Immigration: We Simply Cannot Afford This

Immigration: We Simply Cannot Afford This

Coauthor: Chris Shipley

UPDATE JANUARY 8, 2019

In the weeks since the US Government shutdown over a partisan border wall dispute, an essay written more than two years ago had jumped back into the conversation, with more than 35,000 new readers in recent days.

Many of new comments debate the contributions illegal immigrants make to our economy. More argue that “their ancestors” entered legally and so, too, should everyone else. No doubt, immigration is a complex issue with no easy answers, and we are not suggesting that we have an appropriate policy recommendation. We do, however, believe that this complex issue must be addressed in a fact-based discussion. To ground and advance discussion, we offer these facts: 

Illegal vs. Legal Immigrants and Entrepreneurship

While the high-profile entrepreneurs in the cover image may not have entered the country illegally, it does not mean entrepreneurship is only the domain of legal immigrants. “Despite financing and licensing obstacles, undocumented immigrants frequently start their own businesses. In 2014, almost 10 percent of the working-age undocumented population were entrepreneurs. In more than 20 states, they boast higher rates of entrepreneurship than either legal permanent residents or citizens of the same age group. These self-employed workers frequently create American jobs. Their companies also generated $17.2 billion in business income in 2014”. (source: https://www.newamericaneconomy.org/issues/undocumented-immigrants/)

Undocumented immigration and Crime

“Contrary to popular rhetoric, undocumented immigration is not linked to a spike in U.S. crime rates. Between 1990 and 2013, a period when the number of undocumented immigrants more than tripled, the rate of violent crime in the U.S. fell by 48 percent (Source: Walter Ewing, Daniel E. Martinez, and Ruben G. Rumbaut, “The Criminalization of Immigration in the United States” (American Immigration Council, July 13, 2015). Available online.)

Further, the NYT recently reported: "...several studies have found no link between immigration and crime, and some have found lower crime rates among immigrants.

Texas, which has the longest border with Mexico and has one of the largest populations of undocumented immigrants of any state, keeps track of immigration status as part of its crime data. The Cato Institute, a libertarian research center, analyzed the Texas data in a 2015 study and found that the rate of crime among undocumented immigrants was generally lower than among native-born Americans".

Graphic Source: NYT

“Everyone is for LEGAL immigration. They should wait in line like my ancestors did.” (said in one form or another in ~20-25% of comments)

If your ancestors came to the United States more than 120 years ago, they were effectively “illegal” and perhaps “undocumented”, too. Laws governing “legal” immigration were not in place before the 1880s. (source: https://www.uscis.gov/history-and-genealogy/our-history/agency-history/early-american-immigration-policies)

Even then, immigration laws were very lax until the 1917s when literacy tests (which could be taken in ANY language) were added to the immigration process. (source: https://www.uscis.gov/history-and-genealogy/our-history/agency-history/early-american-immigration-policies). 

Moreover, it wasn’t until 1965 that the United States removed quotas on immigration that favored European immigrants. So, if your ancestors were of European dissent and immigrated in that window, it’s highly likely they “did not come here legally waiting in line like everyone else.” (Source: https://www.history.com/topics/immigration/u-s-immigration-before-1965)

Despite the claims by the current President of the United States, illegal southern border crossing have been declining for two decades.

Data Source: U.S. Customs and Border Protection via the New York Times

Asylum seeking is NOT illegal immigration

Asylum is a protection granted to foreign nationals at the border (and sometimes already in the United States) who meet the definition, established by the United Nations in 1951 and further defined in the 1967 Protocol. These individuals must demonstrate that they are unable to return to their home country due to past persecution or a well-founded fear of future persecution. The US Congress incorporated the UN definition into our immigration laws in 1980. (Source: https://www.americanimmigrationcouncil.org/research/asylum-united-states)

By contrast, illegal immigration refers to individuals who violate immigration law to enter the country or who no longer have the right to remain in the country, for example, people who remain in the US after their student or visitor visa has expired. About two-thirds of undocumented immigrants have been in the United States for at least 10 years, and the overall number of undocumented Mexicans in the United States is on the decline. (Source: http://www.pewresearch.org/fact-tank/2018/11/28/5-facts-about-illegal-immigration-in-the-u-s/)

Many asylum seekers are families as opposed to individuals and here we do see an increased population but again it does not change the previously stated fact that illegal border crossings have been declining for two decades.

Data Source: U.S. Customs and Border Protection via the New York Times

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ORIGINAL ARTICLE FROM February 7, 2017

NOTE: If you like this article, please read our follow up that covers the impact of rising automation and the future of work: Hard Truth About Lost Jobs; It Is Not About Immigration.

In an interview with MSNBC’s “Morning Joe” three days after President Trump’s executive order restricting entry to foreign nationals from seven largely Muslim countries, White House Press Secretary Sean Spicer called the ban “a small price to pay” to insure the security of the country. Mr. Spicer’s comment and, indeed, the ban itself begs for a fact-based discussion on the role of immigration in the United States economy, particularly as this Executive Order is just the first steps in a “larger immigration effort,” according to the White House spokesman.

With student and H-1B work visa programs, among others, squarely in the sights of reformers, I turned to multiple, nonpartisan research organizations to examine the impacts of entrepreneurship, job growth, and immigration on the economy. The findings suggest that, contrary to Mr. Spicer’s assertion, the price may be much higher than the administration is willing to admit.

[Note: This article, which is my opinion supported by facts, strives to create a dialogue about immigration and the economy-- it is not limited to, or a focus on, the currently proposed executive order temporary ban-- that is merely the catalyst. Said simply and directly, this is not an article about the ban.]

Net Job Growth

To place the impact of immigration in context, it’s important to first look at the source of new job growth. In its 2015 update to the report The Importance of Young Firms For Economic Growth, the Kauffman Foundation found that the majority of net new job creation and twenty percent of gross job creation comes from companies five years and younger. Firms less than one year old created an average of 1.5 million jobs per year over the past thirty years. Older, established firms, often shed jobs at a rate higher than they create them. It stands to reason, then, that we need to continuously create new companies in order to keep pace with the needs of our labor force.


Accelerating Industry Disruption Cycles

Research by the Innosight Consulting Group in 2012 found that the lifespan of companies listed on the S&P 500 was dramatically shrinking. In 1958, a company held its place on the index for an average of 61 years. By 1980, the average time on index dropped to 25 years, and then to 18 years by 2012, as new and innovative companies disrupted and replaced the index stalwarts. If this rate of disruption continues, as researchers believe it will, 75% of the companies listed on the S&P 500 in 2027 will be entirely new firms. In order to maintain a dominant role in the global economy, we need to continuously create new firms in order to keep pace with our accelerating industry disruption cycles.

Immigration and Entrepreneurship

With that as background, then, it is important to understand the relationship between immigrants and entrepreneurship in the United States. Research by the Kauffman Foundation, the Small Business administration, and others finds that immigrants start businesses at a much higher rate than native-born Americans—even in periods of economic recession. A 2012 Kauffman Foundation study, for example, found that immigrants started businesses at about twice the rate of native born Americans. Notably, about 25 percent of engineering and technology companies founded between 2006 and 2012 had at least one founder who was born abroad, and in Silicon Valley that share rose to 43.9 percent. 

In the period 1996-2011, there was a fifty percent increase in the number of businesses started by immigrants and a ten percent decline in businesses started by native-born Americans. According to the National Foundation for American Policy, fifty-one percent of the billion dollar startups in 2016 had at least one foreign born founder. This trend of immigrant driven entrepreneurship is now stretching over more than a decade, many of our technology driven startups, fueling this industrial revolution, are built by individuals who were not born in this country.

Moreover, according to a 2012 report by the Partnership for a New American Economy U.S. immigrant-owned businesses are 60 percent more likely to export goods than are native-owned companies, and are more than 2.5 times as likely to rely on exports for a large part of their sales Exports are vital to our nation, responsible for about half of the country's economic growth in recent years.

A 2016 article in Harvard Business Review speculates that immigrants are more entrepreneurial because their extensive cross-cultural exposure makes them better able to evaluate business ideas across domains and port new offerings to new context, skills that enable them to more readily identify promising business opportunities. We need immigrants with diversity of thought and cultural experiences to assist in the creative expansion of this next industrial revolution.

Potential Brain Drain        

We must also consider the impact of the immigration order on our collective intellectual capability. The United States hosts the highest percentage – 19% - of international student population, according to the Migration Policy Institute, citing 2013 data, last year data was available. These students don’t just study and leave; they often become key contributors to our academic institutions. Looking at the very near term and executive order ban alone, Bloomberg reports that College Factual estimates this thin slice of immigration alone could cost the US $700 million in annual lost revenue. Notes Harvard President Drew Faust: "Nearly half of the deans of Harvard's schools are immigrants - from India, China, Northern Ireland, Jamaica, and Iran.” Lizbet Boroughs, associate vice president for federal relations for the Association of American Universities, reported in the Washington Post recently that the order could ultimately hurt the country’s competitiveness if the best and brightest research scholars no longer want to study or work in the United States.

This is a very real concern when you consider the role of students in the creation of new companies. The National Foundation for American Policy (NFAP) found that international students account for 70 percent of the full-time graduate students (both Master’s and Ph.D.’s) in electrical engineering, 63 percent of computer science, and more than half the full time graduate students in industrial engineering, economics, chemical engineering, materials engineering and mechanical engineering. When you consider the next industrial revolution—these are the key disciplines fueling it. We cannot cut ourselves off from the best and brightest in the world—our national economic competitiveness depends on it.

Not long ago Elon Musk -- founder of Tesla, Space X, Solar City, and the precursor to Paypal -- was a South African-born Canadian foreign national studying for his PhD at Stanford University. Russian foreign national Sergey Brin and American-born Larry Page met at Stanford and turned their academic research into the foundation for Google. Steve Jobs, son of a Syrian immigrant who under President Trump’s order would not be let in the country today, founded Apple, #9 on the list of the world’s largest companies with 2016 revenue of $234 billion and a market capitalization of over $550 billion. Where on our list of banned countries sits the next founder of an Apple, Google, or Tesla?

Beliefs, Myths, and Facts

According to William C. Banks, director of the Institute for National Security and Counterterrorism at Syracuse University College of Law, "Since 9/11, no one has been killed in this country in a terrorist attack by anyone who emigrated from any of the seven countries [listed on the executive order].”

The Niskanen Center study on immigration policy (1998-2012) found that as immigration increases, violent crime decreases. Further, the American Immigration Council found that among men 18-39, the bulk of the prison population, foreign-born nationals (0.7 %) are incarcerated at a lower rate than native-born Americans (3.5%). 

A recent study, The Effects of Immigration on the United States Economy (2016) by Wharton found:

  • "available evidence suggests that immigration leads to more innovation, a better educated workforce, greater occupational specialization, better matching of skills with jobs, and higher overall economic productivity" 
  • "Immigration also has a net positive effect on combined federal, state, and local budgets. But not all taxpayers benefit equally. In regions with large populations of less educated, low-income immigrants, native-born residents bear significant net costs due to immigrants’ use of public services, especially education."

The myth that undocumented workers take from the system appears to be unsubstantiated. According to Steven Goss, Chief Actuary at the Social Security Administration, 1.8 million undocumented workers using purchased or false social security numbers paid $13 billion in taxes for which they received less than $1 billion in services in 2010, the last year data was available. These numbers account for a $12 billion annual net cash flow to the US treasury. (2019 Data Update: Undocumented Immigrants created $100 Billion Surplus to the US Social Security Office over the last decade. Source)

Not only do immigrant workers contribute to the labor force notably in the service and construction sectors, they contribute to our tax base at a higher rate than our top earners. The Institute on Taxation & Economic Policy's study found that, "undocumented immigrants' nationwide average effective (state and local) tax rate is an estimated 8 percent. . . The top 1 percent of taxpayers pay an average nationwide effective tax (state and local) rate of just 5.4 percent.”

In short, whether through their payroll taxes, entrepreneurship, or intellectual property, immigrants contribute to the United States economy far more than they take from it. Further, an immigration ban denies our country tremendous opportunity and potential.

We have been on the wrong side of history before. American University history professor Richard Breitman noted in a 2007 story in the Washington Post: "Otto Frank’s efforts to get his family to the United States ran afoul of restrictive American immigration policies designed to protect national security and guard against an influx of foreigners during time of war. [Were it not for that policy,] Anne Frank could be a 77-year-old woman living in Boston today – a writer.”

We must learn from our past mistakes and cease on current opportunity, or we risk changing the course of our history and our economy—for the worse. Put simply, in my opinion we cannot afford this.


Update:

Since we wrote this article a week ago, over 660,000 people have viewed it. A large percentage of the comments focus on the temporary ban rather than immigration and the economy. I amend this article only because it seems there is some confusion, so I offer a few key points:

  1. This article was intended to offer facts for a discussion and consideration about immigration and the potential impact on the economy, not the proposed ban or a political discourse on the current administration. This is intended to be a catalyst for discussion of economic impacts not politics or administrations in the US or elsewhere.
  2. The 90 executive order day ban from 7 countries was widely reported, the elimination of 60,000 visas was not. (Source Reuters)
  3. On February 9th Senators Tom Cotton, Arkansas (R), and David Perdue, Georgia (R) proposed legislation that would reduce immigration by reducing green cards. “The net effect is to cut American immigration in half,” Cotton told Fox News’ “Fox & Friends.” Hence the intent to have a discussion about immigration beyond the immediate ban. (Sources: Fox News and CNN). On August 2, 2017 President Trump proposed legislation to cut LEGAL immigration in half over the next decade . (Source: NYT). See if you could "pass" the screen to be deemed eligible for immigration. The authors of this blog would not.
  4. In the more near term, the temporary ban, specifically the recall of 60,000 green cards, is having potentially devastating impacts on scientific research at multiple institutions in the US. (Sources: The Atlantic, Nature.com, and The New York Times)
  5. Some have commented that H1B visas are a way to hire foreign workers at a lower price than Americans. This appears to not be true. The financial and opportunity costs of hiring a foreigner on an H1B visa are both complex and a low yield lottery (although odds change year to year it is about 33%). More information can be found here on that
  6. Others have commented that immigrants have the advantage of not paying taxes for a set number of years, further disadvantaging the American worker. This also is untrue; more on that topic can be found here. More on immigrant myths here.
  7. The debate about illegal vs. legal or documented vs. undocumented immigration is highly politicized. This post seeks to stick to facts through an economic as opposed to political lens as difficult as that may be. The economics of illegal or undocumented immigration is complex. While undocumented immigrants cost in terms of wage compression in some industries and social service spending - although that is largely limited to healthcare and education, as undocumented workers do NOT qualify for other forms of social services - undocumented immigrants subsidize the reduced costs we all enjoy, notably from agriculture. The Congressional Budget Office concluded (2007) after analyzing two decades of data, that immigrants both legal and illegal contribute more in taxes than they consume in services. If all illegal immigrants were deported, we would see a rise in jobs, particularly low skilled jobs, and a rise in pay but we would also see a dramatic spike in the cost of goods and a decline in economic growth. For example, the National Milk Producers Federation in 2009 stated that retail milk prices would increase by 61 percent if its immigrant labor force were to be eliminated. More information can be found from this article from the WSJ that covers both perspectives with great sources and this article from the Hill. Please suggest more sources for this debate if you find more recent data.
  8. As undocumented or illegal immigration is complex and, hence, there is not a clear right and wrong without asserting opinion, I offer information on one of the key crimes of illegal immigration, identity theft. Undocumented workers who do pay taxes must first purchase a forged or stolen identity, which is not a victimless crime. More information on that here.

The phenomenon of immigrant entrepreneurs is not a new or novel notion. It appears many of our major US brands have foreign born founders. I am tallying a growing list. Please comment with suggested additions to this list (below).

The correlation of immigration and entrepreneurship appears to be not limited to the US as, according to the Financial Times, immigrants to the UK set up one in seven new companies creating 14% of jobs. According to the Economist, 44% of new companies established in Germany were registered by an individual with a foreign passport.

The US remains the leader in entrepreneurial activity (Source: Chart from Economist)

If you like this article, please read our follow up that covers the impact of rising automation and the future of work: Hard Truth About Lost Jobs; It Is Not About Immigration.

__________________________________________________________________

Heather McGowan

Selected in as the LinkedIn Number One Global Voice For Education in 2017, Heather McGowan is a Future of Work Strategist who believes that the companies that learn faster than their competition will be poised to win in the Fourth Industrial Revolution. McGowan works at the intersection of the Future of Work and the Future of Learning, an emerging field that integrates design strategy, management consulting, and education. McGowan has been recognized as one of the Top Female Futurists as she is a highly active global speaker averaging more than 50 international speaking engagements a year. Heather is currently collaborating with Chris Shipley on a book on the Future of Work. Information on other articles on the Future of Work can be found here.

Heather's LinkedIn network is open. She welcomes conversations about the future of work, future of learning, or creating learning networks. Contact heather@heathermcgowan.com for speaking engagements or consulting requests. More info: www.heathermcgowan.com

Chris Shipley

Chris Shipley has documented, influenced, and predicted the impact of technology on business and society for more than 30 years, as a journalist, analyst, event producer and advisor. She is currently COO for the social storytelling site Sparkt.com

Michael Cozzolino

Computer Software Professional

5y

Next to zero people are against immigration. They are against illegal immigration. This post is such a virtue signal.

Matt Ballway

Production Manager at Blink Charging Co

5y

IMO, the "partisan border wall dispute", there is decades of politicians of every stripe calling for a border wall. Funding is what is causing the partisans to fued, not a wall.

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Keith Hoene

Redefining success one failure at a time

5y

There is much tangle here. My favorite is thousands of people seeking asylum that walk through and ignore an entire country offering them asylum to only then come to another country and demand it. This is a political article disguised as business analysis. Measure a country's intelligence not by its answers, but by the questions it had the courage to ask. Thank you Voltaire. We as the citizens have allowed the politicians and activists play us for chumps convincing us that 'the other party' is the problem. In fact the whole system is to blame as we allow them to kick the can down road for 50 years. And when you kick the can for that long walls happen. The reality is that the wall was built around the conversation and there are strong forces with much too lose if that wall comes down and we actually begin having real conversations.

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Quite frankly all the data provided here does not address the issue of "wall" or "no wall". Perhaps the question or debate should be "how much illegal immigration is acceptable?"

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