The executive actions on immigration announced last week look likely to have only a modest economic effect, because, as Goldman Sachs explains, most of the individuals eligible for the programs are already in the US and, in most cases, are likely already working. That said, Goldman estimates that the changes should increase the labor force by about 300k over the next couple of years and that possible wage gains among those gaining work authorization would increase average wages by less than 0.1%.
Via Goldman Sachs,
On November 20, President Obama outlined a series of executive actions related to immigration reform. In what follows, we address some of the main questions we have received from clients since the announcement:
Q: What was announced?
The President announced a number of steps through administrative actions to be implemented by the Departments of Homeland Security and State. None of the changes rely on congressional approval. The program has four major components:
- Enforcement prioritization: The Administration will prioritize border enforcement and focus interior enforcement mainly on individuals who pose security risks; the implication is that the flow of new unauthorized border-crossers could decrease, while enforcement for most unauthorized immigrants already in the US would be diminished.
- Incremental expansion of work visa programs: The program would incrementally expand immigration of skilled workers, by (1) allowing spouses of H1-B visa (high-skilled) workers to work if they have a green card application pending; (2) allowing high-skilled workers to change jobs more easily; (3) "modernizing" the requirements for L-1 visas, which allows companies to transfer existing employees to US offices (this is an important program for parts of the technology industry); (4) granting green cards or temporary status to individuals with "exceptional ability" or inventors, researchers, and founders of start-up enterprises, and (5) expanding the Optional Practical Training (OPT) program, which allows students graduating from US universities to work for up to 29 months in the US following graduation.
- Expansion of existing deferred action program: The President's executive order would expand the existing Deferred Action for Childhood Arrivals (DACA) program. The program was established in 2012 to allow unauthorized immigrants born after 1981 who arrived in the US prior to age 16 to avoid removal and to gain work authorization. To qualify, individuals must also be at least 15 years old at the time of application and have graduated from high school. Under current rules, one must have lived in the US continuously since 2007 to qualify, but the Obama Administration is now changing the cutoff date to 2010, and lifting the age requirements.
- Establishment of new deferred action program: Under a new program known as Deferred Action for Parental Accountability (DAPA), unauthorized immigrants who are the parents of U.S. citizens or legal permanent residents (i.e., green card holders) and who have been in the country for more than five years can receive relief from deportation and work authorization for three years, subject to a background check and a $465 fee.
Q: When would the changes take effect?
Approvals for deferred action are likely to begin in Q2 or Q3 2015. From the time the President announced the original DACA program in 2012, it took two months to begin accepting applications and four months for approvals to begin in earnest. This time, the Department of Homeland Security (DHS) has set a deadline in February to begin accepting applications for the expanded DACA program, and in May for applications under the new DAPA program. Assuming two months to process the applications, work authorizations under the new programs seem likely to start being granted in Q2 or Q3 2015.
Q: How many people would be potentially eligible for these programs?
In all, the changes look likely to affect around 5 million unauthorized immigrants plus 100k to 200k skilled workers. The changes to the existing DACA program look likely to increase the eligible population by about 300k, based on estimates by the Migration Policy Institute (MPI). Working-age adults would account for most of this increase. The new deferred action program for parents of citizens would have a larger effect. Estimates from the Pew Hispanic Center and MPI suggest that, as of 2012, 3.1 to 3.3 million unauthorized immigrants had lived in the US for at least five years and had minor children who were citizens or held green cards. However, since the DAPA program also covers parents of adults who are US citizens or permanent residents, the total universe of eligible immigrants may be somewhat greater.
The effect on the number of skilled immigrants with work authorization is somewhat less clear, but the new policies look likely to apply to 100k to 200k individuals in the first year. According to the Government Accountability Office (GAO), around 125k foreign students were approved to work through the OPT program on average in 2013, but only 25k of these took advantage of the longer 29-month work period for science, technology, engineering and math (STEM) graduates. Details of the changes being contemplated are not yet available, but even if the STEM program doubled it would only add 25k. DHS estimates that authorizing the spouses of H1-B workers to work would increase the number of potential workers by about 100k at the outset and by about 30k per year thereafter, and that about 10k individuals would take advantage of the new entrepreneurial visa each year.
Q: How does the eligible population compare to the national population?
Unauthorized immigrants in the US are, as a whole, disproportionately male and working age. Men between the ages of 25 and 54 account for more than 40% of the unauthorized population, compared to 25% in the US population generally (Exhibit 1). Among unauthorized immigrants ages 25 to 64, roughly half have less than a high school education, compared to 12% of the broader US working age population, and 15% have a college degree or higher, compared to 31% in the broader working age population. The labor force participation rate among male unauthorized immigrants is estimated to be 87% to 94%, compared to an 83% total rate for working age men, but the rate for unauthorized females is only 57%, well below the 70% rate for women in that age group nationally.
Exhibit: The unauthorized population is disproportionately male and working age
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Source: Migration Policy Institute. Department of Homeland Security. Pew Research Center on Hispanic Trends.
Q: What is the likely effect on the labor force?
The labor force could increase by about 300k. As noted earlier, changes to high skilled immigration policies could add 100k to 200k to the working-age population. The 35k increase in the population related to the STEM and entrepreneurial categories should increase the labor force by roughly a 1:1 ratio. The White House reports an estimate from the Bureau of Labor Statistics (BLS) that roughly 60% of the potentially eligible spouses of H1-B would actually join the labor market, for an overall increase of around 100k skilled workers in the first year, or 135k in high-skilled workers overall. The effect would grow gradually over time.
The effect from granting work authorization to unauthorized workers related to deferred action is harder to evaluate. The White House estimates that the effect on the labor force from the expansion of deferred action would be close to zero, based on economic literature showing small observed effects following the legalization of 2.7 million unauthorized immigrants through the Immigration Reform and Control Act (IRCA) of 1986. This seems plausible in light of the already high participation rate among working-age unauthorized immigrants, though there does appear to be some potential for increased participation among female unauthorized immigrants in light of their low participation rates currently. That said, the low participation rate may be partly explained by the fact that a greater share of these immigrants have young children, which could limit their ability to work. It could also be explained by work in the informal economy, which may not show up as clearly in employment surveys. Nevertheless, at least one study has found that the 1986 legalization under IRCA increased the participation rate among female unauthorized immigrants by 10pp to 15pp. Assuming the demographic composition of women who gain work authorization under the new deferred action programs is the same as the broader unauthorized population, work authorization for this group could increase the lower skilled labor force by up to 200k.
Q: What about wages?
Research suggests that wages increase with a shift to authorized work status, though estimates vary on how much. A number of studies have examined the wage gains made by previously unauthorized immigrants after they gained legal status through the 1986 law, relying on a special survey of immigrants legalized in 1986 and/or the 1990 census and controlling for other demographic factors. They find wage gains among male workers of between 6% and 15%. The intuition behind these gains is that workers who gain legal status are in a better negotiating position and have greater occupational mobility. That said, other research that looked at legalization in more recent periods finds minimal effects on wages following legalization after controlling for other factors. Applying estimated participation rates to the 3.6 million who would be eligible for deferred action implies that roughly 2.6 million workers (1.7% of the labor force) could see such gains for legalization. However, estimates from the Pew Hispanic Center indicate that the average income among these workers appears to be only half that of the broader population. Weighting these gains by the eligible unauthorized share of the labor force and their relative earnings, we estimate that potentially increased wages among this group would increase aggregate wages by less than 0.1pp. Since the effect is likely to be spread over a long period--at least a year, perhaps longer--we would expect it to be difficult to discern in the data if it does occur.
Q: Is this population already in the official economic data?
Most unauthorized immigrants already seem to be included in the major economic indicators but there might be a slight undercount. Conceptually, unauthorized immigrants should already be included in all of the major economic indicators, because none of the surveys differentiate by legal status. That said, it seems likely that individuals living in the US without authorization are less likely than others to respond to a survey administered by the federal government. Based on this assumption, most estimates of the unauthorized immigrant population adjust Census Bureau data to compensate for the undercounting of unauthorized immigrants. While this was believed to warrant adjustments of 20% or more in survey data from the 1990s, the Pew Hispanic Center estimates that the current undercount in the Current Population Survey is only 5% to 7%. That said, a shift to deferred action status may not make a great deal of difference, for two reasons. First, only a portion of unauthorized immigrants would see a status change; second, legal immigrants also appear to be underrepresented, by 2% to 3% according to Pew.
Q: What does this do to the legislative agenda?
It appears to reduce the likelihood of agreement on other issues but it is not clear how long the effect will last. At first glance, the President's executive action on immigration policy seems likely to reduce the already low probability of agreement on broader immigration reform, and may at least temporarily set back other potential areas of agreement, like tax reform and approval of Trade Promotion Authority (TPA). It also appears to have raised the probability of a government shutdown following the December 11 expiration of spending authority, though at this point it looks likely that an agreement will be reached to avoid a disruption and extend spending authority into at least early 2015, if not through the end of the fiscal year (September 30).
That said, it is unclear how long the immigration actions will remain a focus. Some prior political controversies have initially created deep division, but have not always blocked action in other areas. For example, in late 2013, only a month after the controversial change to long-standing Senate rules requiring 60 votes to confirm presidential appointments that both sides referred to as the "nuclear option," Congress managed to reach agreement on a small fiscal deal to avert sequestration. The immigration policy changes are likely to be more important to voters, but it would not be surprising to see lawmakers begin to focus on other things by early 2015.
