The long view of economics and immigration (Two Indicators)

Summary

Planet Money Podcast Summary: "The Long View of Economics and Immigration (Two Indicators)"
Release Date: November 20, 2024
Host: Darian Woods & Adrian Ma
Producer: NPR

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Introduction: Exploring Immigration and the Economy

In the November 20, 2024 episode of Planet Money, hosts Darian Woods and Adrian Ma delve into pressing questions surrounding immigration and its economic implications. Prompted by listener inquiries post-election, the episode seeks to answer:

1. How would mass deportation affect the economy?
2. How do we measure the economic impact of immigrants and immigration?

These questions are addressed through two comprehensive narratives: a historical analysis of the Chinese Exclusion Act of 1882 and a modern examination of immigrants' contributions to the U.S. economy.

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Part 1: Historical Perspective – The Chinese Exclusion Act of 1882

Chinese Immigration in the Late 19th Century

In the late 1800s, Chinese immigrants were a significant demographic in the Western United States, comprising about 20% of all immigrants in the region (01:29). Their arrival was predominantly during two major waves:

1. California Gold Rush (1850s): Drawn by the promise of gold, many Chinese men sought fortune in California.
2. Transcontinental Railroad Construction (1860s): They played a crucial role in building the nation's first transcontinental railroad.

Nancy Chen, a professor of economics at Northwestern University's Kellogg School of Management, explains that these immigrants were mostly working-age, able-bodied men who were highly organized in their migration patterns (01:44).

Economic Contributions and Organizational Efficiency

Chinese immigrants were recruited and managed by U.S.-based Chinese merchant companies that handled recruitment, paperwork, and employment arrangements (02:14). This organization allowed them to work efficiently in peripheral and demanding roles, such as:

• Building railroads
• Timber harvesting
• Land reclamation

Their self-sufficiency extended to managing their own housing and food, making them reliable and low-maintenance employees (02:44).

Rise of Anti-Chinese Sentiment and Legislative Crackdown

Despite their economic contributions, Chinese immigrants faced increasing racism and suspicion, especially during the 1870s recession that hit Western states harder than the East (02:57). Legislative actions included:

• State-Level Restrictions: Bans on land ownership, access to fishing grounds, and interracial marriages.
• Chinese Exclusion Act of 1882: This landmark federal law halted Chinese laborer immigration for ten years and barred Chinese immigrants from becoming U.S. citizens. It was extended and tightened over subsequent decades (03:38).

Zeke Hernandez, an economic researcher, highlights that the exclusion act was not explicitly a deportation policy but effectively led to mass departures of Chinese immigrants from the U.S. (03:56).

Economic Impact of Exclusion Policies

Recent research by Nancy Chen and colleagues analyzed the economic repercussions of the Chinese Exclusion Act on the Western U.S. They discovered a significant reduction in the Chinese labor supply by 64% due to the act (04:26). Contrary to expectations that white native workers would benefit, the findings revealed a "losers and losers" scenario:

• Reduction in White Labor Supply: A 28% decline in white male workers in the West, as white workers also left the region, and insufficient new workers migrated from Eastern states (05:04).
• Economic Decline in Communities: The departure of Chinese immigrants led to the shutdown of businesses like bars, hotels, and restaurants, diminishing the economic vitality and attractiveness of towns (05:29).

The research concluded that the Chinese Exclusion Act acted as a drag on economic growth in the Western U.S. until its repeal in 1943, highlighting the unforeseen negative consequences of sweeping immigration restrictions (06:06).

Notable Quote:
Zeke Hernandez remarks, “Even if we believe that immigration policy is there to serve the economic interests of American citizens, we want to think through the immigrants that we want to ban or that we want to reduce. What are they doing? Is it something that Americans value?" (06:40)

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Part 2: Modern Insights – Immigrants' Contributions to the U.S. Economy

Breaking the Binary: Beyond Fear and Pity

Transitioning to contemporary times, Darian Woods and Adrian Ma engage with Zeke Hernandez, a professor at the University of Pennsylvania’s Wharton Business School. Hernandez critiques the prevailing narratives about immigrants, which tend to frame them either as "villains" threatening jobs and culture or as "poor, huddled masses" deserving of pity (07:18). He advocates for a more nuanced understanding, emphasizing immigrants' multifaceted contributions to society and the economy.

Zeke Hernandez’s Five Pillars of Immigrant Contributions

Hernandez outlines five key areas where immigrants bolster economic growth:

1. Talent:

   • Skills and Labor: Immigrants fill essential roles across various sectors, from agriculture to high-tech industries.
   • Specialized Abilities: They often bring unique skills that complement the existing workforce.

2. Consumption:

   • Increased Demand: Immigrants contribute to higher aggregate demand by purchasing goods and services.
   • Novelty Effect: Diverse tastes lead to the creation and expansion of new markets and products.
     Example: Adriane Ma discusses the proliferation of Ethiopian restaurants in D.C. in response to the local Ethiopian community’s preferences (10:32).

3. Taxes:

   • Revenue Generation: Immigrants pay sales taxes, payroll taxes, and contribute to Social Security.
   • Long-Term Benefits: While initial integration costs exist, the long-term tax contributions outweigh these expenses. Hernandez cites that the average immigrant contributes a net positive of over $250,000 to the economy over their lifetime (11:15).

4. Investment:

   • Foreign Direct Investment: Immigrants facilitate investment from their home countries, enhancing economic ties and growth.
     Example: The expansion of Guatemalan restaurant chain Pollo Campedo in the U.S. illustrates immigrants driving investment in their communities (12:25).
   • Entrepreneurship: Immigrants are 80% more likely to start businesses than native-born individuals, contributing to job creation and innovation. Notable immigrant-founded companies include Google, Zoom, and Duolingo (13:20).

5. Innovation:

   • Patent Contributions: Immigrant inventors account for one-third of U.S. patents in recent decades.
   • Fortune 500 Influence: Nearly half of Fortune 500 companies were founded by immigrants or their children, underscoring their role in driving innovation and economic leadership (14:03).

Notable Quote:
Hernandez emphasizes, “Immigrants don't need your fear, they don't need your pity. They are good for you, good for you and your children, and that's both economically and socially” (09:26).

Challenges Faced by Undocumented Immigrants

While underscoring the positive contributions of immigrants, Hernandez also addresses the limitations imposed on undocumented immigrants. Legal barriers restrict their ability to fully realize their potential in the five key areas, thereby curbing their positive impact on the economy.

Personal Anecdote:
Hernandez shares a poignant story about his undocumented barber, who possesses the capital to start a business but is hindered by his legal status, illustrating the lost economic potential due to restrictive immigration policies (14:26).

Notable Quote:
Zeke Hernandez reflects, “The real tragedy of illegal immigration when it comes to the economy is that we don't get as many of the five things that immigrants bring as we could if they were here legally” (15:05).

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Conclusions and Policy Implications

The episode concludes with a call to reevaluate and modernize U.S. immigration policies, which have lagged for over three decades. Hernandez argues that by expanding legal pathways for immigration, the U.S. can fully harness the economic and social benefits that immigrants offer.

Key Takeaways:

• Historical Lessons: The Chinese Exclusion Act serves as a cautionary tale about the unintended economic consequences of restrictive immigration policies.
• Modern Contributions: Immigrants significantly enhance the economy through talent, consumption, taxes, investment, and innovation.
• Policy Recommendations: Updating immigration laws to facilitate legal immigration can unlock the full potential of immigrants, benefiting both the economy and society at large.

Final Thoughts:
By moving beyond simplistic narratives of fear and pity, Hernandez urges a comprehensive recognition of immigrants' integral role in sustaining and advancing the U.S. economy.

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Produced by: Cooper Katz McKim and Julia Richie
Engineering by: Kwesi Lee and Maggie Luthar
Fact-Checked by: Angel Carreras and Sierra Juarez
Editing by: Cake and Cannon
Production: The Indicator is a production of NPR.

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Transcript

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[Darian Woods]

This is Planet Money from NPR.

[Adrian Ma]

When we asked for your questions right after the election, there were a few that we got again and again. One of those was how would mass deportation affect the economy? Another was how do you even measure the economic impact of immigrants and immigration?

[Darian Woods]

Well, we have some answers, some evidence, and it comes in the form of two stories. Hello and welcome to Planet Money. I'm Darian Woods.

[Adrian Ma]

And I'm Adrian Ma. First, Darian and our co host Waylon Wong have the story from another time. The US Cracked down on immigration with the express intent of helping the economy. We look at how that worked out.

[Darian Woods]

And then we take 20 years of research and we distill it into what immigrants contribute to economic growth and we run the numbers for immigration in the.

[Adrian Ma]

U.S. today's stories come from Planet Money's daily podcast, the Indicator. Enjoy.

[Darian Woods]

In 1880, the Chinese were the biggest group of immigrants in the Western US they accounted for around 20% of all immigrants in the region. This was a time of open borders. Basically, if you had enough money to make the trip, you could come to.

[Nancy Chen]

The US And Chinese immigrants arrived in the west in two big waves. First during the California Gold rush of the 1850s and then to build the transcontinental railroad about a decade later. The new arrivals were mostly working age, able bodied men. Nancy Chen is a professor of economics at Northwestern University's Kellogg School of Management.

[Zeke Hernandez]

The interesting thing about the Chinese is that they were very organized in the way they came to the U.S. she.

[Darian Woods]

Says that most of the Chinese immigrants came via US Based companies run by Chinese merchants who spoke English. They recruited workers in China, handled all the paperwork and hired out teams of laborers to American employers.

[Zeke Hernandez]

They were able to go to very peripheral places and be productive. A whole group or a company of men would go to the frontier where they're building railroads or taking down trees or reclaiming land and they would be self sufficient.

[Nancy Chen]

For example, the workers figured out their own housing and food.

[Zeke Hernandez]

And so American employers really like working with them because you know, it's you pay a price and then it's not much hassle.

[Darian Woods]

But the Chinese workers also faced racism and suspicion. Nancy says anti Chinese sentiment gained momentum in the 1870s. There was a recession in the US that hit Western states more than eastern ones.

[Zeke Hernandez]

When economic opportunities are less plentiful, I think there's often and unfortunately this desire to pin it on someone.

[Nancy Chen]

Lawmakers in Western states started to restrict how Chinese immigrants could work and live. They were banned from owning farmland or getting access to fishing grounds. State and federal legislation also made it difficult, if not impossible, for Chinese men to enter interracial marriages or bring over their wives from home.

[Darian Woods]

These policies snowballed into the Chinese Exclusion act of 1882. The law banned all Chinese born laborers from entering the US for 10 years. It also prevented Chinese already in the US from becoming citizens. And these restrictions were extended and tightened over time.

[Zeke Hernandez]

The stereotypical immigrant story for America is you come from a country to America for better opportunities. And the Chinese Exclusion act basically made that impossible to do for the Chinese.

[Nancy Chen]

The exclusion laws also enabled an atmosphere of targeted racist violence. In what's now Wyoming and Oregon, white men massacred dozens of Chinese laborers. So Chinese immigrants left the US in large numbers. And of course, there were very few new Chinese migrants.

[Darian Woods]

Nancy and several researchers recently published a working paper about the economic impact of the exclusion policies on the Western U.S. they calculated that the Chinese Exclusion act reduced the Chinese labour supply by 64%. And remember, competition for jobs was one of the main justifications for the law. So Nancy wanted to study what happened to white US born workers in Western states.

[Zeke Hernandez]

And you know, honestly, we thought we would find that they benefited. We thought this was going to be a story of winners and losers. But what we found was this was a story of losers and losers.

[Nancy Chen]

Here's what Nancy means. She found that the white male labor supply in the west was reduced by 28%. Basically in places that Chinese immigrants vacated, white workers also left and there weren't enough new workers moving from Eastern states to fill the gap.

[Darian Woods]

A possible reason for the decline in white workers, Nancy says, is that the loss of the Chinese immigrants might have drained some towns of their economic vitality.

[Zeke Hernandez]

The Chinese got really into services. They would run a bar, a hotel. Everyone eats there, everyone sleeps there. The Chinese leave, they shut down the motel, they shut down the bar, they shut down the restaurant. All of a sudden your town is a lot less attractive for everyone.

[Darian Woods]

During the Chinese exclusion era, one sector where local white workers did appear to swap in for departing Chinese workers was mining. But Nancy says that's an exception to the broader trend like take manufacturing there. Her paper documents a slowdown. And this happened both in terms of output and in the number of businesses overall.

[Nancy Chen]

Nancy says the numbers suggest that the Chinese Exclusion act was a drag on economic growth in the Western U.S. until at least 1940 the act wasn't repealed until 1943. That's after China joined the allies in World War II. Nancy says her research on the Chinese Exclusion act shows the danger of enacting wide sweeping policies. The legislation wasn't explicitly a deportation program, but it did lead to Chinese immigrants leaving the US in large numbers. The law had far reaching consequences that Nancy says weren't anticipated by lawmakers.

[Zeke Hernandez]

Even if we believe that immigration policy is there to serve the economic interests of American citizens, we want to think through the immigrants that we want to ban or that we want to reduce. What are they doing? Is it something that Americans value? And if they go, who's going to do the job? And at what price will they do it for? And what will Americans have to pay for that?

[Darian Woods]

Next up, Adrian and I talk with Zeke Hernandez about his economic research on immigration.

[Adrian Ma]

Zeke's a professor at the University of Pennsylvania's Wharton Business School, and he says amid all the coverage and the political speeches, he's really noticed two narratives about immigrants taking hold.

[Unknown Speaker]

Immigrants are villains who are here to steal your job and undermine your safety and destroy American culture and our heritage. The other narrative is immigrants are the poor, huddled masses who need our compassion and we must help them even if it costs us. It's either kind of fear or pity.

[Darian Woods]

I'm definitely one of the villain immigrants.

[Adrian Ma]

I was not going to say anything, but since you said it, it's out there in the open now. But you know, Zeke says this dichotomy between fear and pity, it distracts us from the larger truth about immigrants. Coming up, we break out of the binary. Zeke Hernandez has moved around a lot during his lifetime. He was born in Uruguay, and his family moved from there to various parts of Central America and eventually to Argentina. And there, he says, he noticed just how different economically countries could be.

[Unknown Speaker]

I was in the poorest slums of the city of Buenos Aires. And so you know when you see old men crying because they can't find work or women that are, you know, totally anxious because they can't feed their kids, that really moves you.

[Darian Woods]

When Zeke came to the US for college, he became fascinated with the question of why some countries prosper economically and others falter again and again. The answer seemed to come down to people.

[Unknown Speaker]

I realized that if you want to explain the movement of investment ideas, innovation, customers, and just the evolution of economies and markets, you can't separate that from the movement of people.

[Darian Woods]

And since then, Zeke has been researching how immigrants shape economies around the world. He recently wrote a book laying out what he's learned called the Truth about why Successful Societies Welcome Newcomers.

[Unknown Speaker]

So the argument I'm making is, based on 20 years of research, is that immigrants don't need your fear, they don't need your pity. They are good for you, good for you and your children, and that's both economically and socially.

[Adrian Ma]

Zeke says the reasons for this can be broken down into five things. Five things Any group of people contributes to economic growth. And because immigrants are people, they also contribute these things. They are talent, consumption, taxes, investment and innovation.

[Darian Woods]

Let's unpack those. So we'll start with talent. Immigrants bring skills and the ability to work. They often fill jobs where there aren't enough native born workers willing or able to do them, which could be anything from picking fruit to practicing medicine. But Zeke says it would be a mistake to think that an immigrant's labour is the only thing they contribute to an economy.

[Adrian Ma]

Yeah, I mean, after they work, they have paychecks to spend. Right. So the second thing they bring is consumption. In economic terms, when immigrants enter an economy, they increase aggregate demand for goods and services.

[Unknown Speaker]

But that's really just the beginning of it. The more interesting part is what happens next. One is what I call a novelty effect, which is immigrants just because they have different tastes and preferences. Right. They grew up liking, I don't know, different foods or different kinds of music or they use technology a little bit differently or something like that, they are introducing new categories of products and services or brands that they liked where they came from.

[Adrian Ma]

Yeah. So for example, in D.C. where I live, there's a large Ethiopian community and you're more likely to see in this area a demand for Ethiopian food and restaurants. Or in a place with lots of Korean immigrants, retailers may be more likely to import Korean beauty products. So this is the novelty effect of immigrant consumer demand.

[Darian Woods]

Right. Like I come from New Zealand and there is a fruit I cannot find in New York. It's called a. And I order the mail order from California.

[Adrian Ma]

What does it taste like?

[Darian Woods]

It's really tangy, sweet bowl of perfume and delight. It's hard to explain.

[Adrian Ma]

Please send them to me.

[Darian Woods]

I'm not sure they'll still be good by then. Now the third thing immigrants contribute is taxes. They pay sales taxes, payroll taxes that fund Social Security and that's even true for many undocumented immigrants. Now in the short run, there is a cost to integrating newer immigrants which is just disproportionately borne by local governments. You know, the cost of public education and social services like food assistance. But in the long term, Zeke says that these costs are outweighed by the taxes immigrants pay. Zeke says that the average immigrant makes a net positive contribution of just over a quarter million dollars.

[Adrian Ma]

The fourth thing that immigrants contribute to the economy, which Zeke's has often overlooked, is investment. And this can happen a couple of ways. For one thing, you can have foreign companies investing in the U.S. the research.

[Unknown Speaker]

I've done in the U.S. for example, shows that when immigrants increase by 1% as a share of a state's population, that state becomes 50% more likely to get investment from the immigrant's home country than it otherwise would have been. If you want to see, like a contemporary story on this, look no further than Pollo Campedo, which is one of the fastest growing restaurant chains in the United States. And of all places, it's from Guatemala.

[Adrian Ma]

So you had this Guatemalan company over the past couple of decades opening US locations. At this point, they have over 100 of them and they open them in places where there tend to be a lot of immigrants from Central America.

[Unknown Speaker]

That's what I call the immigration investment, jobs triangle. That is immigrants settle. Investment follows those investments create jobs and not jobs just for immigrants.

[Adrian Ma]

And then another way investment can happen is an immigrant to the US starts a business.

[Unknown Speaker]

Immigrants are also 80% more likely than native born people to start a business. And that means that they're putting their own capital, their own investment in a new business. Okay, now that 80% is at the average for every business from a mom and pop restaurant to Google or Zoom or Duolingo, which are immigrant founded firms.

[Darian Woods]

The fifth and final thing immigrants contribute to economic growth, according to Zeke, is innovation. They bring ideas. Just check out some of these stats. One study estimates that in recent decades, immigrant inventors were responsible for 1 in 3 U.S. patents. In addition, nearly half of Fortune 500 firms were founded by an immigrant or a child of immigrants.

[Adrian Ma]

So that rounds out the five things immigrants contribute to the economy, which again, any group of people has these five qualities. It's just that immigrants bring a different set of skills and different tastes and ideas which help grow the economy in a way that it couldn't otherwise. Zeke says this is just as true for people who immigrate to the US illegally as those who come here legally.

[Unknown Speaker]

I think the difference is that illegal or undocumented immigrants often have a ceiling on how much of those five things they can contribute because of their legal status. I'll tell you a short story on this. My barber is really good and we've become good friends over time. He confessed to me after years of getting to know each other, that he's an undocumented immigrant, he's not in the country legally. He also told me that his lifelong dream has been to start his own barbershop, and he has $200,000 saved in cash ready to start this business, which almost knocked me off my chair. I was like, you have how much money?

[Adrian Ma]

Wow. Yeah.

[Unknown Speaker]

And I was like, wow, okay. And I said, well, why don't you do this? And he said, I can't because of my legal status. So the real tragedy of illegal immigration when it comes to the economy is that we don't get as many of the five things that immigrants bring as we could if they were here legally.

[Darian Woods]

Now, Zeke wants to be clear. He's not advocating for illegal immigration, but he is in favor of more legal pathways.

[Adrian Ma]

To put it another way, there hasn't been a major update to US Immigration policy in over three decades, and because of that, Zeke argues that the US Economy is missing out. Today's stories first aired on our other podcast, the Indicator from Planet Money. It comes out five days a week and is always 10 minutes or less. So check it out on your your podcast thing. These episodes of the Indicator were produced by Cooper Katz McKim and Julia Richie with engineering by Kwesi Lee and Maggie Luthar. They were fact checked by Angel Carreras and Sierra Juarez. Cake and Cannon edits. The show in the Indicator is a production of npr.

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