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Originally published September 20, 2006 at 12:00 AM | Page modified May 14, 2010 at 11:11 AM

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America's Dilemma: Understanding Immigration

Economic impact: Dropouts, some states lose; consumers reap dividends

According to economic models, it's a no-brainer: A surge of low-skilled immigrants should drive down wages for working-class Americans. Yet, the economics are not...

The Washington Post

According to economic models, it's a no-brainer: A surge of low-skilled immigrants should drive down wages for working-class Americans.

Yet, the economics are not so clear. Effects are difficult to disentangle from other factors that have dampened wage growth — new technologies, the loss of manufacturing jobs, the drop in unionization, globalization and recessions.

Meanwhile, increased immigration — legal and illegal — helps control inflation, boosts rents and housing values, and benefits the average taxpayer while burdening some state and local governments, other research finds.

"Immigration provides overall economic gains to a country," economist Albert Saiz wrote in a 2003 article for the Federal Reserve Bank of Philadelphia. "... However, there are winners and losers in the short run."

The primary losers are U.S. workers who do not have high-school diplomas, particularly blacks and native-born Hispanics, says George Borjas, a Harvard University economist. From 1980 through 2000, Borjas wrote in 2004, immigration reduced average wages for the 10 million native-born men without high-school educations by 7.4 percent.

Other economists say the effect is much smaller — close to 1 percent. Other trends have had much more impact, analysts say. Perhaps the biggest is the general health of the economy.

The wage gap between U.S. high-school graduates and dropouts stayed relatively constant from 1979 to 2000, with graduates earning 25 to 30 percent more, according to David Card, an economist at the University of California, Berkeley.

"Evidence that immigrants harm native opportunities is scant," he concluded.

To the extent that cheap, low-skilled labor helps hold down prices, there is more demand for some services, fostering economic growth. Lower menu prices encourage consumers to dine out, leading to more restaurants. Lower construction costs make home building more profitable and home remodeling more affordable.

Low-wage immigrant labor generally has helped keep inflation low for items other than energy and housing, economists say.

Immigrants also collectively pay more in taxes than they consume in public services and benefits, except in a few states with high proportions of immigrants and relatively generous social services, according to a National Research Council study.

A high proportion work and pay federal, state and local taxes. Many return home before retirement and never claim Social Security or Medicare benefits.

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