Immigration and the US economy

Definition Influx and settlement of people into an area or region from another country

Immigration has affected the US economy by increasing the supply of both skilled and unskilled labor, elevating demand for low-cost retail consumer goods and services, and suppressing labor costs. In addition, many immigrant laborers send money back to their country of origin, resulting in significant international cash flows.

Like a number of countries, the United States is largely a nation of immigrants. North America’s Indigenous peoples were forcibly displaced by European immigrants, mostly from Great Britain, during the colonial period. Following American independence, plantation agriculture gradually took hold in the southern United States, fueling the massive importation of slave laborers from Africa. During the first half of the nineteenth century, successive waves of European immigration continued alongside of the growth of slavery. A great number of Irish people immigrated to the United States during the 1840s to the 1850s, in large part because of potato crop failures in Ireland. Many Germans immigrated following the political fallout of a failed revolution in 1848.

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Late-Nineteenth-Century Patterns

Enslaved Africans and their descendants provided labor for plantation agriculture and to a lesser extent for mining. After slavery was abolished in 1865, African Americans worked in agriculture and other manual labor. The newly immigrated Irish and Germans served as domestics and manual laborers in a variety of industries. Chinese immigrants were employed initially to build the expanding railroad system. These sources of cheap, imported labor are thought to have provided the foundation for industrialization by ensuring that there were enough workers to fill the growing number of factory production jobs. As the industrial economy expanded, the demand for cheap labor grew, paving the way for new waves of immigration. In the second half of the nineteenth century, many immigrants came from southern and eastern European countries, such as Italy, Poland, Greece, and Russia, as well as Asian countries, such as Japan and China.

A rise in anti-Asian sentiment in the final decades of the nineteenth century led to restrictions being imposed on immigration from Asia, resulting in decades in which much of the immigration was from southern and eastern Europe. At the same time, immigration across the southern border of the United States added to the existing Latino population.

During the early 1920s, the federal government began to enact legislation designed to restrict overall immigration. Until that time, US public opinion had generally favored an open immigration policy as synonymous with the conditions of modern liberty. The shift toward placing federal restrictions on immigration in the form of quotas was in large measure a response to the growing power of US organized labor. In the late nineteenth and early twentieth centuries, industrial trade unions demanded protection from the threat posed by the influx of immigrant laborers, who were generally willing to work for lower wages. In general, immigrant laborers not only undercut the ability of trade unions to negotiate higher wages and better working conditions but also were often hired by US business owners as strikebreakers.

War and Immigration

During World War I and World War II, the combination of US soldiers fighting overseas and factory production running at full capacity created serious labor shortages. In both wars, Washington looked to immigrant labor to solve the problem. Because most of Europe was embroiled in war, most of the immigration was from Mexico. As each war came to an end, however, the slowdown in factory production, coupled with the return of troops, led to sharp rises in unemployment and tight competition for work. This inevitably created the conditions for social conflict and presented new dilemmas for immigration policy makers.

For example, during the intense 1921–22 recession, Mexican laborers who had come to the United States during World War I quickly were seen as unwelcome by more established American immigrants. The anti-Mexican climate resulted in a large-scale repatriation program that was orchestrated to show government concern for rising unemployment and the economic downturn. Thousands of Mexicans were deported. Although the campaign soon eased, along with the recession itself, by 1923, the Great Depression that set in at the end of the 1920s would once again lead to a renewed drive to repatriate Mexican immigrant laborers.

For its part, the Mexican government consistently protested aggressive US moves to deport its citizens, often at moments when its own country was experiencing an economic slowdown and a reduced capacity for reabsorbing laborers. Although the Mexican government cooperated with US authorities in facilitating the repatriation of its citizens, it urged Washington to legislate a more orderly institutional arrangement for handling the US demand for foreign immigrant labor. This call went mostly unheeded until the 1940s, when the United States moved to formalize a large-scale contract labor program.

As World War II intensified, the stage was set for another critical labor shortage in the United States. When factory production reached full capacity in 1942, Washington responded by introducing the Mexican Contract Labor Program, which later became commonly known as the bracero program. Over a three-year period beginning in August 1942, around three hundred thousand Mexican laborers were contracted to work in agriculture and railway construction under conditions negotiated with the Mexican government.

The accord was bitterly opposed by Mexican business owners who complained that the program artificially raised the price of labor in Mexico. Throughout the remainder of World War II, the Mexican government asserted its authority by enforcing certain minimal protections of its workers in the United States. For example, the Mexican government enforced a ban on labor contracts with the state of Texas that was in place because of previous abuses in the treatment of Mexican laborers. Mexico resisted pressure from the United States to lift this ban over the life of the program, thus creating a new pattern in which US and Mexican authorities jointly negotiated immigration in accordance with their respective national interests.

Although the bracero program was suspended after World War II, it was resumed during the Korean War and continued to bring hundreds of thousands of mostly Mexican laborers into the United States each year until the program was terminated in 1964. By that time, it had sponsored the entry of more than four million Mexican laborers, which in turn had largely shaped the face of modern US agriculture.

Controversies and Regulations

Increased cooperation between Mexican and US authorities failed to alleviate persistent tensions over Mexican immigration. After the Korean War, a rise in unemployment resulted in widespread complaints about Mexican laborers remaining in the United States after their contracts had ended, thus putting renewed pressure on Washington to act. In April 1954, President Dwight D. Eisenhower authorized a military-like operation designed to deport Mexican laborers. Dubbed Operation Wetback, the repatriation program rode on the crest of racist sentiments that blamed Mexican immigrants for labor strife and a host of other social problems.

US agricultural producers saw their cheap supply of migrant labor abruptly shrink as federal authorities concerned themselves with reassuring the public that immigration was firmly under their control. Operation Wetback had a traumatic and stigmatizing effect on Mexican American communities and legal residents, some of whom were mistakenly deported. Although this repatriation program was short-lived, it had the effect of further weakening the already slim protections offered to immigrants under the bracero program.

By the 1960s, US immigration laws and border control policies had emerged as Washington’s chief policy instruments to help synchronize the flow of immigrants with the larger business cycle. The federal government sought to exert control over an increasingly globalized labor market with an eye to managing potentially harmful domestic political and social conflicts. The national quota system was replaced in the mid-1960s, and new immigration surges beginning during the 1980s saw the influx of Mexicans, Central Americans, and other Latin Americans, along with Caribbean and Asian immigrants. This influx renewed the public debate over how to address the strain on public services posed by both legal and unauthorized immigrants.

Between the 1970s and the 1990s, the federal government also created or modified a number of foreign-worker visa programs, including the H-1B visa program for skilled workers, H-2A and H-2B visas for temporary agricultural and nonagricultural workers, and L-1 visas for intraoffice transfers of high-skilled workers. Such programs are subject to annual caps and oversight; both have varied in subsequent decades in response to political factors, such as lobbying from certain business sectors.

Implications for Business

As the American public became aware that undocumented immigrants were being routinely hired for agricultural and food-processing work, people began to pressure the government to enact sanctions on employers. The Immigration Reform and Control Act (IRCA) of 1986 made it a crime for businesses to knowingly hire undocumented immigrants. The new law required employers to demand proof of US citizenship or legal residence before contracting with laborers. Business owners failing to comply and who knowingly hired undocumented immigrants faced thousands of dollars in fines and, in some cases, even possible prison sentences. However, the debate did not end there, nor did unauthorized immigration. The flow of undocumented immigrants into the United States continued, keeping immigration reform in the public spotlight.

In the twenty-first century, the debate about immigration had come to center largely on undocumented immigrants. In 2005, the number of undocumented workers in the United States was estimated at around twelve million. If those undocumented workers were forced to leave in accordance with the existing law, the US labor force would have shrunken by 5 percent, and the low-skilled portion of the national labor force would have declined by at least 10 percent. About one-quarter of all undocumented workers worked in agriculture, 17 percent in domestic work, 14 percent in construction, and 12 percent in food preparation industries. Dramatic change in their availability would have had a disproportionately adverse effect on businesses in these areas, as wages for low-skilled laborers would inevitably rise.

Under President Barack Obama, the federal government aggressively pursued deportations, which peaked at over 400,000 between 2012 and 2014, and faced a highly publicized surge in unaccompanied minor children crossing the border. After Obama failed to pass immigration reform bills through Congress founded upon the idea that undocumented immigrants (and immigrants in general) play significant roles in bolstering the US economy, in late 2014, he announced a controversial plan to issue an executive order that would bypass Congress. In November, the president announced the Deferred Action for Childhood Arrivals (DACA) program with the goal of keeping a large percentage of the undocumented immigrant population from being deported and providing work permits. This order proved only temporary, however. It had faced opposition from Congress as well as a legal challenge from several states, and Obama's successor, business mogul Donald Trump, sought to rescind DACA and its work-permit provision.

According to the Pew Research Center, in 2017, the year Trump took office, approximately 7.6 million undocumented immigrants were working or seeking work in the United States, as compared to 21.2 million lawful immigrant workers. Less than 5 percent of the US civilian workforce was undocumented. Of the 45.7 million foreign-born residents that year, 23 percent were undocumented, 32 percent lawful residents, and 45 percent naturalized citizens.

Under President Trump, who had campaigned for strict immigration limits and border enforcement, the government made hundreds of related policy changes. Notably, it apprehended significantly more undocumented immigrants living within the country, as well as migrants attempting to cross the US-Mexico border, a growing share of whom were Central American families seeking asylum rather than single adults. Additionally, Trump used emergency powers to reallocate funds the border wall expansion and issued an executive order tying funds for local governments to enforcement action.

In addition, the Trump administration proposed dramatic changes to the system of legal migration. Through the 2000s and 2010s, Congress had introduced several bills proposing a merit- or skills-based system for issuing visas, either to replace or alter the existing policy preference for family reunification. Some called for abolishing the diversity lottery system as well. Proponents, such as Trump, believe that those preferences result in the entry of more low-skill workers and instead seek to give greater weight to such applicant characteristics as educational attainment, employment qualifications, and English-language ability. However, under Trump, federal agencies also proposed redefining the high-skill H-1B program and revoking H-4 visas, which allow H1-B visa holders' spouses and children to obtain work permits. After Trump left office, President Joe Biden stopped border wall construction and sought to reverse many of the Trump-era changes to legal immigration rules while retaining others, such as a wage-based prioritization among high-skilled visa applicants.

In strictly economic terms, the costs of aggressive border control may exceed the costs incurred by unauthorized immigration. Various cost-benefit studies have shown that the net fiscal drain on public finances caused by unauthorized immigration remains relatively low, and the cost of measures proposed to heighten control over immigration would be greater. Although analysts and experts disagree, many think that the American business community generally benefits from higher immigration levels (legal or unauthorized), and organized labor is the most adversely affected.

Also significant has been the rapid growth in the money that many immigrant workers send to their home countries. Since the late 1990s, the steady pace of increase has fueled a thriving industry that handles these financial transactions. According to data from the World Bank, annual remittances from US immigrants, estimated at more than $35 billion in 2000, more than doubled by 2019, making it an extremely lucrative market for banks and electronic transfer firms. Abuses caused by unscrupulous practices that take advantage of a vulnerable clientele have led to increased governmental regulations over fees and charges assessed against this high volume of remittance transactions. By 2014, immigrants in America were facing steeper charges to send their earnings back home, as many banks were pressured into dropping their international money-transferring services. Many developing countries have come to view these financial inflows as important sources of national finance capital that compensate for the absence of its laborers.

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