Yves here. One of the major charges leveled at immigrants in the US is that they use public services (the stereotype is that they show up in emergency rooms, which are not a taxpayer expense,* as well as send children to school) and don’t provide anywhere near the contribution to the economy in terms of tax contributions relative to what they extract.
Notice that that charge is implicitly made of illegal immigrants, who presumably don’t pay income taxes (although I personally know one who does, by virtue of being in an immigration Schrodinger’s cat uncertainty state and having a Social Security card and meticulously paying taxes for 15 years while no longer having a visa and not having become a citizen. Will not bore you whit his shaggy dog story). But their incomes are often so low that it’s not clear they’d pay much even if their taxes were reported, save regressive FICA taxes. Yet they do pay other taxes: sales taxes, gasoline taxes, and property taxes embedded in their rents.
There is a separate public policy argument about immigration and foreign guest workers on H1-B visas, which is that at least the way it is conducted in America, that in combination with an anti-labor-bargaining policies, cheap immigrant labor gives employers even more leverage against workers. This post focuses narrowly on the “are they worse than natives in terms of impact on the public purse?” The study focuses on the UK. One of the striking revelations is how little decent data there is on this topic, particularly in a country that has no where near the number of unofficial immigrants as the US.
Data on social attitudes show that the perceived burden of immigration on a nation’s public finances is one of the strongest economic concerns associated with hostility to immigration. Yet recent official reports suggest an important positive role for immigration in the long-run health of public finances. This column argues that there can be no general conclusions applicable in all circumstances about whether immigration is favourable or unfavourable for public finances. But evidence is emerging on particular cases through studies of immigrant composition and use of services, and the effects of immigration on native outcomes.
By Ian Preston, Professor of Economics, University College London; Deputy Research Director, Centre for Research and Analysis of Migration. Originally published at VoxEU
Much attention of researchers and policy-makers has been directed at the effects of immigration on the wages and employment of natives in the host country (for example, Friedberg and Hunt 1995; Manacorda et al 2012; Dustmann et al 2013). But most empirical studies have failed to find any convincing evidence of substantial negative impact. Data on social attitudes show that the perceived burden of immigration on public finances is a dimension of economic concern just as and perhaps more strongly associated with hostility to immigration, not only in the UK but across many countries (Card et al 2012; Dustmann and Preston 2006, 2007).
Such priority may well be economically justified: the burden or surplus generated through the effects of immigration on public finances may plausibly be regarded as a matter of prime importance. Press coverage in the UK and elsewhere reflects this with immigrants’ use of public services an easy focus of concern. Yet recent reports – by the UK’s Office for Budget Responsibility (2013) and the OECD (2013), for example – have also directed attention towards an important positive role for immigration in the long-run health of public finances.
A proper understanding of such effects is both an important input into decision-making on immigration policy and a necessary concomitant to planning for its implications.
Research suggests that there is no simple and general answer, applicable in all circumstances, to the size and direction of the effect of immigration in this respect (Preston 2014). Immigrants contribute through payment of taxes at the same time as they draw on public finances through consumption of publicly provided goods and services. Immigrants differ from native-born residents in demographic type, in skills and in social customs and consequently both groups pay different taxes and impose differently on public services.
In particular, net fiscal contributions vary over individual lifecycles, with the heaviest burdens on major public spending categories, such as health and education, coming early and late in life, whereas the main taxpaying years are those of working age in between. The age composition of the immigrant population typically differs from that of the native-born.
Moreover, to the extent that migration is economically driven and that the economic rewards are affected by tax rates and entitlements to benefits in cash or in kind from public spending, there is potential for the composition of the immigrant population itself to be affected by the nature of public sector finances.
There is no way to answer the question of whether immigration affects the public exchequer of any particular country positively or negatively except by careful and comprehensive accounting. Pointing to particular visible burdens or contributions while ignoring less visible counterbalances is not helpful.
Tax payments and welfare benefit receipts will be driven largely by the incomes and labour market status of immigrants and by the nature of immigrant spending. Evidence suggests that recent UK immigrants are younger and better qualified than the typical UK-born worker though many immigrants tend to work initially at jobs paying less than would be earned by similarly qualified UK-born workers (Dustmann et al 2013). Over time such downgrading tends to diminish as immigrants adapt to the receiving labour market. The path of tax payments ought to evolve accordingly.
Much research has been devoted across many countries to the question of whether generous welfare systems act as magnets for economic migration, comparing welfare dependence of immigrants and natives or looking for association across countries between the nature of migration flows and welfare entitlements, with mixed results. Evidence for the UK shows that levels of benefit receipt and use of social housing are lower among recent immigrants than among the UK-born (Dustmann and Frattini 2014).
Receipt of benefits in kind is less easy to assess and to cost accurately. For collectively consumed public services such as defence or the environment, the growth in numbers that comes with immigration allows the burden of financing to be spread more widely. For those elements of the public sector provided in kind but largely or partially consumed individually, assessment is trickier but pertinent research nonetheless offers useful evidence.
Research in several countries suggests that immigrants are typically healthier than natives when arriving (unsurprisingly if the economic gains from migrating for work are greater for the more healthy), but they assimilate to native health levels over time. It would therefore be odd if burdens on health spending were very much different to those from comparable UK-born. Wadsworth (2013), for example, shows no difference, which is compatible with what has been found for other countries.
The potential impact of immigration on crime rates is sometimes cited as an issue. But again, empirical work across several countries offers little to confirm such fears. Bell et al (2013) and Jaitman and Machin (2013), for example, show that the most recent wave of UK immigration has had no evident impact on crime rates.
As regards education, immigrants typically arrive after the costs of primary and secondary education have been borne in their country of origin. Their own children may, of course, need to be educated but, unless those children are expected to leave before adulthood, that needs to be seen in the context of their whole lifecycle and, especially, their future tax payments.
Cross-national evidence of any effect on educational attainment of children of native heritage is mixed. But recent UK research on the effect of linguistic diversity on results in primary schools suggests negative effects can be ruled out (Geay et al. 2013). The contribution of fees paid by overseas students is, of course, an important part of university budgets, and Machin and Murphy (2014) show no evidence of any crowding out of domestic students.
Overall, the sensitivity of public expenditure to immigration will vary depending on the composition of public spending and in particular on its redistributiveness and on the extent of rivalry in consumption. Immigration not only has the potential to generate costs through the consumption of public services by immigrants themselves but can also affect the costliness of provision to natives. Viewed in a dynamic context, immigration can also alter the calculus of public sector finances through its impact on the age structure of the population and through the timing of immigration in the immigrant life span.
Because the balance between these effects depends, among other things, on the nature of tax and spending rules, the selection pressures on immigrant composition and the stage of the business cycle at which effects are assessed, there are no general conclusions applicable in all circumstances and to all countries about whether immigration is favourable for public finances. Nonetheless, evidence is increasingly emerging on particular cases through studies of immigrant composition and use of services and also through studies of the effect of immigration on native outcomes.
See original post for references
* I hate to point out something no one likes thinking about: the price of hospital services, which is what critics usually harangue about when talking about the mythical immigrant who shows up with a heart attack, has nothing to do with the marginal cost of providing those services. The only marginal cost to the hospital is the extent to which the person who shows up in the emergency room uses disposables (as in drugs, disinfectants, food, disposables used to process tests, like syringes and lab supplies) and/or takes up a bed when the hospital is at capacity and displaces a presumed paying customer. That is one of the maddening things about the price of hospital services generally, that it is designed to recover large overheads and is even more arbitrary by virtue of insurers having negotiated steep discounts, leaving those unlucky enough not to be consuming discounted services being hit with unjustifiably high prices. Only if there are enough undocumented immigrants who show up at hospitals for the hospital to be forced to add to capacity to deal with them, as in add to their medical staff or increase hospital beds, are these workers affecting the hospital’s economics in any meaningful way.