The United States is witnessing another vigorous debate over its immigration and border security policies. Many aspects of this debate are now familiar, even tired. Who should be a priority for legalization—Dreamers, farmworkers, or every undocumented immigrant? What is a bigger priority—securing the southern border (an ill-defined objective itself) or adjusting the caps on visa, refugees, or other reforms to meet demand?
Perhaps more important, the immigration-reform discussion too often occurs in a silo, divorced from other pressing policy issues such as raising real wages and the standard of living, financing the entitlement programs and securing the social safety net for the future, and improving America’s international competitiveness.
This approach to immigration is a mistake. Sensible, economically oriented reforms to the core visa-granting criteria are an immigration reform that a majority of policymakers could support. Such reforms would simultaneously make the immigration debate less contentious—and other policy challenges easier to address.
Policy Challenges and Immigration
The decline in the fertility rate during the pandemic garnered a lot of press attention. As it turns out, however, this is just the latest wrinkle in a long-standing trend toward lower fertility among native-born Americans. Fertility is below the replacement rate—the number of children per female that is needed to simply keep the size of the population unchanged. Indeed, as displayed in the chart below, low fertility ultimately translates into a shrinking native-born population.
This low fertility rate has profound implications. A smaller (and older) population translates into fewer workers and lower national income. An older population and shrinking economy handcuffs the ability of the United States to project its values across the globe.
Slowing growth in gross domestic product (GDP) seems quite abstract. But consider that the most recent Congressional Budget Office projections imply the trend growth in GDP per capita will average only about 1.1 percent. At that pace of expansion, it will take 65 years to double income per person.
That tepid growth rate stands in sharp contrast to the experience of the postwar period, during which the trend growth rate of GDP per capita was fast enough for an individual to expect the standard of living to double in 30 to 35 years. Put differently, during the course of one’s working career, a worker’s overall ability to support a family and pursue retirement would become twice as large. No longer. Access to the American Dream is disappearing over the horizon. More rapid growth is not an abstract goal; faster growth is essential to the wellbeing of American families.
These demographic forces threaten the social safety net as well. Programs such as Social Security and Medicare rely on growing payrolls and payroll taxes to support essential benefits. At present, those programs are increasingly running deficits and relying on transfers from general revenue to make ends meet. In the process, the entitlements consume the resources also needed for national security, infrastructure, education, research and development, and other investments in America’s future.
There is one simple solution to reverse the decline, fuel economic growth, and ease the financial pressures on the social safety net: immigration. Immigration reform is not something we have to do. It is an opportunity and something both parties should want to do.
Shifting the Immigration Strategy
To make the economic impact of immigration reform as large as possible, the criteria for granting visas should be reformed to make economic impact the highest priority. At present, the emphasis is on family reunification. This priority stands in contrast to developed country competitors. Two valuable examples are Australia and Canada. For a visual comparison, the chart below breaks down immigration flows to each nation based on category of admission. It is apparent that, compared to the United States, Australia and Canada give significantly more weight to employment-based reasons for immigration than to family sponsorship.
In addition to bringing greater economic punch to immigration, a shift in focus to economic-based immigration arguably gives a country the ability to absorb a much higher number of new immigrants each year relative to their population size. In 2017, new immigrants to Australia represented 0.9 percent of the population and new immigrants to Canada numbered 0.8 percent. In contrast, the United States accepted 0.3 percent. Similarly, immigrants in both Australia and Canada make up 29.8 and 21.9 percent of the entire population, respectively, compared to 14 percent in the United States.
Immigrants also contribute directly to the economy by working. On average, foreign-born workers have higher labor-market participation rates (65.2 percent) than native-born workers (62.8 percent). And they are also disproportionally more likely to start their own businesses. Nearly 20 percent of self-employed individuals in the United States are foreign-born, even though immigrants are only 14 percent of the U.S. population. Indeed, first- or second-generation immigrants have founded (or helped found) more than 40 percent of current Fortune 500 companies, and more than 50 percent of Fortune 500 technology companies.
In addition, immigrant workers spur productivity gains in the economy and thus raise real wages and income per capita. The contribution of immigration to faster labor-force growth has a feedback effect on productivity. Research suggests that innovation is at least in part embodied in the quality of consumer and, especially, capital goods. To the extent this dynamic is true, productivity will be higher as the opportunities for this embodiment to take place are greater. In particular, at higher rates of overall GDP growth stimulated by more rapid labor supply growth, there will be greater replacement of existing capital goods and investment in new capital goods, leading to higher productivity growth.
To close the circle, more rapid overall population growth would generate more rapid GDP growth, which would in turn raise productivity growth. The latter raises GDP per capita, or the standard of living.
An Example of Reform
In recent work with Jacqueline Varas, I proposed a two-part reform to the U.S. system of granting permanent visas, centered on credentials for education and skills and on proven work histories in the temporary visa program.
In doing so, we consciously abstract from a number of issues. We recognize that Congress may wish to continue targeted programs for family reunification (we do address families), asylees, and refugees. Our view, however, is that the vast majority of permanent visas should be granted based on economic criteria. Similarly, Congress will have to come to grips with a transition strategy for those here illegally and the DACA (Deferred Action for Childhood Arrivals) population.
The basic ideas are straightforward. We employ a point system to identify highly educated, highly skilled, and entrepreneurial workers. Those with sufficient points are admitted. (Details on the points are in the proposal.) I think of this system as analogous to reading resumes. You know a Ph.D. biophysicist fluent in English when you see one!
Of course, we all know great workers who didn’t excel at formal education and whose resume would not impress. There should be a place for them in immigration, and there is. For them, the key is to demonstrate value in a very American way—in the market. Specifically, they are eligible for admission to a temporary worker program, and those demonstrating sustained labor-market success may transfer to the permanent visa program. As with the current system, individuals granted permanent residency would be eligible to apply for citizenship after five years in the United States.
There are two notable features to the design of our proposed immigration system. First, there is no explicit cap on immigration. Currently, the number of immigrants allowed entry into the United States each year is dictated by immigration limits set by Congress. These caps are largely arbitrary, and each year the business community’s demand for labor significantly exceeds the supply of visas available. This dynamic can easily be seen by examining demand for H-1B visas, which is widely utilized as a dual-intent visa by foreign students and other nonimmigrants hoping to transition to employment-based green cards. Over the past five years, U.S. businesses have filed on average 212,000 H-1B petitions in the five-day application window, far exceeding the cap of 85,000. Similarly, employer-filed petitions for green cards have more than doubled since 2013.
Caps on both the total number of employment-based visas that can be issued in each category and the total number of immigrants from each country have resulted in significant backlogs. Those waiting are qualified applicants who desire to contribute to the U.S. economy but are unable to do so under current law. Therefore, instead of asking Congress to speculate about economic demands by setting caps that limit potential U.S. human capital, we propose that the level of immigration should be equal to the number of qualified applicants seeking entry.
Imposing a minimum points threshold would ensure that each new immigrant is qualified and desirable. Furthermore, because immigration levels would be set by the demand of individuals seeking entry, immigration levels would be responsive to market conditions. The 2007-08 global financial crisis is illustrative of this dynamic: After 2007, the annual number of unauthorized arrivals from Mexico dropped from 424,000 to just 174,000, and the total undocumented population in the United States declined. Employment-based immigration was also impacted, and the number of applications for employment-based green cards fell by more than 50 percent between 2007 and 2008. The responsiveness of immigration to economic conditions is a global phenomenon that should not be expected to change.
Yes, this proposal is a dramatic and controversial change from the status quo, and Congress may choose to impose caps to backstop this proposed system. In moving toward an explicit evaluation of economic contribution, however, the system would identify the right individuals to admit, which is much more important than trying to find the right number of individuals.
For families, our proposal is simple. Spouses and children under age 18 of qualified applicants or U.S. citizens would automatically be offered admission. We further recognize the role of humanitarian efforts in immigration policy and agree that there should be a place for refugees, asylum seekers, and victims of violence within the U.S. immigration system, but that debate is beyond the scope of this essay.
The 2021 immigration debate has focused on legalization on the left, border security on the right, and nothing that builds bipartisanship. A strong economy is one thing that unites America and can play a crucial role in filling out a successful legislative coalition. Nevertheless, it is easy to be skeptical that Congress is capable of a reform as dramatic as the one outlined above.
Even if it can’t, the economic component of immigration reform should not be discarded entirely. For example, there are priorities Congress can easily act on that have substantial economic content. Legalizing Dreamers and farmworkers (for example the EAGLE Act or the Fairness for High Skilled Immigrants Act, which passed House and Senate with bipartisan support last Congress) would increase the level of economic activity, as would more green cards for people with less than a bachelor’s degree.
Also, there are a number of green card categories for “essential workers,” with essential a fluid definition based on the needs of the market. Similarly, Congress could allow H-4 spousal worker authorization for all temporary worker visas, not just H-1Bs, and attempt better facilitation of getting both temporary visas and employment green cards into the hands of women. These are just a few ideas that could become part of a targeted reform effort. The essence is to increase the economic value of visas at every opportunity.
Just as immigration should not sit in isolation from other pressing policy issues, the various components of immigration reform—border security, legalization, visa reform, etc.—interact as well. In particular, a reason that the United States has chronic issues at the southern border (we have had surges of migrants under presidents Bush, Obama, Trump, and now Biden) is that the legal immigration system is broken. The current caps are inadequate to meet demand, as demonstrated by the excessive backlogs, which incentivizes people to try the asylum system or migrate unlawfully.
Visa reform grounded in economic value not only has benefits for the labor market and growth; it also eases the pressure on the border. The legal migration system needs to align better with the people that want to work here.