How Immigration Effects the Economy

The Economic Benefits of Immigration

how immigration impacts the economy

The Balance / Caitlin Rogers

U.S. immigration policy and law are highly controversial. Most of the public debate centers around the security risks of allowing or denying people entry to America. While there have been numerous government policy changes regarding immigration since 2001, there haven't been any addressing immigration's economic impact on the country.

Learn how immigration affects the economy, how lawmakers use their powers to influence the flow of immigrants, and what U.S. immigration in the future might look like.

Types of Immigrants

There are many different names and categories given to someone moving from one country to live in another. There are generally three types of migrants in the U.S.: immigrants, refugees, and asylees.


Immigrants are people who have decided to move from one country to live and work in another. Immigrants are generally people who are seeking a new life and opportunities elsewhere, but are not under the same stressors as a refugee or asylee.

They generally make their way to the U.S., enter legally, and gain citizenship through a variety of methods. These migrants become naturalized citizens, and are given the same rights as all other U.S.citizens. According to the Pew Research Center, there are 45 million immigrants in the U.S., 77% of which are in the country legally.

Those that choose to cross into the U.S. and not use the system are not documented, and are called undocumented immigrants. The Department of Homeland Security estimates there were close to 11.4 million undocumented immigrants in the United States in 2018.


A refugee is someone who has left their country of birth or citizenship and cannot return for fear of persecution based on their religion, race, nationality, opinions, or political memberships.

The U.S. Citizenship and Immigration Services determines whether an immigrant has “suffered past persecution or has a well-founded fear of future persecution based on race, religion, nationality, membership in a particular social group, or political opinion in their home country.”

Asylum Seekers

Asylum seekers, or "asylees," are refugees who are already in the United States or at a port of entry and meet the criteria to be considered a refugee. If they have a “credible fear” of persecution or torture in their home country, they can apply for asylum to prevent deportation.

If approved for asylum, a refugee can stay in the United States, receive authorization to work, and apply for a Social Security card. They can apply for Medicaid or Refugee Medical Assistance and petition to bring family members, who are fearing persecution, to the U.S.

History of U.S. Immigration

Modern U.S. immigration law generally reflects the country's economic needs. When the U.S. needs workers, immigration laws tend to relax in order to allow more people in. When jobs become harder to find, Congress limits immigration.

Not all immigration laws are passed due to economic circumstances—many have been passed to allow or deny entry to people from specific areas or to attempt to control crime.

When Congress fails to pass immigration legislation, presidents generally turn to executive orders to implement policies throughout federal agencies to conduct changes in line with their stance on an issue.

In 1942. the United States and Mexico created the Bracero Agreement. It allowed Mexicans to assist farmers during the World War II labor shortages, ending in 1964.

In 1965, President Lyndon Johnson pushed Congress to change immigration policy with the Immigration and Naturalization Act, which eliminated quotas based on nationality and favored highly skilled immigrants or those joining families already in the United States.

Congress passed the Refugee Act of 1980 to encourage refugees from war-torn areas to enter the United States. While the law encouraged refugees from conflicted and dangerous regions, entry specifically depended upon employment and housing opportunities, available resources, and the likelihood of refugees becoming self-sufficient.

In the mid-1980s, America was recovering from a recession, and unemployment was high. More workers were unnecessary; thus, the Immigration Reform and Control Act of 1986 was passed.

The law forbade businesses to knowingly hire undocumented immigrants, but it legalized any who had entered the country before 1982. Undocumented farmworkers who could validate 90 days of employment were granted lawful permanent residence status.

Many presidents use federal agency policy changes through executive orders to implement changes in immigration.

The Immigration Act of 1990 enacted several controls for immigrants from under-represented countries. Unemployment was down, and immigration limits were increased. The act created visa priorities for immigrants who had "extraordinary abilities" in science, arts, education, business, or athletics.

Professors and researchers were prioritized, as were executives, managers, and holders of advanced degrees.

How Immigration Affects the Economy

Today, the country's percentage of immigrants is 13.7%, close to 44.9 million in 2019 (following the latest data available). Following is a breakdown of historical immigration to the United States from 1850 to 2018.

Immigrants consist of around 15% of the workforce in the U.S. One common misconception is that they tend to take jobs from native workers. Recent studies suggest that while some jobs are taken, the most likely scenario is that jobs are actually created. In a 2020 study, Azoulay et al. posit that immigrants are 80% more likely to become entrepreneurs and create jobs for native workers.

There are three reasons:

  • Most immigrants are of working age. They immigrate to find (or create) jobs, thus adding to the labor force.
  • An increasing number of immigrants have higher-level degrees.
  • They increase innovation, since more than 25% of high-quality patents are given to immigrants.

Immigrants and Business

Immigrants are good for American business. Immigrants have founded over 30% of U.S. firms that have gone public, and over 50% of startups valued at over $1 billion that are yet to go public.

According to the Bureau of Labor Statistics, foreign-born men are more likely than native-born men to join the workforce (79% vs. 67%), while foreign-born women are less likely than native-born women to work (55% vs. 58%).

The industries with more foreign-born employees are service, production, transportation, material moving, natural resources, construction, and maintenance.

What hurts some workers helps consumers. Undocumented immigrants lower the price of goods and services for everyone, because they provide lower-cost labor, which allows companies to reduce the prices of consumer goods.

Immigrants and the Economy

As close to half of all immigrants are documented, working, and paying taxes, they help to positively impact the economy by contributing to gross domestic product growth. Documented and undocumented immigrants are consumers, spending money within the economy and helping to strengthen it.

Several million undocumented immigrants pay taxes using an Individual Taxpayer Identification Number. According to the Institute on Taxation and Economic Policy, they pay close to $11.7 billion in state and federal taxes per year.

More than three-quarters of newly arrived immigrants are between ages 18 and 64. This lowers the ratio of older to younger people. When they work, they provide tax revenue that helps to support social programs for U.S. children and seniors.

Documented and undocumented immigrants pay into social programs, but those without documentation do not receive many of the benefits of paying.

Undocumented immigrants are not eligible for Medicaid or Medicare. Around $2 billion per year in emergency Medicaid funds go to hospitals that must care for anyone who shows up at the emergency room, with most of the funds going toward undocumented immigrants.

Contrary to some claims, an increase in undocumented immigrants in an area does not necessarily lead to a rise in violent crime. Furthermore, only 5.3% of the federal prison population in 2019 was incarcerated for immigration offenses.

Documented and undocumented immigrants are beneficial to the U.S. economy—they are willing to work, bring innovation and job creation, and pay taxes on a large scale.

Future of Immigration

Data collected by the U.S. Census Bureau suggest that the U.S. is in a state of population contraction instead of growth. By 2030, 20% of the population will be 65 or older, regardless of the immigration scenarios that play out. The earliest this is predicted to occur is 2025, and the latest is 2045.

If the population projections hold, the U.S. will require more young people to sustain the older population and continue the path of economic growth the country has been on for decades.

Immigrants, both documented and undocumented, will play an essential part in balancing out the aging population. It is necessary to continue accepting working-age people into the U.S. (or legalizing them if they are undocumented) in order to continue the economic growth of the country.

Frequently Asked Questions

What Does the U.S. Do to Balance the Costs and Benefits of Immigration?

Lawmakers pass legislative acts that adjust the flow of legal immigrants into the country.

What Are the Benefits of Immigration?

Immigrants provide the country with a young working population that contributes to the economy. Immigrants are also an essential part of the future of the U.S. as the country's population becomes skews more toward older, non-working, or retired adults.