WPRI Report Continued:
By David Dodenhoff, Ph.D.
March 23, 2008
One should keep in mind a few caveats about the analysis in the preceding section. First, one element was clearly excluded from that analysis—immigrants’ indirect contributions to tax revenues and expenditures. Like other households, immigrant households start businesses, save and invest their money, purchase consumable goods, hire employees, and allow for more efficient use of capital through the provision of their labor. These activities result in economic growth. Economic growth increases revenues and raises incomes, the latter of which may result in a reduced need for social services. These indirect effects of immigration on tax revenues and public service expenditures are not captured in the analysis, but they undoubtedly have a significant impact on fiscal balances, particularly over time.
Second, measuring the costs and benefits of immigration as a function of its fiscal impact on a community in one year is an inherently narrow exercise. Certainly, there are taxpayers in every community who contribute less in revenues than they receive in social services. On its own, this tells us very little about the desirability of such individuals as community members. Consider children, for example—they pay virtually no taxes and consume tens of millions of dollars in social services. Generally, this does not result in their being considered a burden to the community.
Furthermore, as children grow older, many begin paying more in taxes than they receive in services. In fact, many make a strongly positive impact on the community’s fiscal health over the course of a lifetime. The same holds true for immigrant households. In a single year, they may consume more in public resources than they provide in tax payments. Over time, though, this situation can reverse. Over a lifetime, they may produce a net positive impact—perhaps a significant one. The analysis above was not designed to capture that lifetime impact.
Finally, one could undertake the very same exercise with respect to Brown County immigrants’ contribution to federal taxes and spending. That exercise was not undertaken here because: a) the intended focus of this research was on the state and local impacts of Green Bay’s recent immigration, not the impact on federal finances; and b) determining federal tax payments by Brown County immigrant households poses significant methodological difficulties. Research on the federal fiscal impact of immigration has been done, however, sometimes in combination with studies of the fiscal impact on a particular state. A reasonable conclusion from the most methodologically sound of these studies is as follows:
States (and local governments) pay most of the costs of providing public services to immigrants, which include public education to immigrant children and Medicaid to poor immigrant households. . . . The federal government, in contrast, appears to enjoy a net fiscal surplus from immigration.[i]
This is true for several reasons, among them:
While this may seem like an esoteric economic point, it has implications for the findings in this study. Specifically, native state and local taxpayers in Wisconsin may be subsidizing the services received by immigrant households in Brown County, but those same immigrant households are also likely subsidizing the federal services that native Wisconsin taxpayers receive.
In addition to concerns over the impact of immigration on the fiscal health of communities such as Green Bay, there are also arguments over the net effect of immigration on jobs and wages. On the one hand are those who argue that immigrants increase competition for limited jobs in the local labor market, thereby driving down wages for native workers, increasing their unemployment, or both. On the other hand are those who claim that immigrants have a minimal impact on local economic conditions. For example, some in this camp say that immigrants “take jobs that Americans won’t do;” that they do not threaten economic opportunities because they choose locations where such opportunities are already abundant; and that over time, local economies successfully adapt to immigrant populations as business owners re-allocate resources to accommodate the new labor supply, and native workers increase their education and skill levels.
Regrettably, the ability to resolve these issues with respect to Green Bay’s economy is significantly limited by the available data and analytic tools. A city like Green Bay is not a closed system; hundreds of factors other than immigration can affect local employment and wages. Isolating the effect of the one factor of interest—the immigrant workforce—is essentially impossible. Thus, though data are presented below comparing Green Bay to other cities, one simply cannot make the critical ceteris paribus assumption; that is, one cannot simply assume that these cities differ only in terms of their immigrant populations. Furthermore, extensive, detailed time-series data on employment and earnings among Green Bay’s immigrant and native-born populations, respectively, simply do not exist.
The best one can do, then, is to present some limited, very suggestive, but ultimately inconclusive time-series and cross-sectional data on wages and unemployment in Green Bay and several other Wisconsin cities. The next two sections undertake that task.
Impact of immigration on unemployment
One very simple way to assess the impact of immigration on unemployment in Green Bay is to examine both variables over time. If unemployment rises as immigration does, that would suggest the possibility of a causal connection between the two variables. Figure 6 presents data comparing trends in the growth of Green Bay’s foreign-born population to unemployment rates in Green Bay in the years from 1990 to 2006.[iii]
For most of the period from 1990 through 2000, the immigrant population was increasing rapidly in Green Bay, but the unemployment rate was dropping sharply. This would seem an unlikely development if a rising immigrant population led to increased unemployment. On the other hand, it might be the case that immigrants in the 1990s were attracted to Green Bay in large numbers because of the favorable employment climate. After a certain point, though, the continued arrival of immigrants could have produced labor market saturation, leading to higher unemployment thereafter. And indeed, the data from 2000 onward show a generally rising unemployment rate, and much higher unemployment at the end of the series than at the beginning.
Could this post-2000 increase in unemployment be due to heavy immigration into the city? One way of answering this question is to look at unemployment data for Wisconsin cities that did not see a heavy influx of immigrants after 1990. If such cities show roughly the same unemployment patterns, this would suggest that larger macroeconomic trends were responsible for the observed incidence of unemployment in Green Bay.
Figure 7 presents the same unemployment data for Green Bay that appeared in Figure 6, but also adds data for Oshkosh and Kenosha, Wisconsin. These are two relatively large cities that share some broad demographic similarities with Green Bay. Unlike Green Bay, though, they experienced very modest growth in their immigrant populations in the 1990s. Oshkosh saw its foreign-born population grow from 2.8 percent in 1990 to just 3.4 percent in 2000. Kenosha, for its part, saw its immigrant population grow from 5 percent of city residents to just 5.8 percent across the decade.[iv] Whatever factors may have been driving the Oshkosh and Kenosha economies over the past 15 or so years, changes in the local immigrant population seem unlikely to have been among them.
Figure 7 clearly shows that the unemployment rate in each of the three cities followed the same basic pattern between 1990 and 2006—a decrease in the 1990s, a sharp increase in the first few years of the new decade, and a modest decrease thereafter. The figure would appear to indicate, then, that large-scale economic changes drove the unemployment patterns in each of these three cities between 1990 and 2006. Coupling the results of Figure 6 with those of Figure 7, it seems unlikely that Green Bay immigration has had any meaningful impact on local unemployment rates. As noted above, however, this conclusion can only be considered provisional, not definitive.
Impact of immigration on wages
Considering the potential impact of immigration on wages in Green Bay is also a challenge. First, data on wages are limited to years after 1999. Second, data are not available for the city itself, but only for the much larger Green Bay Metropolitan Statistical Area (MSA), which includes Brown County, Kewaunee County, and Oconto County. For this area as a whole, the increase in immigration was much less dramatic than in the city of Green Bay. The MSA’s immigrant population grew from 1.3 percent to 3.3 percent between 1990 and 2000, while the city’s grew from 2.4 percent to 6.8 percent. Still, one must make do with the data that are available.
Figure 8 plots average hourly wages in the Green Bay MSA against the foreign-born percentage of the population in the MSA for years from 1990 through 2006. (Wage data are presented only for years from 1999 onward.)[v]
Figure 8 shows a pattern similar to that seen in Figure 6, which addressed employment issues. Specifically, Figure 8 indicates that hourly wages in the Green Bay MSA were generally rising in the late 1990s and early 2000s, a period during which immigration was also increasing. As in Figure 6, these data suggest that the increase in immigration did not have an adverse impact on wages. In the mid-2000s, however, wages began to fall in the Green Bay MSA, indicating the possibility of some delayed downward pressure on earnings brought about by the increase in immigration.
As with the unemployment data, additional light can be shed on this issue by examining wage growth in metropolitan statistical areas other than Green Bay. Figure 9 below presents the wage data from Figure 8 for the Green Bay MSA, but also presents data for the following Wisconsin MSAs: Eau Claire, La Crosse, Wausau, and Janesville. The first three of these had slow growth in their immigrant populations in the 1990s and early 2000s (relative to Green Bay), while the fourth had a pattern of immigration growth very similar to that in Green Bay.
It is interesting to note that the Green Bay MSA shows the highest overall wage level in Figure 9, despite beginning the period with the second-highest percentage of immigrants among the five MSAs in the chart. This fact, then, seems to suggest that immigration did not exert a strong dampening effect on Green Bay’s wages prior to 1999. The chart also shows, however, that the Green Bay MSA experienced the lowest rate of wage growth after 1999. Could this be related to the relatively large increase in its immigrant population in the preceding years?
Wage growth for the Eau Claire, La Crosse, and Wausau MSAs are consistent with that possibility. Each of these areas had a much slower increase in immigration levels than did the Green Bay MSA in the 1990s, and each also had a faster rate of wage growth. But the data from the Janesville MSA provide a counterpoint. Janesville began the period with a higher proportion of immigrants than did the Green Bay MSA, and its immigrant population grew at a faster pace between 1990 and 2005 than did Green Bay’s. The Janesville MSA’s wages, however, showed the second fastest rate of growth of the five metro areas in Figure 8. Again, if a relatively large and growing immigrant population were putting the brake on wage growth, one might expect Janesville’s wages to be flat, not rising rapidly as they are in Figure 8.
Many researchers analyzing the connection between immigration and wages pay particular attention to the impact of immigration on low-wage industries. This is because immigrants tend to be significantly overrepresented among the lower-skilled, lesser-educated portion of the workforce. If immigration does depress wages, then, it should be expected to do so most visibly in industries in which lower-paying, entry-level jobs are abundant.[vi]
Figure 10 presents data on average wage growth between 1999 and 2006 in three relatively large, relatively low-paying industries: food preparation and serving, building and office cleaning/maintenance, and personal care and service. The data are presented for the same MSAs as in Figure 9.
Figure 10 paints somewhat of a mixed picture. In the food preparation/serving sector, the Green Bay MSA does indeed have substantially larger wage decreases than two MSAs that saw little growth in immigration in the 1990s. The Eau Claire MSA, on the other hand, an area with limited immigration in the 1990s, shows a much higher rate of wage reduction than in the Green Bay MSA. Furthermore, the Janesville MSA, which had even more rapid growth in its immigrant population than did Green Bay, shows a wage decrease on par with that in La Crosse and Wausau. Overall, this would tend to call into question the connection between wages and immigration.
With respect to building cleaning and maintenance, however, Figure 10 is generally consistent with the argument that immigration depresses wages. The two MSAs with the greatest growth in immigration—Green Bay and Janesville—also show the sharpest decrease in wages in this sector. But looking at the last sector, personal care and services, the Green Bay MSA was the only area to show a wage increase, while Janesville wages were essentially flat. The three areas that showed the slowest immigration growth showed the biggest wage decreases—again, a counter-intuitive finding, if indeed slower immigration growth means faster wage growth (or slower wage reduction).
While the unemployment data above suggest a weak or non-existent relationship between immigration and unemployment in Green Bay, the wage data are less clear-cut. Some elements of the data suggest a dampening effect of immigration on wages, though others are inconsistent with such an effect. While these data could be usefully supplemented with qualitative research techniques—industry case studies and employer and worker focus groups and surveys, for example—firm conclusions will be elusive until higher quality, more comprehensive economic data become available. Even so, the data above are clearly inconsistent with any dramatic impact of immigration on either wages or unemployment.[vii]
What About Illegal Immigrants?
The various data exercises above have not distinguished between legal and illegal immigrants. This is due to a shortage of useable data on the subset of Green Bay/Brown County immigrants who are in the country illegally. Clearly, though, illegal immigrants were on the minds of Green Bay officials last summer when they passed the ordinance threatening to shut down businesses that employed illegals. Before it was revised, that ordinance began with this preamble:
The unlawful employment and crime committed by unauthorized aliens harm the health, safety and welfare of citizens of the City of Green Bay. Unauthorized aliens cause dramatic adverse economic effects for our hospitals and schools thereby relegating legal residents to substandard qualify of care and education, depressed wages, burdening of other public services, increasing costs while decreasing availability to legal residents, and diminishing overall quality of life.[viii]
This is a serious indictment, and one that might be offered as a rebuttal to some of the findings above. Where those findings were positive or neutral, one might argue that if the analysis were limited to illegal immigrants, the findings would have been negative. And where the findings were negative, one might argue that looking solely at illegal immigrants would have made them more so.
How big a population?
The logical place to begin addressing these issues is with an estimate of the size of the illegal immigrant population in Green Bay. For the 2002 to 2004 time period, the Pew Hispanic Center estimated that somewhere between 40 and 54 percent of foreign-born residents of Wisconsin were in the state illegally.[ix] Applying those percentages to the total number of foreign-born residents of Green Bay in 2000, one arrives at an estimate of illegal immigrants ranging from (roughly) 2,800 to 3,800. For 2005, the numbers range from 3,400 to 4,500.
Pew Hispanic Center data also allow one to estimate the number of illegals using a somewhat more refined approach. Pew provides estimates of the percentage of illegal immigrants among foreign-born groups from different countries/regions of origin: Mexico, for example, Asia, Europe, and so on. One can apply those percentages to foreign-born population groupings in Green Bay in 2000 (the most recent year in which country of origin data are available). Doing so yields an illegal immigrant population of approximately 2,200. That figure constitutes just over 30 percent of Green Bay’s total foreign-born population in 2000.
One final estimate comes from the Federation for American Immigration Reform, or FAIR. FAIR estimates that in 2007, the illegal immigrant population in the state of Wisconsin as a whole was 90,000.[x] Though Census data on the foreign-born in Wisconsin are not available for 2007, they are available for 2006. The figure for that year was 245,006.[xi] Combining the FAIR figure with the Census figure, one can estimate that illegal immigrants constituted 37 percent of Wisconsin’s foreign-born population in 2006/2007. Applying that percentage to Green Bay’s foreign-born population in 2000 yields an estimate of illegal immigrants of about 2,600. Applying the percentage to Green Bay’s foreign-born population in 2005 yields an estimated illegal immigrant population of about 3,100.
Table 6 summarizes these various estimates for the years 2000 and 2005.
Unless an illegal immigrant is working completely “off the books,” he or she pays the same taxes that legal immigrants and native workers do: sales taxes, property taxes, income taxes, payroll taxes, and so on. At the same time, because of their legal status, illegal immigrants qualify for far fewer public services than do legal immigrants. Thus, many illegals do pay considerable taxes but do not qualify for the full range of government services available to others. This tends to limit their adverse impact on state and local finances.
On the other hand, illegal immigrants on average earn less than legal immigrants.[xii] This means that even illegals who are working on the books tend to pay less in taxes than legal immigrants. Furthermore, a significant percentage of illegal immigrants do, in fact, work off the books. One might conservatively estimate this number at 40 percent.[xiii] This group pays no income or payroll taxes at all. Finally, illegal immigrants are more likely than legal immigrants to send home cash remittances to support relatives in their country of origin.[xiv] Because of this, illegals spend less of their money in the United States, and therefore generate less tax revenue for state and local governments.
The net effect of these assorted factors is that illegal immigrants in Green Bay are a fiscal drain on state and local governments, similar to the immigrant population as a whole. This is because illegal immigrants: a) pay considerably less in taxes than legal immigrants, but, b) qualify, without restriction, for the most expensive public service analyzed above: K-12 public education. In short, Green Bay illegal immigrant households cost state and local governments almost as much as legal immigrant households, but contribute much less to state and local government revenues.
Before leaving this topic, one final area deserves special consideration: the contribution of illegal immigrants to law enforcement costs. This is one of the few expenditure categories in which relatively good data are available on illegal immigrants, thanks to the federal State Criminal Alien Assistance Program (SCAAP). SCAAP partially offsets state and local costs associated with the incarceration of illegal immigrants. In 2007, for example, the federal government awarded all government entities in the state of Wisconsin a total of $3.2 million under the SCAAP program. Brown County received approximately $78,000 of this money.[xv] The Governmental Accountability Office estimates that SCAAP funds account for 25 percent or less of the actual cost of incarcerating illegal aliens.[xvi] Assuming the 25 percent figure is correct, then the total cost to state and local government for incarcerating Brown County illegal aliens in the most recent year was approximately $795,000.[xvii] While not an inconsequential figure, this is still a fraction of the costs presented above for public education and Medicaid. Furthermore, the latter costs were calculated for 2000, while the SCAAP figure was for 2007. Thus, it is clear that that law enforcement-related costs associated with illegal immigrants add up to very little, at least compared with the costs of more traditional social services.[xviii]
Given data limitations, any discussion of the impact of illegal immigrants on Green Bay’s economy must be largely abstract and theoretical. But let us begin by considering numbers from 2005. Even if one uses the upper-end estimate for the number of illegals (4,500), and even if one assumes that every one of those individuals was in the Green Bay labor force, either employed or looking for work, then illegals would have accounted for about 8 percent of the workforce in Green Bay.[xix] However, if one makes appropriate assumptions about labor force participation among members of the illegal population (children and the elderly, for example, are unlikely job-seekers), a more realistic figure for the illegal portion of the Green Bay workforce is about 5 percent.[xx]
Of course, this illegal workforce would not have arrived in Green Bay all at once, producing a one-time shock to the local economy. Instead, it would have arrived gradually over the past 15 years or so. Economic theory and research, and the data reviewed above, suggest that any negative impact of this expanded workforce on native worker employment and earnings in Green Bay is likely to be small. Furthermore, it is almost certainly limited to workers at the lower end of the skill and education scale.[xxi] On the other hand, whatever the negative impact on workers, Green Bay businesses have benefited from the availability of inexpensive labor, and Green Bay consumers have benefited from the generally lower prices for goods and services that inexpensive labor makes possible. On balance, then, whether one deems illegal immigration an economic plus or minus for Green Bay’s economy probably depends on one’s economic position: as a low-skilled worker in competition with illegals for entry-level work; as a more skilled worker promoted to a higher-paying supervisory position, with illegals under his or her supervision; or as a local business or consumer whose dollars stretch further because of the availability of cheap, illegal labor.
In the summer of 2007, the city of Green Bay garnered national attention when it passed an ordinance allowing for the closure of any business found to have undocumented workers in its employ. To outsiders, this action may have seemed strange: Green Bay, Wisconsin? In the upper Midwest? Fourteen hundred miles from the Mexican border? Outsiders, though, were unaware of the dramatic growth in Green Bay’s foreign-born and Hispanic populations in the preceding 15 years. That development fundamentally changed the town, its culture, its politics, its neighborhoods, its finances, and its schools. The city ordinance was just one response to the question everyone had begun to ask: were all of these changes good or bad?
This report has attempted to bring some new information to bear on that question. Among the findings presented above were the following:
There are, of course, a number of issues that this study did not address: the value of cultural and ethnic diversity; the reputation of Green Bay as a progressive, welcoming city; pedagogical changes required to accommodate the influx of immigrant children in Green Bay’s schools; the impact of immigrants on measures of economic well-being other than employment and wages; and so on. In some respects, however, resolution of these issues—and even those examined in the preceding pages—is a moot point. Green Bay is no longer the city it was 20 years ago. “Is that a good thing or a bad thing?” is a natural response, and an important question. But an equally important line of thinking might run as follows: “Like it or not, our city has changed. Looking ahead, then, what are the best ways to make that change work for us?”