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19 Fiscal Impacts of Immigrants and the Shrinking Welfare State Thomas]. Espenshade and Gregory A. Huber To understand the budget negotiations now under way between the President and Congress, it is essential to grasp this philosophical distinction: The Republicans who control Congress want to shrink the Federal Government and reduce its presence in the lives of Americans; the President, for the most part, is comfortable with the place of the Government in American life and in some instances would like to expand it. -David Rosenbaum (1995, B12) Unless unions and community groups find ways to coalesce behind national challenges to the orthodoxy of balanced-budget conservatism, what the political system has in store for ordinaty people is an interminable series of demands to take less. -Sidney Plotkin and William E. Scheuerman (1994, 5) ECONOMIC CONSEQUENCES of immigration are usually sorted into two categories. The one that has received the most attention from economists concerns the labor market impacts of immigrants. How do increased supplies of foreign workers in domestic labor markets affect the earnings and employment opportunities of native workers? Despite a widely shared view among the American public that immigrants take jobs away from u.s. workers, increase unemployment, and depress wages (Espenshade and Hempstead 1996; Espenshade and Belanger 1997), most research has failed to provide strong support for these beliefs (Smith and Edmonston 1997). The research literature has been ably summarized by George Borjas (1994a) and by Rachel Friedberg and Jennifer Hunt (1995, this volume). The main conclusion, based largely on cross-sectional data, is that there are only "modest effects of immigrants on natives' labor market outcomes" (Friedberg and Hunt, 1995, 35). A potentially important qualifier has been added by Donald Manson, Thomas Espenshade , and Thomas Muller (1985), Randall Filer (1992), William Frey (1995a), and Michael White and Lori Hunter (1993). It may be that some natives are indeed adversely affected by foreign workers. If these native workers move out of high immigrant-impact areas to labor markets where they perceive better opportunities, then cross-sectional studies may fail to detect negative effects on wages or employment. A second topic of economic consequence concerns the fiscal impacts of immigrants. How much do immigrants pay in taxes to federal, state, and local governments, how large are the benefits that immigrants receive in return, and how do the two amounts balance out within various jurisdictional levels? These issues are of more recent origin than the labor market impacts of immigrants and have received less attention, especially from economists. They are, for example, mentioned only in passing in Friedberg and Hunt's chapter in this volume. Satisfactory answers to even the most basic questions are hampered by inadequate data (the inability to separate legal and undocumented migrants in census and administrative records), methodological differences (should estimates be calculated from an aggregate, top-down approach or should they be built up from household-level data?), and conceptual inconsistencies (is the individual, the family, or the household the appropriate unit of analysis, and is marginal or average cost the relevant concept?). A general critique of "accounting" approaches to fiscal impact estimates has been offered by John Isbister (1996), who argues for recasting the analysis in an economic framework. Despite these difficulties, there are numerous studies of fiscal impacts. Using census data, Borjas (1994a) found that immigrants were slightly less likely than natives to receive cash welfare benefits in 1970, but that immigrant households were overrepresented among the welfare population by 1990. (The fraction of immigrant households receiving welfare was 1.7 percentage points higher than the fraction of native households, 9.1 versus 7.4 percent.) Moreover, tracking immigrant co- horts over time revealed that immigrants "assimilate into welfare" the longer they are in the United States. Panel data for 1984 to 1991 from the Survey of Income and Program Participation show little difference between natives and immigrants in the probability of receiving cash welfare benefits, but a larger native-immigrant differential when other programs are included (Borjas and Hilton 1996). The fraction of immigrant households receiving some kind of public assistance is 50 percent larger than the native fraction (21 versus 14 percent). Growth in the refugee population helps to explain some of the rising proportion of immigrant households receiving welfare. When refugees are excluded, working-age immigrants are less likely than their native-born counterparts to receive support (Fix and Passel 1994). This conclusion is consistent with Borjas's (1994a) finding that households originating in Cambodia or Laos had a...

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