more educated.

A study I coauthored that looked at individual census data and data from the Bureau of Labor Statistics provides another reason. By hiring immigrants for manual jobs, companies create new work for natives as production expands overall. For instance, construction companies that hired immigrants have created jobs for supervisors, trainers, accountants and site managers, and many native workers have the skills or have been able to acquire them in order to take those better-paying jobs.

If the first task of reform is to create an efficient process to bring low- and high-skilled workers to this country, the next task is to make that process flexible and market-based. The Senate bill allows demand to play a role in the numbers of visas and residency permits issued.

Unemployment figures and other measures of labor market tightness will be taken into account by a new Bureau of Immigration and Labor Market Research that will recommend visa and permit increases during periods of high demand and decreases in periods of low demand. The W visa system and its flexibility, combined with workplace and border enforcement provisions in the bill, provide a credible way of reducing illegal immigration in the future.

As important as these reforms are for the nation, they are even more so for California. No state in the last 40 years has been able to attract immigrants and benefit from their productive contributions as much as California.

As of 2011, census data show that 35% of all California workers were foreign-born; 42% of the state’s PhDs as well as 62% of its agricultural workers were born abroad. And in analyzing the inflow of farmworkers as well as high-tech workers in local economies, researchers have identified what’s called the “local job-multiplier effect” of foreign labor.

It means that one job attracts other related jobs. In agriculture, immigrant labor in the fields and in processing plants has generated jobs for farm managers, sales representatives and supervisors and has helped the food and restaurant industries thrive. The addition of foreign scientists and engineers has led to high-tech firms hiring more lawyers, accountants, managers and other professionals who were typically U.S.-born.

In my research, time and again I have found very little evidence of job displacement by immigrants but clear evidence of increased productivity, efficiency and investment in response to immigration. Immigrants have, in the long run, complemented rather than displaced native workers.

The Senate’s Border Security, Economic Opportunity, and Immigration Modernization Act, a product of compromise and mediation, isn’t perfect. The provisions for low- and high-skilled workers will need to be tested and possibly adjusted. However, with this reform, the United States can finally move toward effectively grappling with the reality of labor-driven immigration, managing it more efficiently to promote productivity and competitiveness. Passing the reform bill will be a stimulus for economic growth. The whole nation, and California in particular, is poised to greatly benefit from it.

Giovanni Peri is a professor of economics at UC Davis and a research associate at the National Bureau of Economic Research in Cambridge, Mass.