The Economics of Immigration

Update 757 — The Economics of Immigration:
Contributions of Foreign-Born Residents

Practically all of the debate this Congress on immigration reform has focused on border security. While problems with the inflow and processing of those seeking to immigrate from the southern border demand attention, less has been paid to the important economic contributions made to the United States by the nearly 14 percent of the population represented by these and other immigrants.

The group of foreign-born residents — some of whom are citizens, others not — is enormous, at roughly 45 million, close to the size of the entire population of California. What difference does this demographic make in the national economy, employment and productivity? What is the impact on native-born Americans? Today, we examine the economic role of immigrants in the nation.

Good weekends, all.



It has been nearly 30 years since Congress passed major legislation on immigration reform, with the two parties taking increasingly different approaches to the issue in recent years. Common misconceptions to the contrary, immigration is immensely beneficial to the US economy, boosting America’s productivity, filling key labor shortages, and increasing overall economic growth. If Congress looked at immigration as more than just a security issue, it would be better able to pass reforms that enhance this economic benefit by allowing needed immigrants to stay and work in America.

The Big Picture: Immigration and the Economy

As of 2021, an estimated 45.3 million immigrants were living in the United States. This represented 13.6 percent of the total US population, roughly the level it has been at for much of the new millennium. More than 2.5 million migrants crossed the southwest border last year, driving net immigration of 3.3 million people.

Immigrants as a Share of the US Population, 1850 to Present

Source: The Migration Policy Institute

These immigrants play a crucial role in America’s economy. Immigrants are expected to add an estimated $7 trillion to the economy between 2023 and 2035, according to the Congressional Budget Office. In the same period, immigrants are expected to add $1 trillion to federal revenues, which would help shrink the federal deficit to 6.4 percent of GDP in 2033 versus the 7.3 percent as projected last year. By 2033, the labor force is expected to grow by 5.2 million people, mostly due to higher net immigration. This immigration-driven growth in the labor force could help fill critical labor shortages. 

With an aging US-born labor force, immigration has become crucial to filling employment gaps in many industries, with foreign-born workers’ share of the US workforce rising from 17 percent in January 2020 to 18.6 percent this year, even as unemployment rates for US-born workers have stayed at historic lows. Immigrants play a key role in America’s economic growth and improving the federal government’s fiscal outlook. Outside of border security issues, Congress should consider reforms that enhance the economic benefits associated with immigration and work to revamp an outdated immigration system.

Undocumented Immigration: Labor and Tax Boost 

In 2021, there were roughly 10.5 million undocumented immigrants in America, representing about 22 percent of the foreign-born population. 4.1 million of these undocumented immigrants came from Mexico, but that number has been in decline after reaching its peak in 2007.

Source: Pew Research Center

Undocumented immigrants are filling important roles in several industries. As of 2014, the sectors in which undocumented workers represented the highest share of their workforce were as follows:

  1. 36.1 percent of agricultural workers, or 244,459 total
  2. 26.7 percent of grounds maintenance workers, or 266,551 total
  3. 22.6 percent of cooks and food preparation workers, or 470,938 total
  4. 25.1 percent of other food preparation and serving-related, workers, or 109,223 total
  5. 23.1 percent of textile, apparel, and furnishing workers, or 120,059 total

Undocumented workers are especially vital to the agricultural sector, which is having increasing difficulty retaining the 1.5 to 2 million workers it requires to meet its labor needs each year. In 2019, 56 percent of California farms reported that they had been unable to hire all the employees they needed at some point during the previous five years. To meet these needs, the agricultural sector hired roughly 450,000 foreign-born farmworkers – over half of its total workforce – in 2019 alone, with a large portion of those hires being undocumented immigrants. Overall, despite the partisan rhetoric surrounding them, there is a strong argument to be made that undocumented immigrants are a net positive for the US economy.

In stark contrast to the belief that undocumented immigrants are a burden on taxpayers, immigrants often pay taxes like everyone else, and even immigrants who are undocumented pay a significant amount in taxes despite being excluded from many benefits. About half of undocumented immigrants in the US are estimated to file income tax returns, and about half have payroll taxes withheld automatically. 

Everyone, regardless of immigration status, pays sales taxes, one of the biggest sources of local and state revenue, and everyone contributes to property taxes – even renters, whose monthly payments make it possible for landlords to pay the bill. In 2018, undocumented immigrants contributed $20.1 billion in federal taxes and $11.8 billion in state and local taxes. Many undocumented immigrants also pay into the Social Security program without the promise of benefits. In 2010 alone, undocumented workers contributed $12 billion in tax revenue to Social Security. In short, undocumented immigrants are not the freeloaders that many depict them to be.

Legal and High-Skill Immigrants

As of 2021, 23.1 million immigrants were naturalized US citizens while 11.6 million were lawful permanent residents, also known as green-card holders. In total, lawfully present immigrants comprise 78 percent of the total foreign-born population in the US. Legal immigrants play an important role in America’s economy. Studies show that, per capita, immigrants are about 80 percent more likely to start a firm than US-born citizens. In addition, immigrants and children of immigrants were the founders of nearly half of all Fortune 500 companies in 2023. Due in part to the businesses they start and to the overall boost foreign-born workers provide to economic activity, study after study has shown that immigration provides jobs for immigrants, of course, but also results in a net boost to employment for US-born workers.

The role of immigrants with highly specialized skills is particularly noteworthy when discussing the economic impact of immigrants. In 2019, nearly a quarter of all STEM workers in the US were foreign-born. The total number of foreign-born STEM workers was 2.5 million, nearly double the number it had been in 2000. Foreign-born workers also play a key role in essential industries such as healthcare: in 2021, nearly 2.8 million healthcare workers were foreign-born, representing over 18 percent of the total workforce. Additionally, roughly 26 percent of physicians and surgeons and nearly 40 percent of home health aides were foreign-born. Studies show that high-skilled immigrant workers boost productivity, increase wages, and reduce unemployment for US-born workers. 

A fundamental component of the pipeline of skilled labor into the US economy is international students. In 2020, international students earned 40 percent of STEM master’s degrees and 43 percent of STEM PhDs. When the option is open to them, STEM international students overwhelmingly choose to stay in the US: over 75 percent of the 180,000 international students who earned STEM PhDs between 2000 and 2015 lived in the US in early 2017. Any policy agenda that seeks to increase the supply of skilled workers in America should thus pay special attention to educating and then retaining workers from abroad.

Policy Responses to Immigration

Despite the contributions immigrants make to the economy, the current rhetoric in the national debate on immigration has focused on the conflict between those advocating for tougher enforcement and those advocating for immigrant rights. Immigration hardliners, especially in the Republican Party, are advocating stricter immigration laws and tighter border security, fostering a sense of crisis they can exploit politically. To meet the challenge at the southwest border, the monetary and personnel needs of border security and immigration enforcement have increased dramatically, begging the question as to whether further increasing immigration enforcement is effective or even necessary.

As for the Democrats, there does not seem to be a consensus on what platform the party should adopt on immigration. Some Democrats are looking at taking a tougher stance on immigration, believing that “turning the tables” on Republicans — especially after Republicans killed the bipartisan border security agreement — would enable the Party to appeal to centrist and independent voters on the issue. 

On that point, many see the election of Representative Tom Suozzi (D-NY), who made his tough-on-the-border stance a focal point of his campaign, as a strategic blueprint for Democrats in the 2024 general election. Other Democrats, especially progressives, would prefer that the party make efforts to fulfill President Biden’s campaign promise to build a “fair and humane” immigration system, one that includes a pathway to citizenship for immigrants who are undocumented and protections for those in the Deferred Action for Childhood Arrivals (DACA) program among other protections for immigrants. For his part, President Biden has not made immigration reform a major focus of his administration; if it is a priority for him, he is running short on time to take any meaningful actions on the issue.

If Congress chooses to enact sensible immigration reform, there are many avenues it could take to capture the positive economic benefits of immigration. Congress could:

  • take action to streamline the immigration process to eliminate the backlog of millions of immigration applications spread across numerous branches of government, thus providing a path to work authorization for millions of immigrant workers.
  • provide a pathway for legal status and citizenship for undocumented immigrants, which according to some estimates could boost the GDP and tax revenues by billions of dollars.
  • increase the cap on worker visas such as the H-1B visa, allowing thousands of more skilled workers into the US to fill critical shortages.
  • reform or abolish the current national cap on immigration, in which the total number of immigrants allowed into the US from a given country is the same regardless of the country’s size or the number of prospective immigrants that seek entry each year. 

While border security should not be ignored, neither should it be the sole focus of immigration policy reforms. A debate on immigration that addresses only the risks posed by immigration loses sight of the big picture and handicaps the national economy. It is past time that Congress recognizes the economic importance of immigration, along with the benefits that it brings not just to immigrants but to the US-born population. If Congress were to pass legislation that updated America’s antiquated immigration system with a better understanding of the big picture, as outlined above, it would enhance the beneficial impact that immigration already makes on the nation.