Security Debrief

Trade Policy Analysis no. 40: Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform | Cato’s Center for Trade Policy Studies

By the latest estimates, 8.3 million workers in the United States are illegal immigrants. Proposed policy responses range from more restrictive border and workplace enforcement to legalization of workers who are already here and the admission of new workers through a temporary visa program. Policy choices made by Congress and the president could have a major economic impact on the welfare of U.S. households. This study uses the U.S. Applied General Equilibrium model that has been developed for the U.S. International Trade Commission and other U.S. government agencies to estimate the welfare impact of seven different scenarios, which include increased enforcement at the border and in the workplace, and several different legalization options, including a visa program that allows more low-skilled workers to enter the U.S. workforce legally.

For each scenario, the USAGE model weighs the impact on such factors as public revenues and expenditures, the occupational mix and total employment of U.S. workers, the amount of capital owned by U.S. households, and price levels for imports and exports. This study finds that increased enforcement and reduced low-skilled immigration have a significant negative impact on the income of U.S. households. Modest savings in public expenditures would be more than offset by losses in economic output and job opportunities for more skilled American workers. A policy that reduces the number of low-skilled immigrant workers by 28.6 percent compared to projected levels would reduce U.S. household welfare by about 0.5 percent, or $80 billion.

In contrast, legalization of low-skilled immigrant workers would yield significant income gains for American workers and households. Legalization would eliminate smugglers’ fees and other costs faced by illegal immigrants. It would also allow immigrants to have higher productivity and create more openings for Americans in higherskilled occupations. The positive impact for U.S. households of legalization under an optimal visa tax would be 1.27 percent of GDP or $180 billion.