Framing MEMO | MAY 2012

The U.S. Immigration System:

Potential Benefits of Reform

Michael Greenstone, Adam Looney, and Harrison Marks

w w w . H AMI L T O N P R O J E C T . O RG
The Hamilton Project • Brookings 1
 MISSION STATEMENT

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portunity, prosperity, and growth.

We believe that today’s increasingly competitive global economy

demands public policy ideas commensurate with the challenges
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doctrine — to introduce new and effective policy options into the
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first Treasury Secretary, who laid the foundation for the modern
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drive American economic growth, and recognized that “prudent
aids and encouragements on the part of government” are
necessary to enhance and guide market forces.  The guiding
principles of the Project remain consistent with these views.

2 Ten Economic Facts About Immigration

The U.S. Immigration and, specifically, the often-misunderstood facts underpinning
the debate (see Greenstone and Looney 2010).
System: Potential Practically, the system for processing both temporary and

Benefits of Reform permanent visas is characterized by long lines and inequities.

Economically, current policies limit the gains that the country
could garner from the employment-based immigration
The United States is a nation of immigrants. Throughout of workers with needed skills. And fiscally, the burden of
U.S. history, immigrants have settled the country, contributed caring for and educating immigrants and their children falls
to America’s intellectual environment, vibrant culture, national disproportionately on certain communities. All of these factors
defense, and economic productivity, and so much more. For point to a system badly in need of update and reform.
years, U.S. immigration policy has fulfilled many goals by The Hamilton Project believes that an improved immigration
reuniting Americans with their families from abroad, providing system could raise the well-being of all U.S. citizens. This
safe harbor for the persecuted from around the world, enriching framing memo provides background information on the state
economic activity, and, ultimately, strengthening our quality of of the current immigration system and the potential benefits of
life, academic excellence, culture, and society. reform in order to inform the policy discussion.
Even as immigration to the United States continues to rise
after a midcentury dip (see Figure 1), most agree that America’s The Challenge
immigration policy has failed to keep up with changing
circumstances. The current system does not meet U.S. economic New arrivals and American citizens alike have much to gain
needs, no longer reflects the historic humanitarian goal of from a twenty-first-century immigration policy. While there are
reuniting families set out in the landmark 1965 Immigration many ways in which both immigrants and U.S.-born citizens
and Nationality Act, undermines the confidence of Americans benefit from immigration, few are as stark as the fact that when
in the rule of law, and has produced divisive and fragmented a non-European college-educated immigrant moves from her
policy responses at the state level. native country to the United States, her annual productivity and
compensation leaps by $57,000 (Peri 2012). This gain accrues not
The aforementioned concerns are considerable, and they are only to the immigrant and her family, but also to the businesses
being raised at a time when our nation continues its recovery that hire her, to local businesses where she spends her money,
from the Great Recession and attention remains rightly to consumers who purchase her goods and services, and to
focused on the unemployment rate and the need for economic taxpayers who will face lower costs over time. The economic
improvement. For these reasons, The Hamilton Project has output from immigrants contributes to the overall economy
focused its attention on the economic effects of immigration— and is just one of the potential gains that could be reaped from

Figure 1.

U.S. Foreign-Born Population

16%
Foreign born as a percent of U.S. population

14%

12%

10%

8%

6%

4%

2%

0%
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: U.S. Census 1900–2000; American Community Survey (ACS) 2010.

The Hamilton Project • Brookings 1

Figure 2.

Average Annual Total Permanent Residence and Temporary Visas, 2006–10

3,000,000

 Other temporary
2,500,000  Family of vocational student/exchange visitors

 Vocational students/exchange visitors

 Family of students
2,000,000
 Students
Temporary
Number of visas

 Family of temporary workers

1,500,000
 Temporary workers

 Family of U.S. citizens/permanent residents

1,000,000  Other permanent (mainly diversity, refugees and asylees)

 Employment-based preferences
Permanent
residence
500,000  Immediate relatives of U.S. citizens

 Family-sponsored preferences
0
Source: DHS 2006, Table 4; DHS 2012b; State Department n.d.
Note: Excludes travel, transit, and crew visas.

a coherent immigration system designed to serve the needs of Today’s U.S. Immigration System
American families, workers, and businesses. America’s current immigration system attempts to fulfill
many different, overlapping, and changing goals, but lacks
But the current system prevents us from achieving those gains
an overarching theme. Rather, it is a complex and inefficient
for a variety of reasons. One challenge is pragmatic: the current
patchwork that represents years of piecing together unrelated
system is complicated, onerous, and unfair. Dozens of visa types
components into a whole that is less than the sum of its parts.
clutter the system, meaning that there is no one clear path to
In the broadest sense, the system for allowing noncitizens
entry. Quotas and other rules create bottlenecks for certain types
into the United States can be divided into permanent and
of immigrants, which can lead to decades-long waits for visas.
temporary admissions. The permanent residence system is
A second challenge arises because of concerns and primarily focused on family reunification, with ancillary
misconceptions about how immigrants affect the U.S. economy, categories for certain workers, and for refugees and others
and particularly the opportunities of American workers, which seeking asylum. In total, the United States issues roughly 1
has led to skepticism regarding the desirability of immigration. million permanent residence visas, or “green cards,” each
These perceptions contrast with the available evidence, which year. Family-based visas account for roughly two-thirds of all
suggests that, on average, immigrants raise the incomes of permanent visas allotted in an average year. Just 14 percent of
Americans. There are legitimate concerns about how immigrants all permanent visas in 2010 were employment-based.
affect local communities, particularly in terms of their unequal
In addition to the permanent residence system, approximately
impacts on different state and local budgets. However, in
1.5 million temporary visas are issued to temporary workers,
principle, this problem could be mitigated with a greater
students, and people on cultural exchanges across a dizzying
sharing of resources between the federal government and state
set of categories (see Figure 2). (It is interesting to note that
and local governments. Other countries have recognized the
the byzantine temporary visa system even includes an entire
benefits of economically sound immigration policies, and have
visa category, H-1B3, solely for fashion models, though this
oriented policies toward promoting economic gains at home. If
specific category is not a significant concern on its own.) Most
the immigration debate in the United States were depolarized,
workers on temporary visas will work hard to establish ties to
then the benefits of better immigration policies could be better
this country. Some will be educated in American institutions
understood, and the problem addressed.

2 The U.S. Immigration System: Potential Benefits of Reform

and receive U.S. government dollars to do research. But limited employment-based visa quotas, lead many American
despite spending years or even decades living and working in businesses to argue that they are not able to find the workers
the United States, no temporary visa includes an automatic necessary for their operations. Furthermore, the current
path to a permanent residence visa or to citizenship. approach to immigration is not well-connected to the skills that
the labor market demands. Indeed, many top businesspeople
The sheer complexity of the current U.S. immigration system have testified that our immigration policies drive away the
imposes many unnecessary costs on American businesses, world’s best and brightest precisely when they are needed most.
citizens, and potential immigrants. The costs of employing The entire annual cap for high-skilled temporary work visas,
legal services for help in navigating the system can total in the H-1Bs, has been filled in as little as two days in recent years
thousands of dollars per visa; this is but one measure of the (GAO 2011). The system functions on a first-come, first-served
unnecessary waste generated by the current system. basis. Companies in need of workers with specific skills that are
in short supply among U.S.-born citizens have been required to
Many of the larger costs of this complicated system cannot
wait up to 364 days for the next H-1B availabilities.
be monetized. For instance, country-specific quotas within
a certain subcategory of visas mean that in order for a The process for bringing low-skilled workers into the United
Philippines-based sibling of an adult U.S. citizen to be eligible States is similarly burdensome. Before being allowed to hire
for a green card in May of 2012, she would have had to file a foreign workers using the H-2A temporary work visa for
petition before February of 1989—a wait time of more than seasonal agricultural workers, current regulations stipulate
twenty-three years (Figure 3). For instance, with the exception that a company must advertise its job availabilities in three
of spouses and parents, no adult family relation from separate locations. Additionally, the advertisements must
anywhere in the world has a wait time of less than seven years. remain posted through one-half of the entire contract period
Created in part by an overly complicated classification system (DOL 2009). Such burdens have limited the use of this category
and exacerbated by country-specific quotas for individuals of visa, but not the necessity of hiring seasonal workers.
from certain countries, these wait times compromise family
reunification—a cornerstone of U.S. immigration policy since Many of the potential immigrants who enter the country
1965—and are counter to values that are important to the without documentation or who overstay short-term visas
social fabric of the United States. form a labor pool that employers in need of low-skilled labor
are wont to tap. Roughly 300,000 undocumented immigrants
Visa wait times and the surrounding red tape also frustrate entered this country each year between 2007 and 2009
potential employers of immigrants. These problems, along with (Passel and Cohn 2010), and the total undocumented foreign-

Figure 3.

Visa Wait Times for Family Members of U.S. Citizens, in Years

25

20
Visa wait time in years

15

10

0
China India Mexico Philippines All other areas

Country of Origin

 Unmarried adult sons and daughters of U.S. citizens  Brothers and sisters of adult U.S. citizens
 Married sons and daughters of U.S. citizens

Source: State Department (2012).

The Hamilton Project • Brookings 3

born population in the United States is approximately 11.5 productivity on the job and raising their wages (blue bars). For
million (DHS 2012a). Estimates suggest that 50 to 70 percent instance, unskilled immigrant construction workers increase
of manual labor in the agricultural sector is performed by the productivity of relatively more-skilled supervisors;
undocumented immigrants (Sequeira 2011). increases in immigrant labor in household services have
facilitated greater labor-market participation of women;
The United States has an immigration system that has been and immigrant farm-workers allow farmers to increase the
patched together without a clear vision. The result is great yields and productivity of their farms. In these cases, by
complexity that imposes excessive burdens on immigrants, complementing Americans skills and resources, immigrants
families, and businesses, leaving many potential benefits have raised wages and incomes for Americans.
unrealized.
A contrasting view is that immigrants compete for certain
Immigration and the Labor Market American jobs, reducing wages within certain groups while
Concerns about how immigrants affect the labor market raising wages elsewhere (purple bars). For instance, Ottaviano
and economic activity are a source of discontent with and Peri find that the framework laid out in Borjas and Katz
immigration—concerns that appear to be grounded more in (2007) suggests that average wages between 1990 to 2006
fear than in fact. A common misconception is that immigrants for American workers without high school degrees were 4.7
take jobs from U.S.-born workers and drive down wages, percent lower due to immigration. Nevertheless, this and
particularly in low-skill industries. However, an examination other evidence suggest that immigration does not lower the
of the economic evidence suggests that immigrants, on wages of Americans, and instead may raise wages in the
average, raise living standards for American citizens (see aggregate (Card 2005; Ottaviano and Peri 2008). The evidence
Greenstone and Looney 2010). also indicates that immigrants contribute to the well-being of
Americans indirectly by increasing the accessibility of certain
There is less of a consensus regarding how immigrants
goods and services and by reducing the prices of those services
affect the distribution of wages. Some estimates suggest that
(Cortes 2008).
immigrants raise wages across the board, while others find that
immigrants improve wages for some workers and reduce them Highly-educated immigrants, in particular, are likely to
for others. This evidence, summarized in Figure 4, juxtaposes be important contributors to U.S. innovation, since their
two opposing views. One set of estimates (Ottaviano and Peri contributions may have spillover benefits for the rest of the
2008) suggests that immigrants generally complement the economy. Immigrants were key founders of 39 percent of the
skills of American workers and businesses, increasing their engineering and technology companies started in California

Figure 4.

Effect of Immigration on Wages of U.S.-Born Workers

3

2
Percent change in wages

−1

−2

−3

−4

−5

−6
Less than HS HS Some College All U.S.−born
graduates college graduates workers
6% 30% 30% 33% Share of workforce

 Borjas-Katz (2007) style estimate  Ottaviano-Peri (2008)

Source: Ottaviano and Peri (2008), Table 7; 2011 CPS.

Note: Share of U.S.-born population ages 25-64, numbers may not sum to 100 due to rounding.

4 The U.S. Immigration System: Potential Benefits of Reform

between 1995 and 2005, and of more than 25 percent of the Immigration and the Budget
engineering and technology companies founded nationwide A final economic concern commonly voiced about immigration
during those same years. In 2005, these companies produced is that immigrants burden public finances and taxpayers.
$52 billion in sales and employed 450,000 workers nationwide A look at the economic evidence suggests that although
(Wadwha 2007). Our high-skilled immigrants make important immigrants utilize American public services such as schools,
contributions to U.S. innovation, patenting at high rates. By one hospitals, and means-tested programs, the total lifetime
estimate, patent activity by high-skilled immigrants in the 1990s taxes that they and their descendants contribute exceed the
increased U.S. GDP per capita by 1.4–2.4 percent, or $481–$825 benefits they receive (Hanson 2005). In fact, according to the
per person (Hunt and Gauthier-Loiselle 2010). Social Security Administration Trustees’ report, increases
in immigration have improved Social Security’s finances.
It is noteworthy that other countries appear aware of these
Second-generation immigrants tend to be particularly large
benefits and have designed their immigration policies to
contributors to Social Security (Board of Trustees 2010).
encourage higher-skilled immigrants. For instance, Australia,
Figure 5 compares the taxes paid and expenditures consumed
Canada, and New Zealand use points-based systems to screen
by the children of immigrants and by the children of U.S.-
potential immigrants. In their systems, points are awarded to
born citizens over their lifetimes.
potential immigrants for a positive work history, an advanced
degree, skills in a high-demand industry, and other factors In contrast, individual states present a mixed picture based
such as age or language ability. The perceived advantage of largely on the geographic settlement patterns of immigrant
points-based systems is that they encourage or accommodate populations (see Figure 6). The governmental costs associated
certain characteristics of immigrants believed to contribute with immigrants arise primarily because of the costs of educating
positively to economic, cultural, or social life. and caring for the children of immigrants—costs that fall largely
on state and local governments. At the same time, the fiscal
But the disadvantage, particularly for employment-based
benefits of immigration generally arise from federal income and
visas, is that the points assigned by the regulatory or legislative
payroll taxes, which accrue to taxpayers across the country. As
authority may have little to do with the changing needs of
a result, states receiving a disproportionate share of immigrants
employers. A more flexible approach would measure demand
face a larger net fiscal burden across federal, state, and local
for certain skills or attributes on a continuous basis, and
governments. For example, a 1997 National Academy of Sciences
reserve visas for those immigrants with the greatest likelihood
study found that the average native household in California
of contributing in terms of economic productivity.
bore a cost of $1,178 in 1995 due to immigrants, whereas the

Figure 5.

Net Taxpayer Cost or Benefit of Immigrant Children, by Age

Net taxpayer benefit of cost (thousands of dollars)

$20

$15

$10

$5

$0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75

-$5

-$10

-$15

-$20
Age
Immigrant parent U.S.-Born parent Mexican or Central American immigrant parent

Source: IPUMS-CPS 2005–2009; U.S. Census Bureau.

The Hamilton Project • Brookings 5

Figure 6.

Immigrants as a Share of the Population

Share of population
 0–5 percent  5–10 percent  10–15 percent  15–20 percent  More than 20 percent
Source: American Community Survey (2008–2010).
Note: Excludes immigrants in the United States less than one year.

U.S. average household bore a cost of roughly $200 (Smith and expansion of opportunities for employment-based immigration
Edmonstron 1997). Given that (on net and over their lifetimes) to the U.S. The proposal preserves family reunification
immigrants generally contribute more in taxes than they receive for nuclear families, but shifts away from extended-family
in benefits, one way to remedy the unfair distribution of costs for reunification. However, family networks are important for
immigrants would be to offset the costs to heavily impacted states finding employment, and many family members would
using the aggregate gains that accrue elsewhere. This would also more quickly and easily be able to enter the U.S. through the
serve to decrease some of the political tension surrounding the expanded employment-based system. Finally, Peri suggests
immigration issue in many states. increased enforcement efforts and an approach to dealing with
undocumented workers that can be implemented in tandem
A Rational Approach to with the other reforms. Each phase of the proposal aims to
improve on the previous system, culminating in a system that is
Immigration Reform easier to operate and simpler to navigate for both employers and
foreign-born workers, and increases the economic benefits of
In his Hamilton Project discussion paper, “Rationalizing U.S. employment-based immigration for the U.S. economy.
Immigration Policy: Reforms for Simplicity, Fairness, and
Economic Growth,” Giovanni Peri of the University of California,
Davis, puts forward one approach to immigration reform that is
Conclusion
more able to meet the needs of potential immigrants and their As America faces a rapidly changing global environment, it
U.S. family members, of employers who would like to hire foreign requires an immigration system able to promote shared gains for
workers, and of the American economy. Peri proposes using both American workers and immigrants. With the right reforms,
a market-based auction system to allocate existing temporary the immigration system could increase immigration’s social and
employment-based visas, arguing that such a system would match economic benefits to the American economy and workforce,
visas to employers with the greatest demand for immigrant labor. while being fair to Americans, to immigrants, and to taxpayers.
In this system, an employer would pay a fee through an auction
system to hire a foreign-born worker and would sponsor that Immigrants have strengthened America throughout its
worker for a visa. Revenues from the auctions could be used to history. But the current system is broken. It does not fulfill
establish and maintain the system and to compensate the state its humanitarian purpose of reuniting families, and it is ill-
and local governments that have the largest fiscal burdens from equipped to help the United States navigate the global economy
immigration. of the twenty-first century. The current system has been
cobbled together through a series of haphazard and unrelated
Later phases of the proposal expand this system beyond policies. If the United States is to remain competitive, our
temporary employment-based visas, simplify visa categories, policymaking must rise above contentious political fights and
create a direct path from temporary visas to permanent build an immigration system that once again serves the needs
immigration, eliminate the country quotas, and call for an of American families and businesses.

6 The U.S. Immigration System: Potential Benefits of Reform

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Acknowledgments
The authors thank Karen Anderson, David Dreyer, and Meeghan Prunty for innumerable insightful comments and discussions.
They are also grateful to Dmitri Koustas and Karen Li for outstanding research assistance, and to Kristina Gerken and Kaitlyn
Golden for help at many stages of producing this paper.

The Hamilton Project • Brookings 7

8 The U.S. Immigration System: Potential Benefits of Reform
 Advisory Council

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The Hamilton Project • Brookings 3

 Visa Wait Times for Family Members of
U.S. Citizens, in Years

25

20
Visa wait time in years

15

10

0
China India Mexico Philippines All other areas

Country of Origin

 Unmarried adult sons and daughters of U.S. citizens  Brothers and sisters of adult U.S. citizens
 Married sons and daughters of U.S. citizens

Source: State Department (2012).

The sheer complexity of the current U.S. immigration system imposes many unnecessary costs on
American businesses, citizens, and potential immigrants. For instance, with the exception of spouses
and parents, no adult family relation from anywhere in the world has a wait time of less than seven years.

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w w w . H AMI L T O N P R O J E C T . O RG
4 Printed on recycled
Ten Economic paper.
Facts About Immigration w w w . H AMI L T O N P R O J E C T . O RG