Immigration and a Changing California Economy

"Immigration has always been a mix of benefits and costs. For California, more than for any other state, the balance is shifting to the cost side."

That is the central conclusion of a recent RAND analysis of economic and immigration developments in California over the past third of a century. The findings, coupled with recommendations calling for a reduction in legal immigration to more moderate numbers and a greater investment in education to assimilate the immigrants already here, have been damned by immigration advocates as elitist and scientifically flawed and praised by opponents of immigration as fair and soundly based.

Controversy is par for the course, it seems, when the research topic is the emotionally charged, highly polarized issue of immigration. Twelve years earlier, a RAND study of the impact of immigration reached a different conclusion--that the benefits of low-wage immigrant labor to the California economy significantly outweighed the costs. Those findings were lauded by pro-immigration groups and lambasted by restrictionists.

Both studies covered the same basic issues and used up-to-date and accurate data. Why, then, did they come to different conclusions?

Kevin McCarthy and Georges Vernez, authors of Immigration in a Changing Economy: California's Experience, cite three reasons. First, much has changed in the intervening years--the increasing pace of immigration into the state, the characteristics of the immigrants themselves and the structure of the California economy. Second, the new study looks at all immigrants, whereas the earlier one focused on Mexican immigrants. And third, it takes a longer perspective, looking back over 30 years of economic and immigration data collected during good years and lean years. The trends that have emerged from the analysis, and on which the study's conclusions and recommendations are based, are undeniable.

They show, say the authors, that immigration has affected the state's economy, its labor market, its public sector, and both its native and foreign-born residents in ways that are unmatched anywhere else in the country.

Immigration still contributes to California's prosperity, McCarthy and Vernez write, but as recent waves of immigrants, many poorly educated, encounter an increasingly skill-based labor market, the costs--to schools, to other public services and to low-wage American-born workers and immigrants alike--are getting steeper.

Troubling Trends

The number of immigrants entering the state has been increasing at unprecedented rates. During the 1970s, California drew 1.8 million immigrants--more than in all prior decades together. And that number nearly doubled again, to 3.5 million, during the 1980s. As a result, immigrants now constitute more than 25 percent of California's population and account for more than half of the state's population and labor force growth.

During that same period, the earning and employment prospects of low-skilled workers have dropped steadily. Increasingly, people with one or more years of college have been filling new jobs, including more than 90 percent of the new jobs created since 1980. Moreover, the creation of new jobs for poorly educated workers is at a standstill--the economy has produced no new jobs for those with less than a high school diploma since 1970. This means that low-skilled newcomers are taking jobs vacated by retirees or by workers moving out of state. One indication of this trend is that the employment rate of high school dropouts has fallen from 67 percent in 1970 to 47 percent in 1990. McCarthy and Vernez estimate that from 1 percent to 1.5 percent of low-skilled, native-born workers were driven out of the California labor force during that 20-year period.

In coming years, it is likely that hundreds of thousands of immigrants who lack even a high school education will enter this demanding employment environment; this will set the stage for cutthroat competition on the lower rungs of the labor ladder. As immigrants vie for a fixed number of jobs, they will reduce the job opportunities of both immigrants who are here already and native-born workers who are high school dropouts.

Another trend is that poorly educated immigrants with minimal job skills are making little or no progress after they arrive--and are, in fact, falling behind earlier immigrants. The authors contend that immigrants who come to this country with less than a high school education will live at the edge of poverty throughout their lives, unlike immigrants with some college education who reach earnings parity with their native-born counterparts within 10 years of their arrival.

Further, the children of these poorly educated immigrants--predominantly Hispanic and Southeast Asian--lag behind their native and foreign-born counterparts in educational attainment, particularly in the rate at which they attend college. If allowed to continue unchecked, the authors warn, these trends will lower the future quality of the California labor force and darken the economic prospects of the children of immigrants for generations to come.

Finally, the costs of providing services to immigrants and their children have added appreciably to the state's fiscal burden. The large scale of immigration flows, bigger families, and the concentration of low-income, low-taxpaying immigrants making heavy use of public services are straining state and local budgets. The greatest burden falls on the schools, where immigrants currently account for half of the recent substantial growth in K12 enrollment. Immigration's effect on the state's community colleges and universities has yet to be fully felt.

These trends imply that a balance must be struck between the interests of those who are already here, both native and foreign-born, and those would-be immigrants who are seeking entry, the authors conclude. Thus, they recommend a number of important changes in federal immigration policy and a concerted effort by the state to integrate the newcomers.

Pointing out that Washington alone sets immigration policy and that it has great latitude in determining the volume and composition of immigration flows, the authors urge the federal government to

Reduce the volume of legal immigration to a "moderate range"--somewhere between 800,000 (the number currently admitted) and 300,000 (the number admitted in the 1960s)--and regulate future levels in accordance with changing economic and international conditions.
Include educational level and work skills, in addition to family reunification, in the criteria for admissions eligibility.
Recognize that Mexico has supplied almost half of all recent California immigrants and that the two countries have a special relationship. One suggestion: Expand the number of legal residence permits for Mexican immigrants in exchange for collaboration on border enforcement.
Sustain strong efforts to control illegal immigration.
Provide federal payments for the heavy education and social services costs borne by California and other states affected by large-scale immigration. Washington should back other proactive measures to integrate resident immigrants as well, including greater support for naturalization and for English-language instruction.

Meanwhile, California cannot wait for action at the federal level but must take steps to reduce immigration's long-term costs while increasing its benefits. "The state's immediate future will be shaped primarily by the immigrant families who are already here," the authors assert.

Most important, they say, California needs to

Hike investment in education, with particular emphasis on boosting high school graduation rates and college attendance among Hispanics and their American-born offspring.
Supplement federal efforts to further English proficiency and naturalization.
Establish an office of immigrant affairs to coordinate policy, track immigrants' needs and their effects on the economy, and promote greater public understanding of immigration issues.

This research was conducted within RAND Education. Funding was provided by the Office of the Under Secretary of Defense for Personnel and Readiness, The Ford Foundation, The William and Flora Hewlett Foundation, the James Irvine Foundation, The Andrew W. Mellon Foundation, and the California Business Roundtable.

Immigration in a Changing Economy: California's Experience, Kevin F. McCarthy, Georges Vernez, RAND/MR-854-OSD/CBR/FF/WFHF/IF/AMF, 1997, 338 pp., ISBN 0-8330-2496-5, $20.00.
Immigration and Higher Education: Institutional Responses to Changing Demographics, Maryann Jacobi Gray, Elizabeth Rolph, and Elan Melamid, RAND/MR-751-AMF, 1996, 117 pp., ISBN 0-8330-2381-0, $15.00.
The Mixed Economic Progress of Immigrants, Robert F. Schoeni, Kevin F. McCarthy, and Georges Vernez, RAND/MR-763-IF/FF, 1996, 121 pp., ISBN 0-8330-2390-X, $15.00.
How Immigrants Fare in U.S. Education, Georges Vernez and Allan Abrahamse, RAND/MR-718-AMF, 1996, 83 pp., ISBN 0-8330-2399-3, $15.00.
The Costs of Immigration to Taxpayers: Analytical and Policy Issues, Georges Vernez and Kevin F. McCarthy, RAND/MR-705-FF/IF, 1996, 62 pp., ISBN 0-8330-2358-6, $15.00.

Contents