Could legalizing immigrants improve U.S. economy?

PHOENIX (Reuters) - If the United States under President Barack Obama grants legal status to its 12 million illegal immigrants, most of them Hispanics, would it prove a net gain or a drain for the beleaguered U.S. economy?

Immigration, particularly what to do about illegal immigrants, is a hot-button issue in the United States. Immigration advocates say illegal immigrants do jobs Americans won’t. Critics say they depress wages and drain resources.

There is disagreement over whether giving legal immigration status to people now in the United States illegally would sap hard-pressed federal, state and local coffers, as people who oppose legalization say, or boost tax revenues and unleash a pent-up spending spree by the immigrants, as advocates argue.

Hispanics are the largest and fastest growing minority in the United States, accounting for around 15 percent of a U.S. population of some 300 million people. An estimated fifth of them are in the country illegally.

Compared to multibillion-dollar financial bailouts and a nearly trillion-dollar economic stimulus package signed by Obama in February amid the ongoing recession, analysts say the economic costs or gains from legalization are relatively small.

“A lot of this conversation about economics has to do with the political optics,” said Marc Rosenblum, a senior analyst with the Migration Policy Institute think tank in Washington that examines international immigration issues.

“Immigrants are still a small proportion of the U.S. economy, and it’s not going to make or break the U.S. economic recovery or the recession, whether or not we do legalization,” Rosenblum added.

The most recent attempt to get immigration legislation through the U.S. Congress failed in 2007 amid an acrimonious public debate about what critics called “amnesty” for millions of illegal immigrants and opposition from many Republican lawmakers in the U.S. Congress.

The New York Times reported this month that Obama plans to start addressing immigration this year, including a search for a path to legal status for illegal immigrants. The Times said Obama would speak publicly about the matter in May with an eye toward possible legislation as early as the fall.


“We know this is not an easy issue,” White House press secretary Robert Gibbs said this month.

“I think we understand that in order to get immigration reform through Congress and to the president’s desk, it’s going to take a healthy bipartisan majority,” Gibbs added.

When immigration legislation was debated in 2007, the nonpartisan Congressional Budget Office estimated that legalizing illegal immigrants would add $48 billion to federal revenues over 10 years. That move also would prompt $23 billion in direct public spending, mostly on refundable tax credits and the Medicaid healthcare program for the poor, it said.

Lawmakers in Arizona opposed to legalization question the math showing a net financial gain from giving legal status to illegal immigrants. They argue granting citizenship to mostly low-wage immigrants would have a crushing effect on the state, which borders Mexico and has about 500,000 illegal immigrants.

“They’re costing us in Arizona billions a year and that’s when they are getting hardly any benefits,” said John Kavanagh, a Republican state representative.

Scott Smith, mayor of the Phoenix suburb of Mesa, disagrees. He said changing the laws could mean additional tax dollars for his cash-strapped city, and a reduction in the money spent on budget-busting items such as policing illegal immigration.


“There’s no doubt that the disorder in the immigration system creates a huge cost,” Smith said.

The spending power of U.S. Hispanics more than quadrupled since 1990, according to a 2006 University of Georgia study, although advocates and critics of reform dispute the economic impact of legalization.

“Whatever gain there is ... it’s so small they can barely measure it. It comes by increasing the supply of unskilled workers and lowering the wages of the least-educated native-born workers,” said Steven Camarota, research director of the Center for Immigration Studies think tank, which opposes legalization for illegal immigrants.

Legalization advocates say giving legal status to illegal immigrant workers would raise wages by preventing businesses that use poorly paid illegal labor from undercutting competitors that do not use illegal labor and consequently bear higher employee costs from wages and benefits.

They also say granting legal status would trigger an increase in spending by immigrants.

“The first thing I would do would be to buy my daughters a home of their own,” said Samuel Roldan, 33, an illegal immigrant from Guatemala who has been working in Phoenix under constant fear of deportation for more than a decade.

For Joan Dodd, a Phoenix real estate agent with more than three decades on the job, having a larger pool of qualified buyers -- as some people who are currently illegal immigrants could become -- would be welcome in tough times.

“There are lots of people now who are living as renters who would love to be homeowners if they had a path,” Dodd said. “As long as they could qualify and had a job history, I think it would be helpful in many of our areas of town that are so depressed.”

Additional reporting by David Schwartz in Phoenix; editing by Will Dunham