Coming to America: The Immigration Challenge

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Jan 31, 2017

The President’s immigration order has created a lot of controversy, but the emotional outrage has prevented the focus from shifting to issues about a system that is antiquated and fundamentally unsuited to the needs of the United States in the 21st century.

U.S. immigration policy is largely rooted in the Immigration Act of 1965. That law abolished national quotas that favored European immigration and established family reunification as the primary consideration of U.S. immigration law. The effect of this has been that the vast majority of those admitted as permanent residents are granted that status because they have a family member here. In 2015, about a million people were granted permanent resident status, of which about 65 percent were on the basis of family reunification. Only about 14 percent of those admitted were on the basis of work-related reasons. Refugees make up about 10 percent of those admitted.

The National Interest

U.S. immigration policy has no strategic objectives. The majority of those admitted are not selected on the basis of advancing some national interest. Most legal immigrants are chosen by their relatives for their own reasons. Even refugees are first selected by the UN High Commission on Refugees from within camps it operates. This is in contrast to the policies of other developed countries, which give preference to those who bring skills considered vital to the national interest.

There can be different views as to what advances the national interest, but given that we are critically short of skills in several key areas — healthcare, engineering, sciences, and skilled trades — immigration policy should at least favor admitting people who have those skills. This isn’t exactly a new or unusual idea — many developed countries use this approach.

Canada and Australia use point-based scoring systems to evaluate immigration applicants. The Canadian system has 10 categories — the first seven of which focus on attracting skilled workers. These are considered as economic-class immigrants, defined as “people who are selected as permanent residents based on their ability to become economically established in Canada.” Candidates who receive high points receive an invitation to apply for permanent residency in Canada.

Australia uses a similar approach to select immigrants. Australia’s point system puts more emphasis on work experience and an existing employment offer than the Canadian system. Applicants select an occupation from the Australian government’s Skilled Occupation List and have their skills assessed by a recognized authority. The result is that about 70 percent of legal immigrants to either Canada or Australia are skill-based — the opposite of what happens in the United States.

The U.S. needs an immigration policy that gives preference to high skilled workers. Despite all the claims that immigrants add value, the effects of immigration are not uniformly beneficial. Available evidence shows that low-skilled immigrant workers tend to depress wages for low-skilled native workers. Not by much — about half-percent to five percent — but the effect is certainly one that has negative consequences for those affected.

Contrast that with the results seen in Canada and Australia. In both countries, skilled immigrants are earning average salaries that are about the same as native-born workers. Crucially, the labor force participation rate for skilled immigrants is much higher — 89 percent in Canada and 96 percent in Australia, compared to 66 percent and 67 percent for native-born workers respectively.

Who Are the Immigrants?

Contrary to what many believe, Mexico is not the biggest source of immigrants to the U.S. China is No. 1 (147,000 in 2013), followed by India (129,000). Mexico is No. 3 with 125,000. But there are big differences in years of education among these groups. As a consequence, immigrants from China and India are mainly employed in professional jobs, while more of those from Mexico are doing low-skilled work. But regardless of country of origin, most immigrants are employed. The unemployment rate is about the same as that of the native-born population, and lower in the case of Asian immigrants.

As for refugees, the U.S. has rarely admitted large numbers of people in that category. With very few exceptions, in most years only about 5 percent – 10 percent of those granted permanent resident status are refugees, regardless of whether it was a Democrat or Republican administration.

The Talent Focus

Not having an immigration policy that favors high-skilled talent has consequences for economic growth. A country’s long-term growth rate depends on the number of workers and how productive they are. Slower population growth reduces the number of workers. Our population growth has slowed to 0.7 percent, the lowest level since 1937. But all the growth is from immigration, since the birth rate has dropped to below replacement level. This has resulted in the U.S. labor force growing only 0.2 percent a year since 2008 (compared with 1.2 percent in the prior decade). Absent skilled worker immigration, the labor force will start to shrink. Given the pace at which technology is evolving and the skills needed by industry, we need immigrant labor since it is unlikely that we can grow the talent domestically.

China has a national talent plan. The 1000 Talent Plan targets specific categories of skilled workers for immigration to China. We have no strategic focus, no plan, and not even any stated goals for immigration beyond what we don’t want (fewer undocumented workers) or appeals to emotion (more refugees), neither of which has any demonstrated benefits, beyond making some people feel good. If you don’t know where you’re going, then any road will get you there. That is the situation in which the U.S. finds itself today when it comes to immigration.

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