Negative Effects of Immigration on the Economy

Yves here. I wonder if there is a simpler explanation. US immigration policy has come to be about suppressing wages. The suppressing wages operation has been great for those at the top of the food chain at the cost of overall growth.

By Mike Kimel. Originally published at Angry Bear

In a recent post, I showed that looking at data since 1950 or so, the percentage of the population that is foreign born is negatively correlated with job creation in later years. I promised an explanation, and I will attempt to deliver on that promise in this post.

I can think of a few reasons for the finding, just about all of which would have been amplified since LBJ’s Presidency due to two things: the 1965 Hart-Cellar Act and the launch of the Great Society. The Hart-Cellar Act may be better known as the Immigration and Nationality Act of 1965. It phased out country quotas in existence since the 1920s. As a result of these quotas, about 70% of all immigrants were coming from England, Germany and Ireland, with most of the remainder coming from elsewhere in Western Europe and from Latin America. The Great Society, of course, included a number of welfare programs, many of which (or their descendants) are still in existence.

With that, reasons why the foreign born population is negatively correlated with subsequent job creation include:

1. Immigrants who are sufficiently similar to the existing population when it comes to language, culture, skillsets and expectations will integrate more smoothly. Slower and more imperfect integration necessarily requires more expenditure of resources, resources which otherwise could go toward economic development.

2. Naturally, skills and values that are more productive and efficient than those of the existing population are conducive toward growth. Conversely, bringing inferior technology and processes does not improve the economy. As the source of immigrants shifted away from sources of sources of high technology like England and Germany and toward the developing and not-developing world, the likelihood that a randomly selected new immigrant will improve productivity diminishes.

3. Eligibility for welfare can change the incentive structure for existing and potential immigrants. An immigrant arriving in the US in 1890 certainly had no expectation of being supported by the state. It may be that most immigrants arriving in the US now also don’t have that expectation. However, it is no secret that welfare exists so some percentage of potential immigrants arrive expecting to be supported to some degree by the state. In some (many?) cases, the expectation increases post-arrival. (Like any great economist, Milton Friedman got a lot of things wrong about how the economy works but he had a point when he said you can have a welfare state or open borders but not both.)

4. Rightly or wrongly, reasons 1 – 3 above may combine to create resentment in the existing population. Think “my grandparents came to this country with nothing and nobody gave them anything…” Resentment can break down trust and institutions necessary for the economy to function smoothly.

5. Over time, transportation has become cheaper and easier. As a result, the likelihood that an immigrant has come to the US to stay has diminished. Many immigrants come to the US for several years and then go back to their country of origin. This in turn leads to four issues that can have negative impacts on the economy:

5a. Immigrants that expect to leave often send back remittances, taking resources out of the US economy. For example, in 2010, remittances from workers in the US amounted to 2.1% of Mexican GDP.

5b. Relative to many non-Western countries, the US taxpayer invests heavily in the creation of a state that is conducive toward acquiring useful skills and education. Often, the acquisition of such skills and education is heavily subsidized. When people acquire those tools and then leave without applying them, the value of the resources could have been better spent elsewhere.

5c. Immigrants who don’t expect to stay can have less reason to integrate culturally and economically; any real estate investor can tell you that all else being equal, a neighborhood made up largely of homeowners is almost always nicer than a neighborhood made up largely of renters.

5d. Immigrants who arrive with a non-negligible expectation of leaving are, on average, more likely to take risks which generate private gains and social losses. If the bet goes well, congratulations. If the bet goes bad, “so long suckers!” The bet may even involve a crime.

6. (This one is more conjecture than the others – I think it is true, but I haven’t given it enough thought, particularly whether it is entirely separate from the previous reasons.) The non-existence of a lump of labor does not mean there isn’t a population to labor multiplier, or that the multiplier cannot change over time. In an era of relatively slow economic growth, economies of scale, and outsourcing abroad, the number of new employment opportunities per new customer (i.e., job creation per resident) can shrink. We’ve certainly seen something resembling that since about 2000.

None of this is to say that immigration is good or bad, or even that it should be opposed or encouraged. In this post I simply tried to explain what I saw in the data. I will have one or more follow-up posts.

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  1. financial matters

    I think one of the best things the US can do re immigration is to develop policies that make it easier for people to stay in their country of origin which many probably want to do. Our policies have tended to have the opposite effect such as

    NAFTA “An influx of highly subsidized corn flooding the Mexican market has displaced millions of rural farmers” (

    and Syria/Libya etc “An estimated 11 million Syrians have fled their homes since the outbreak of the civil war in March 2011. Now, in the sixth year of war, 13.5 million are in need of humanitarian assistance within the country. ” (

    We are also very much in need of a job guarantee paying a living wage which would put pressure on major employers such as Walmart and McDonalds and get their executives off of government subsidies. (they pay a wage so low their workers are forced into food stamps and medicaid) (One of the major beneficiaries of the nation’s food-stamp program is actually a hugely profitable company: Walmart.) (

  2. Hayek's Heelbiter

    Another great post, read word-for-word, and I very much look forward your subsequent ones.

    You’ve cogently explored the “yin” of immigration, but what about the “yang”?

    As long as there exist Western countries to act as “safety valves” there is no incentive for immigrant source countries to correct the deficiencies in their economical / political / social systems or resolve ongoing conflicts. In fact, there is every incentive to maintain the status quo.

    And when will the Wester polity finally figure out that if you destabilize a metastable regime by force, the result isn’t stability but inevitably chaos and a further flood of refugee/immigrants?


    1. Jim Haygood

      ‘As long as there exist Western countries to act as “safety valves” there is no incentive for immigrant source countries to correct the deficiencies in their economical / political / social systems or resolve ongoing conflicts.’

      After a mere ten years, NAFTA succeeded in reversing net immigration from Mexico.

      Now most of the net immigration across the US-Mexican border comes from Central America: countries such as El Salvador and Guatemala destabilized by the Reagan regime in the 1980s. Now they’re dominated by violent gangs trained in California prisons and repatriated to Central America.

      Increasingly Mexico will focus on its own southern border with Guatemala, as it becomes more of a destination country rather than simply a transit country, as detailed here:

      Immigration across the U.S.-Mexican border is driven by Central American refugees fleeing gross instability, crime and violence in Honduras, El Salvador and Guatemala; not by Mexicans. The U.S. played a deep long-term role in creating the mess that Central America is today.

      1. Mark John

        Yes. It is a pernicious cycle with something like these dimensions. . .

        1) U.S. creates instability (war, coup) in a region.
        2) The ensuing instability creates a class of desperate folks, who then seek bodily, economic, and political safety within the borders of the empire. This leads to a class of desperate workers, often undocumented and constantly at risk of deportation, willing to work for far less compensation than the native population.
        3) Native population sees the contours of its society change with the influx along with a lessening in quality of living standards, which leads to dangerous, xenophobic mental associations. Xenophobic politics begin to take root and thrive.

        The real solution is for our country to stop doing step 1.

    2. tony

      Poorer countries suffer brain drain. They do receive large amount of remittances, but an economy which sends its best and the brightest to benefit the industrial countries and receives industrial products in exchange does not seem like it can develop very easily.

      Its clear that the emigree benefits, and the receiving country receives a subsidy in the form of valuable human capital. But how does the originating country develop? Invest in education and the best leave. Invest in industry and you compete with the products of the developed countries.

      And of course, the rich in unstable countries have little reason to care about the long term consequences of their actions if they can take their loot and run. There is a reason so many rich Chinese are emigrating.

      David Harvey once told a story about how he warned investment bankers that if things keep getting worse, the US could end up a failed state like Mexico. In typical Wall Street fashion they asked Harvey if they should buy villas in France.

      1. Mark John

        And now climate change will only increase the numbers of those seeking refuge, most likely fueling xenophobia in the west further.

    3. sleepy

      Immigration from Mexico has always been a deal with the devil, i.e., a deal with the oligarchs of both nations. Mexico gets a convenient social safety valve that allows its most dispossessed citizens to be removed from domestic political agitation for economic reform. The US elite gets downward pressure on wages. And, as a bonus, gets an identifiable group to shift blame to.

      A win-win.

    4. Hayek's Heelbiter

      [Emphasis mine]

      Berlin Election Outcome Signals Merkel’s Tenuous Grip on Chancellorship
      Posted on September 24, 2016 by Yves Smith

      Yves here. We’ve been saying for some time that Merkel’s hold on power was weakening. As this Real News Network video shows, the recent election results confirm this slippage.

      Notice that this interview fails to mention that the huge influx of refugees into Europe is the direct result of the US creating failed states in the Middle East.

  3. fresno dan

    I think this is the first article I have EVER read that even supposes there might be negative ECONOMIC effects of immigration.
    I would note that if there ever was a jobs program with the explicit goal of reducing unemployment to 4% (and not pretending the people who have dropped out don’t want a job because they CAN’T get a job) and providing a job to any and all applicants – well, I think the immigration from South America that has slowed would amp right up again – of course.

    You know, I have been reading some of the Davos Man class going on and on about how they didn’t really do enough to ameliorate the negative effects of “free” trade on those who don’t benefit from trade. But NAFTA is going on a quarter of a century – and in every subsequent trade deal such promises are either never kept or never effectively implemented.

    I suspect that to REALLY provide jobs of equal pay and equal benefits is not economically feasible. Think of it this way – people who worked as landscapers, when displaced by immigrants, may not have the aptitude, skills, or even desire to change careers – if you work outside, why in the hell do you want to have to start working indoors???
    Go to college and become a computer programmer ….H1b….
    What are you gonna do keep these people employed – have the same lawn mowed twice every week? Have the same computer code written twice?????
    Again, the whole scenario has struck me as not being ever critically thought through. The benefits to consumers getting low prices are endlessly pointed out, but the negative effect of fewer jobs at low pay are glossed over or NOT ACKNOWLEDGED. The whole deal is that less income to workers and more income to capital – is it REALLY unforseeable that eventually there will be a demand dearth?? Decades of experience of jobs shipped overseas and not replaced are not acknowledged. Ever growing inequality. We have been sold a load of bullsh*t because it benefited a very, very narrow slice at the top only.

    1. Northeaster

      Go to college and become a computer programmer ….H1b….

      Over 100K H-1B Visas issued so far for 2016 alone, over 10% of those were issued in my state of Massachusetts. The Mathworks Inc. of Natick was given a $3 million dollar state tax subsidy in return for “creating” 600 new jobs – they created jobs alright, 386 H-1B jobs so far, Americans need not apply.

        1. hunkerdown

          Better yet, give ALL your friends copies and break their ability to create a global regime.

          Seriously. Dispossession works both ways.

  4. timbers

    The HB-1 Indian workers that have flooded Boston’s labor market seem to fit this part because they get on and off Public transportation enmass at stops with clusters of rental buildings —- “5c. Immigrants who don’t expect to stay can have less reason to integrate culturally and economically; any real estate investor can tell you that all else being equal, a neighborhood made up largely of homeowners is almost always nicer than a neighborhood made up largely of renters.”

  5. gardener1

    Some first person anecdotal observances –

    As a lifelong blue collar worker for nearly 40 years, I found my ability to remain employed competing against a never-ending influx of 22 year old immigrants to be a sinking, and finally sunk quagmire. I lost. I cannot be 22 forever.

    Coming up in the 1970’s many of my acquaintances and I were skilled laborers, we got up in the morning and went out everyday to work hard for a living. None of us would even be considered for any of those entry level positions any more. They all go to immigrants from somewhere else or another. As a native born white American you don’t even get a chance at those jobs anymore, no employer would even bother talking to you.

    The US has all but done away with apprenticeship programs for the skilled trades. We just bring in exploitable people from all over the world to build our stuff, and then when we’re done with them, they go back to where they came from. I know this is true because I’ve asked them, I’ve worked with them – they have no intention of staying in America longer than it takes to educate their kids, build up a nest egg, and go back home. A lot of them don’t really like it here.

    But we Americans don’t have those options. We can’t go to Guatemala or Germany or the Philippines to work for 10 or 20 years to return to America with saved money on which we can survive for the rest of a lifetime.

    This deal is a one-way street.

    As an American, I challenge you to get a job abroad. I challenge you to get a foreign residency visa or a work visa. I challenge you to do any of the things that immigrants do in our country. You can’t.

    I’m not anti-immigrant. I’m pro- our people first. Us first, and then when we need other folks they’re welcome too. But that’s not what has been happening in my work lifetime of the last 40 years.

  6. Carolinian

    Here’s a somewhat intereresting backgrounder on American immigration. The author’s premise is that US immigration policies were always about race (white Europeans welcome to stay, brown Mexicans welcome to do manual labor and leave) but this is undoubtedly a simplification as the discrimination in favor of high skills–talked about in the above post–undoubtedly a factor. For example most other countries do not offer citizenship unless you have something valuable to offer them. An acquaintance who thought about becoming Canadian found this out.

    In any case the below author does talk about how the notion of “illegal” immigrants is a more recent phenomenon and in earlier periods Mexicans were freely allowed to come across and work.

  7. financial matters

    I think it’s also useful to consider private prison labor. This article notes that half this revenue comes from undocumented immigrants but that means the other half comes from US citizens. private prisons

    “”Private prisons bring in about $3 billion in revenue annually, and over half of that comes from holding facilities for undocumented immigrants. Private operations run between 50% to 55% of immigrant detainment facilities. The immigration bill battling its way through Washington right now might also mean good things for private prisons. Some estimate that the crackdown on undocumented immigrants will lead to 14,000 more inmates annually with 80% of that business going to private prisons.

    The prison industry has also made money by contracting prison labor to private companies. The companies that have benefited from this cheap labor include Starbucks (SBUX), Boeing (BA), Victoria’s Secret, McDonalds (MCD) and even the U.S. military. Prison laborers cost between 93 cents and $4 a day and don’t need to collect benefits, thus making them cheap employees.””

  8. Ping

    It is dangerous for Trump to demonize undocumented immigrants without holding the corporations that attracted and hired them responsible and the system that allowed it.

    Now that they are here and have settled with families, it is deplorable to speak of mass deportation. As has been noted with the Walmart expample, those that massively profit from this abberation should bear the major cost of public services required for a ‘Shadow Workforce’.

    And Hillary Clinton and her neocon crowd, whose policies have created chaos resulting in mass immigration of refugees offers no apology but more of the same. Insanity doing the same thing over and over for a different result?

  9. Huruyadzo Chikwanha

    I would argue that migration has both positive and negative impact on the receiving country. But at some point I believe the ‘self’ is selfish and not necessarily selfless. In a world of limited resources and opportunities it is normal for the ‘self’ to be highly selfish hence the contradictory nature of the theory of free market economy under globalization. I argue that the theory is self contradictory because it is normal human nature being selfish hence anti competition. When threatened by the influx of seemingly hard working, creative and passive immigrants, I tend to gravitate towards conservatism. I start taking necessary steps towards protecting myself, my immediate family and hence my domestic market. These rules are typically borrowed from nature. How to balance the impulsive theory of free market economics vs the reality of limited resources and opportunities is a unique challenge to governments, policy and decision makers worldwide hence globalization in the short run presents unique challenges (conflicts) sometimes.

  10. Vatch


    Johnson supports private, for-profit prisons. As Governor of New Mexico he dealt with overcrowded prisons (and approximately seven hundred prisoners held out-of-state due to a lack of available space) by opening two private prisons, later arguing that “building two private prisons in New Mexico solved some very serious problems – and saved the taxpayers a lot of money.”

    He could have saved the taxpayers even more money by releasing non-violent prisoners convicted of minor crimes. But that would have offended some of his campaign donors.


    Bernie’s goal is to ban private prisons. Hillary has a similar goal, but takes money from prison lobbyists. Does this make sense to you?

    According to Lee Fang of The Intercept, Private Prison Lobbyists Are Raising Cash for Hillary Clinton.

    After pressure from civil rights groups, Vice News explains Hillary Clinton Shuns Private Prison Cash, Activists Want Others to Follow Suit.

    The Huffington Post writes “Lobbying firms that work for two major private prison giants, GEO Group and Corrections Corporation of America, gave $133,246 to the Ready for Hillary PAC, according to Vice.”

    Do you trust Clinton?

    I guess this means that we should vote for Sanders in the primary. Oh gosh, there’s a minor problem. The primaries are over, and Clinton is the nominee.


    “I do think we can do a lot of privatizations, and private prisons it seems to work a lot better,” said Trump when asked how he planned to reform the country’s prison system.


    As president, Jill Stein will:

    3.) Abolish private prisons

    So Stein of the Green Party is best on this issue.

    1. sgt_doom

      Interesting book published in 2000 — after the Clinton Administration, called:

      The Perpetual Prisoner Machine

      by Joel Dyer

      Anyone concerned with the privatization of prisons should read this prior to casting a 2016 vote for Clinton!

  11. no one in particular

    For more research on the topic – I found the following very readable, gave me a lot of insight into the factors influencing whether or when immigration is good or bad from which point of view:

    Paul Collier Exodus, ca. 2011….

  12. efschumacher

    So the UK National Health system nurtured me through my early years, and the UK education system gave me primary, secondary and degree level education. I have spent most of my working life doing an R&D job in the US. The US has benefited from my work during my working life. If I should choose to retire back to the UK, I will remit my pension income back there, and because of the tax treaty, pay income taxes there, which I claim as a full credit against the US tax return. So I’m “taking money out of the US, to the detriment of social cohesion and economic growth”.

    Question is, how much of the pension and/or social security and/or investment gains do I owe to the US, and how much to the UK? I think I owe more there than I do here. Particularly in light of the fact that the UK paid for my college education, but my nephews and nieces have to pay for their own, so I have hitherto been a drain on the UKs social investment strategy.

    I see it as much a moral question as an economic one that I should help support my family’s education directly, and the UK social system through future taxes paid from pension. I have after all supported the US social and military-industrial systems through work done and taxes paid during my working life.

  13. Adam Eran

    1. Undocumented immigrants are not eligible for welfare…they can barely get emergency room care.

    2. H1-B visas tap larger, typically Asian populations than the U.S. for their best & brightest. Could India actually make use of its intelligent people? Is it moral for the U.S. to, in effect, bribe them to leave their native country? (A point made by Ralph Nader in answering a libertarian at his Google talk)

    3. Roughly 50% of the undocumented are from Asia. Yet 90% of the deportations are Hispanic.

    1. Anon

      Roughly 50% of the undocumented are from Asia.

      Got a link on this? My experience is that the Asian population is either native or here on student visas. The chinese student population is quite large in Los Angeles. Student visas don’t allow foreign students to work off-campus, so many of them are family-funded. So they’re not taking jobs, but do impact the housing/rental market. (The California colleges love them for their out-of-state fees and strong study habits.)

      1. Gary

        I can only speak for Texas, but the nail salons, massage parlors, dry cleaners, restaurants, fishing boats and electronics refurbishing can’t ALL be H1-B visas. And that isn’t even counting all the people from India I see. Most of them are too old to be students.

  14. Dave

    Trump’s statement that he will issue an executive order forcing employers to use E-Verify for all new employees is a good start. While that program has a few flaws, the net effect would be massive for favoring citizens over illegals.
    To be fair, employers should still have the option of using illegals, however, they should put their money where their mouths and labor savings are, by not being able to deduct the non E-Verifiable wages from their income for taxation purposes.

  15. rick galusha

    You want to divide legal, illegal and refugees as each act differently.
    Also, we want to consider skills: high and low. For example, ~80% of STEM PhDs go to people who do not hold American passports. Clearly (generally) these are high skilled, and motivated whom contribute to our

    The nature of illegal immigration is that some employer is making money on them. The Hamilton Report (link: indicates that at the net income differential per illegal is about $50,000 + at the Federal level. In addition, immigrants are contributing to tax bases.

    The motivations of American immigration policies remains speculative (believe me, it’s all I read anymore). There are numerous theories including social identify theory, proximity, dynamic change, Nativism, ethnocentrism and good old race/ethnicity/ religion issues. If anyone tells you they know the cause – please forward them to me – I’d love to read definitive research because over the past four years in my PhD program – I have yet to find any.

    What’s is very clear, and this is agreed across the political spectrum, is that the current system is not working. In ’65 we shift, as a national policy from Quota to family retention. Princeton’s Douglas Massey has the best explanation that I have found which explains, in simple but logical terms, the true causes of illegal immigration. If you can find the original report, which I do not have at my fingertips at the moment, it is very interesting.

  16. sgt_doom

    Add to the author’s stuff from Johnson Administration: his Border Industrialization Program.

    Interesting article.

  17. Sluggeaux

    I’m with Yves on this — immigration in the U.S. is simply a mechanism for driving down wages — and, since money is speech, worker political power. Globalization=Slavery

    Obama comes here to Silicon Valley several times a year causing local police untold staffing disruptions, yet never makes a public appearance. Instead he collects checks at tech-Titan dinner parties.

    Then he turns around and “certifies” the “need” for more H1B visas, while tens of thousands of recent U.S. STEM grads are un- and under-employed. The San Francisco Chronicle recently documented that there are approximately a quarter-million India nationals living in Santa Clara County (Silicon Valley) today, many under false pretenses and paid sub-standard wages:

  18. Tom Skowronski

    I know of one industry that has been taken over by immigrants, illegal or otherwise, and that is Meatpacking. The meat cutter’s union was destroyed in the process with the attendant loss of good paying jobs.

    I read that last year a raid was done by the ICE on a packing company in, I believe, Kansas, to round up illegally employed persons. The head of ICE’s phone was ringing off the hook in 5 minutes with calls from Senators and Congress people demanding this action stop. When is some CEO going to do a perp walk over their hiring practices?

    1. swendr

      You know what preceded the takeover of the meatpacking industry with immigrants? Ruthless and flagrant union busting. Look up the Hormel P-9 strike for a taste of how that went down.

      No blame goes to immigrants in many of these situations, they are only taking a shitty job that has been made shitty by shit-head employers running off unions.

  19. Shekar

    Ugh. As an immigrant and an entrepreneur, I couldn’t disagree with this article more. If I hadn’t known better, I would have said this was a rationalization for a Trump rally. Immigrants on average contribute more than $80,000 than average Americans to the tax coffers. Numerous studies have shown that immigrants increase productivity – I mean just look at Silicon Valley – the engine of innovation and growth.

    Every educated immigrant from a third world country (read China, India, Russia) come to these shores – pay international tuition rates in colleges — get advanced degrees based on educational foundations set in their native countries (often subsidized by the native countries) and then start companies and create jobs and contribute to the bottom line of this country. This is what makes America great.

    There is a fundamental misconception in this article – and that is – it confuses money with wealth. Any number of dollars can be printed but unless there is increase in productivity (which can only come through innovation) there is no wealth creation.

    1. hunkerdown

      I don’t care how much you contribute to tax coffers. That’s your deal with the crooked State, not with me, and it’s better if you remember just how little we care for imaginary friends like states over here.

      No, what I care about is how much you contribute to my standard of living. Your crappy software eats my world and you’re paying governments to conspire to enforce your game rules with live ammo. Therefore, independent of the fact that you’re competing with me, you — and the rest of your “innovative” bourgeoisie — make my life worse and make me more beholden to you for it. Tell me again about your “innovative” Revolv thermostat.

      Social welfare does not “net out” and you’re impacting real people. You need to answer for this, and spare us the blather about your indispensability. How do we vote you proud people off the island so the rest of us can eat and get some rest?

      1. Steve H.

        This is an excellent example of both Shekar and Hunkerdown having competing True Positives.

        I live in a town where 3000 Chinese students bring in money. More boomy than I like, but the surplus cash really does increase the cultural wealth.

        My roof is being done by a local, who is competing doing drywall with non-English speaking Mexicans. He wants them to go back and make their country better. He has never been anywhere but local, does not see global, and is absolutely correct that they are taking pork chops off his plate.

        The personal facts on the ground are NEVER AGGREGATE. It’s not about gross, it’s about distribution.

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