immigration

Immigration Reform in America: The People, the Proposals and the Economics

Anjana Drukpa, a junior at Lincoln High School in Des Moines, Iowa, arrived in the U.S. from the mountains of Nepal when she was only 7 years old. She moved with her two sisters and her single mother. “She wanted us to come here to have a better life, better housing, for safety and education, so we can learn, pursue our career and then get a job,” says Drukpa, who is one of 13 high school students recording their immigrant stories for a podcast project at Drake University, also in Des Moines. “We’re just working really hard to make our mom proud for what she has done for us.”

Drukpa’s story and those of her classmates have become part of the U.S. experience – generations of immigrants and refugees landing in a new country from far away to discover opportunity and a better life. Many of us have friends, co-workers and neighbors with similar tales of how they integrated into the U.S. culture and economy. These connections make the recently proposed RAISE Act more personal and provocative than your typical policy reform.

Our sister publication Knowledge@Wharton recently sat down with Kent Smetters, a Wharton professor of business economics and public policy, to talk about the impact of proposed immigration reforms on the U.S. economy. KWHS gleaned a few of the essentials from that interview and other sources to help you start thinking about how the RAISE Act would impact your lives and communities.

The current immigrant situation in the U.S. About 800,000 legal immigrants (we are not talking about undocumented immigrants here) come into the United States every year, a quarter of a percent of the U.S. population, which is 325 million and counting. About 45% of those immigrants are college-educated, and the rest are typically very unskilled. The way to think about immigration in America is to adopt a barbell approach: We have a lot of people who are very unskilled, and a lot of people who are college-educated.

RAISE and its impact. RAISE stands for Reforming American Immigration for a Strong Economy. Reintroduced by U.S. Republican Senators Tom Cotton and David Perdue in early August and endorsed by President Donald Trump, the RAISE Act seeks to raise the bar for skill sets but also aims to reduce the number of legal immigrants allowed into the country by 50% over the next 10 years. It lowers the total amount of legal immigrants every year to roughly about 400,000. But it tries to change the skill mix such that instead of 45% of them being college-educated, it would be around 75%.

The motivation for these policy changes. According to its sponsors, the RAISE Act seeks to spur economic growth and raise American workers’ wages. “For decades our immigration system has been completely divorced from the needs of our economy, and working Americans’ wages have suffered as a result. Our legislation will set things right,” said Sen. Cotton in a statement. “We will build an immigration system that raises working wages, creates jobs, and gives every American a fair shot at creating wealth, whether your family came over on the Mayflower or just took the oath of citizenship.” Added Sen. Perdue: “We want to welcome talented individuals from around the world who wish to come to the United States legally to work and make a better life for themselves. The RAISE Act will create a skills-based system that is more responsive to the needs of our economy and preserves the quality of jobs available to American workers.”

A critical look at the numbers. Wharton research indicates that the RAISE Act could actually be a big negative for the nation’s gross domestic product (GDP) and employment. GDP is the most important economic indicator of the U.S. economy as well as economies around the world. GDP measures all goods and services that a country produces – from cell phones and strawberries to the plumber who fixed your sink last week — and it can be a kind of directional marker, giving clues about everything from your likelihood of getting a job, to the interest rate you will pay on a car loan or other debt.  It also tells economists when to start using the “R” word: A recession is often defined as two consecutive quarters of contraction in GDP. A steadily rising GDP typically means that the economy is humming, whereas a weak GDP means the economy is hurting.

What the heck is PWBM? PWBM is the Penn Wharton Budget Model, a simulator that helps analyze the potential impact of proposed policy changes. The PWBM is non-partisan and works at the intersection of business and policy to help policy makers, the public, and businesses make fact-based decisions. It is not meant to make policy recommendations. See the related links that accompany this article (in the toolbar to the right) to access the PWBM website.

What the numbers tell us. Smetters, who is faculty director of the PWBM, says the model tells us that between now and 2040 the proposed RAISE Act could shave two percentage points off GDP growth and cause a loss of more than four million jobs. However, in the short-term, reforms would have little negative impact on jobs and GDP, while wages would actually rise, although they would flatten out over time. Overall, the impact will be negative for both GDP and jobs. If there were no change in the number of visas issued, but all you did was to increase the skill mix, that would be positive for GDP, which would go up by about a third of one percent over time. But you will have a negative effect on GDP by reducing the total number of visas (those immigrants allowed into the country). The main points are that if you simply tilt the balance towards more skilled workers, that’s a positive because skilled workers are going to be net producers for the economy, not just in terms of the taxes they pay but in terms of job creation. But if at the same time you reduce the total number of immigrants, the effect goes in the opposite direction.

Increasing immigration. Even if we didn’t change the skill mix but we just increased the number of legal immigrants, it would have a very big positive impact on the economy. That is both in terms of total GDP and the number of jobs. Now, someone might say that this is obvious if you have more people. But it turns out that it even increases the amount of GDP per person, or how much money is available across everybody including native-born workers. The reason behind that is that immigrants tend to work pretty hard, and they tend to have a very high attachment rate to the labor force. They are less likely to be on unemployment insurance and things like that, and so they are really a net positive, even at a per-person level, not just at an overall level.

Playing with the PWBM. The Penn Wharton Budget Model is available online and free for use by the general public. You can go right to the Penn Wharton Budget Model website and play with the different simulators by just literally moving different dial controls to see what would happen, for example, to Social Security. There are many different options there of how we could fix Social Security, and you could move those dial controls accordingly. There are more than 4,096 combinations with Social Security alone. Because it’s a very deep model that does a lot of big data and a lot of complex theory, you don’t have to wait a half-hour, or an hour for your results. We use cloud computing to pre-compute every single combination ahead of time so that you get instant results.

Conversation Starters

What is the RAISE Act and who does it affect?

Did you and your family immigrate to the U.S.? Share your story in the comment section of this article. How do you feel about the RAISE Act?

What is the Penn Wharton Budget Model and what does it tell us about the current proposals for immigration reform in the U.S.?

12 thoughts on “Immigration Reform in America: The People, the Proposals and the Economics

  1. Great read! I’m quite intrigued now by how the PWBM works – It’s essentially portrayed a program that crunches lots of numbers based on real-world output and analysis of the employment market. However, it seems from my understanding that there must be plenty of other factors that affect this model as well, such as international conflicts (calling for more refugees/immigrants), the quality of higher education in other countries, birth rates, and any other possible demographic/socioeconomic changes or shifts in the data over time that all tie in, directly or indirectly, to the GDP and other economic statistics.

    Regarding the RAISE Act, quality does seem better than quantity in this case! It’s good to point out that other countries such as Canada and Australia have been using a similar points-based immigration system that seeks out and prioritizes more skilled immigrants who can contribute a great deal to the country’s workforce. However, we’ve got to be careful when it comes to allowing a massive influx of immigrants, in my opinion. The PWBM is showing a steady increase in figures such as GDP, but we’ve got to remember that with each immigrant comes a responsibility to provide them with services, just like every other American. Now, the immigrants’ hard work and dedication to their careers often outweighs the cost of providing for that immigrant and his/her family. However, if an increased amount of unskilled immigrants are coming in, then the cost suddenly takes over and overpowers the benefits, since now there’s a slight deviation towards the immigrant(s) being held more as a liability.

    So, in my opinion, the PWBM does a fantastic job illustrating the basic foundation of how immigration impacts the US economy. However, I’d love to see deeper iterations of this model that address more technical and volatile concerns of the overall demographic. As a child of two immigrants, I know the joy and struggles of coming to America and how hard immigrants work to make things happen. Looks like it’s about time to “RAISE” America’s economy to the next level!

  2. My family and I moved to the United States about three-years ago from Venezuela, because of the whole situation happening in Venezuela right now. It all started when My mom, my sister and I where in the car when my mom receives a call from my dad, my mom answered the phone when the only words that she hears are “APROVATION, APROVATION” and i quickly screamed “Dad! is approval” and he says ” i don’t care, the visa was approved!” and me and my mom screamed but my sister was not excited at all she didn’t want to move here at all. A few months later we get here, my dad started to work, my sister and I started school, and everything is going great after three years living here everything is going great.

    About the Raise Act i don’t feel very good about it, immigrants sometimes need help and this is really an important theme to talk about, immigrants make this country and its economy what it is today, they can’t just come and kick us all out of the country, companies like my dad’s help the country grow, and we are legal immigrants we L2 visa, they can’t just take away that from us when we are helping the country grow, the Raise at is not right and we have to prevent it form happening.

    1. Hi Jesus! Thank you for sharing such a personal story. It must have been hard to leave everything familiar in Venezuela to move to the U.S. I think that is extremely brave. Congratulations to your family on three years of success in this country. I agree that we should be talking more about immigrants and refugees and their impact on our economy, and stories like yours help open eyes and hearts to the reality of the situation. What has been your biggest challenge since moving to America?

      1. Hi Diana, really my biggest challenge since moving here to the U.S is school, since in Venezuela the education is more fast, here is more slow and everything is explained perfectly! It has been hard because living all my life in Venezuela with that education, now after 14 years of living in that type of education, taking a 360 turn is hard! But now i’m very successful in school!

    2. I feel the same way about the RAISE Act. I feel as if it is taking away from the immigrants that want a better life in the US. It’s just not right because immigrants make this country and the economy.

  3. The RAISE act The RAISE Act is a bill introduced in the United States Senate in 2017. Co-sponsored by Republican senators Tom Cotton and David Perdue, the bill seeks to reduce levels of legal immigration to the United States by 50% by halving the number of green cards issued. The bill would also impose a cap of 50,000 refugee admissions a year and would end the visa diversity lottery. It tries to change the skill mix such that instead of 45% of them being college-educated, it would be around 75%. The RAISE act affects Americans and Immigrants, they are trying to raise the wage for American workers and are seeking for college-educated people.

    1. The RAISE Act sounds like a very misguided law. It could potentially cause a great unbalance in the economy, in general. With more college graduates competing in the same field, it could make the already competitive job market, even more competitive. Skilled and unskilled labor relies on the number of workers who are able to work in the particular field. Laws like this need to have a well-developed balance or backup plan in case of another downturn in the economy.

  4. I think that the RAISE program should not be integrated because it takes away from the immigrants who want a better life in the USA. I know my parents came to the USA to have a better life in the USA than they were back in the Philippines.

  5. The RAISE Act aims to reduce the number of legal immigrants allowed into the country by raising the bar for certain skills. For example, this act would require around 75% of immigrants to have a college-education, in comparison to the previous 45%. This Act is meant to boost economic growth and preserve the number of jobs available to American workers and affects the immigrants attempting to come into this country in search of a better future.

    My family and I immigrated from Colombia in 2004. The economic, safety and social situation was quickly degrading in Colombia, so my parents made the decision of moving to the United States for me to have more opportunities and a safer life. I believe the RAISE Act is unfair to many immigrants as they are coming to the United States in order to receive more opportunities, one of which may include a college education. My father, for example, was able to become a citizen of the United States during his time in Florida working and studying.

    The Penn Wharton Budget Model (PWBM) is a simulator that analyzes possible changes and helps the public, policy makers, and business make smart decisions based on facts. The PWBM tells us that the RAISE Act could cause a loss of more than four million jobs and shave of 2 percentage points of the GDP. While it may increase wages, it overall has a negative effect on the economy.

  6. The RAISE Act is a bill that seeks to reduce levels of legal immigration to the United States by 50% by halving the number of green cards issued. It would change the skill mix such that instead of 45% of them being college-educated, it would be around 75%.

    My parents immigrated to the United States from Mexico in 1998. They came to the US because of an opportunity my father had with his company to come here for work. I was born in the United States and have lived here all my life. I think the RAISE act is a good idea that needs some work. I believe that we should be more selective on who comes into the country, bringing in low skilled workers is a risk to our country. I dont think
    The Penn Wharton Budget Model is a simulator that analyzes possible changes and helps the public, policy makers, and business make smart decisions based on facts. It tells us that the raise act is most likely not going to help the economy in the long term.

  7. The RAISE Act stands for Reforming American Immigration for a Strong Economy. Supported by Donald Trump, it would reduce the amount of visas given, attempting to half the amount of legal immigrants that can enter the USA, while raising the amount to have a college education. This act would affect about 400,000 of the 800,000 immigrants who move to America every year. the purpose of doing this is because people want to raise America’s GDP.

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