Following the recent U.S. election, two questions about immigration repeatedly surfaced: How would mass deportation impact the economy? And, how do you measure the economic contributions of immigrants?
Planet Money has answers, drawn from both history and current research. This episode explores two stories that shed light on these questions.
The Chinese Exclusion Act and Its Economic Impact
In 1880, Chinese immigrants made up 20% of the population in the western United States. The U.S. had an open-border policy, allowing immigrants who could afford the journey to enter. Many Chinese immigrants arrived during the California Gold Rush in the 1850s and later to build the transcontinental railroad.
Nancy Qian, a professor at Northwestern University, explains that Chinese immigrants were organized through U.S.-based companies run by Chinese merchants who spoke English. These companies recruited workers in China, handled paperwork, and sent teams to work for American employers. The workers were largely self-sufficient, providing their own food and housing.
However, Chinese immigrants faced increasing racism, especially in the 1870s during a U.S. recession. Anti-Chinese sentiment led to discriminatory laws restricting Chinese immigrants’ rights to own property or marry outside their race, and they were excluded from many economic opportunities.
These discriminatory policies culminated in the Chinese Exclusion Act of 1882, which banned Chinese laborers from entering the U.S. and prohibited those already in the country from becoming citizens. The law was extended over the years and was not repealed until 1943.
A recent study by Qian and colleagues examined the economic impact of the Chinese Exclusion Act on the western U.S. They found that the law reduced the Chinese labor force by 64%. But, contrary to expectations, the law did not benefit white U.S.-born workers. In fact, the labor supply of white workers in the region also fell by 28%.
The loss of Chinese workers led to a decline in local businesses and services, such as bars, hotels, and restaurants. This left many towns less vibrant economically. For instance, in mining, white workers took over some jobs left by Chinese immigrants, but in other sectors like manufacturing, economic output slowed.
Qian’s research suggests that the Chinese Exclusion Act negatively impacted economic growth in the West until at least 1940, showing the long-term harm of broad immigration restrictions.
The Contributions of Immigrants to Economic Growth
Moving to present-day immigration, Zeke Hernandez, a professor at the University of Pennsylvania’s Wharton Business School, discusses his research on the economic contributions of immigrants. Hernandez notes that the current U.S. immigration debate often presents two opposing views: immigrants as job-stealers and threats to American culture, or as poor, needy individuals deserving compassion.
Hernandez argues that both views miss the broader truth: immigrants are vital to economic growth, both in the U.S. and globally. Through 20 years of research, Hernandez has identified five key contributions that immigrants make to the economy: talent, consumption, taxes, investment, and innovation.
1. Talent: Immigrants bring diverse skills and fill jobs that native-born workers may not take, such as agricultural labor or medical practice. They also contribute by working in industries that require specific expertise.
2. Consumption: Immigrants increase demand for goods and services, driving economic growth. Their different tastes and preferences also introduce new products and services to the market. For example, in areas with large Ethiopian or Korean communities, there is greater demand for Ethiopian food or Korean beauty products.
3. Taxes: Immigrants contribute to the economy by paying taxes, including sales and payroll taxes. Even undocumented immigrants contribute to programs like Social Security. While integrating new immigrants comes with some initial costs for local governments, their long-term tax contributions offset these expenses. Research shows the average immigrant contributes over $250,000 to the economy over their lifetime.
4. Investment: Immigrants help attract investment to the U.S. When the share of immigrants in a state’s population rises by 1%, the state is 50% more likely to attract investment from the immigrant’s home country. A notable example is Pollo Campero, a Guatemalan restaurant chain that has grown significantly in the U.S. due to immigrant demand.
Immigrants also invest by starting businesses. They are 80% more likely to start a business than native-born Americans, contributing to job creation in their communities.
5. Innovation: Immigrants are responsible for a significant share of innovation. One study found that immigrants were behind 1 in 3 U.S. patents in recent decades. Nearly half of Fortune 500 companies were founded by immigrants or their children.
Hernandez argues that these contributions are important not only for legal immigrants but also for undocumented ones, although their potential is limited by their legal status.
The Case for Legal Immigration Reform
Hernandez shares the story of his barber, an undocumented immigrant with $200,000 saved to open a barbershop. Despite his entrepreneurial spirit, his legal status prevents him from starting his own business. Hernandez sees this as a missed opportunity for the economy.
While not advocating for illegal immigration, Hernandez supports expanding legal pathways for immigrants. He argues that U.S. immigration policy has not been updated in over three decades, and this stagnation is holding back the economy.
Conclusion
Both historical and contemporary evidence shows that immigrants play a critical role in economic growth. The Chinese Exclusion Act provides a cautionary tale of the harm done by restricting immigration, while the research by Zeke Hernandez highlights the positive contributions immigrants make to the economy today. To maximize these contributions, Hernandez argues, the U.S. needs comprehensive immigration reform.
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