How Do Immigrants Help the Economy? The 2 Big Benefits

How do immigrants help the economy in the United States? What are the domestic benefits of immigration?

The U.S. is facing an unprecedented influx of immigrants seeking asylum. While many advocate deportation, research suggests the U.S. could benefit economically by allowing immigrants currently in the U.S. to stay and work.

Keep reading to learn the two major ways that immigrants help the economy.

The 2 Economic Benefits of Immigrants

The United States is experiencing a historic influx of immigration. In May of 2022, U.S. border officials took 239,416 migrants into custody—the highest monthly total of attempted border crossings ever recorded. Since Biden took office, more than a million undocumented immigrants have taken up residence in the U.S. (This is a higher rate of undocumented immigration than during the Trump administration, but not significantly higher.) Experts attribute this rise in immigration not only to the Biden administration’s changes to immigration policy, but also to the United State’s recovery from the Covid-19 pandemic and its accompanying economic downturn. While many advocate deportation, others wonder: how do immigrants help the economy?

In this article, we’ll address the counter-argument that immigrants and native-born citizens alike could benefit economically if the government allows migrants currently living in the U.S. to stay and work. 

The most common economic arguments against immigration are:

1. Immigrants take jobs and depress wages
2. Immigrants receive more in government benefits than they contribute

However, the research appears to tell a different story. Below, we’ll briefly explain the two ways immigrants help the economy.

#1: Raising Demand to Create New Jobs

Many assume that a rise in immigration results in lower wages and tougher competition for jobs. The economic logic is that an increase in job-seekers raises the supply of labor while demand remains unchanged, making labor less valuable across the board. However, this logic overlooks the fact that immigration raises the demand for labor along with the supply. 

Immigrants help the economy because they are consumers, not just producers—like anyone else, they pay for products and services that require labor to produce. This rise in demand creates new jobs. For example, immigrants may accept jobs manufacturing cars, but many more immigrants also buy cars, driving up demand and incentivizing Ford to build another factory.

Research indicates that immigration has a neutral or positive influence on wages in any given industry. Multiple studies of historical waves of immigration (for example, when over 2.5 million Syrian refugees traveled to neighboring Turkey) have found that whenever there’s an influx of new job-seekers in a population, wages remain stable or rise.

Immigrants Take Complementary Jobs, Start Businesses, and Boost Overall Productivity

Along with the fact that immigrants help the economy by creating labor demand along with labor supply, there are other reasons why immigration can increase wages for native-born citizens. First, many immigrants take “complementary” jobs that create greater demand for natives’ labor. For example, if immigrants get jobs on a construction site, it creates demand for a construction manager, a higher-paying position for which a native fluent in English may be more qualified. This gives native-born Americans more opportunity to climb the social ladder.

Aside from jobs that create more demand for native labor, other complementary jobs held by immigrants may empower natives to produce more valuable labor: Some economists argue that when middle-class Americans gain the ability to outsource domestic tasks to immigrants, they spend more time on their careers. For example, an increase in the supply of child care will drive down the market price, allowing educated parents to hire someone to watch their children so they can get a high-paying full-time job.

Second, immigrants can help the economy because they are about twice as likely to start their own businesses as natives, directly creating jobs that could be filled by native-born Americans. Similarly, immigrants are more likely than natives to file patents, capitalizing on innovative ideas to increase productivity.

Finally, all the effects of immigration we discuss in this section boost the economy’s overall productivity, resulting in lower costs to consumers for goods and services, effectively “raising wages” for natives by increasing their spending power.

Exception: Small-Scale and Short-Term Job Disruptions and Wage Depression

Although immigration has documented economic benefits, there’s also evidence that immigration causes some job disruptions and wage depression, as opponents of immigration fear. While immigration may provide a net benefit to the economy, on a local scale it can displace those who directly compete with immigrants for jobs. For example, one 1997 study of 175 cities across the U.S. found that an influx of immigration caused a modest rise in unemployment among natives and immigrants already living there.

Additionally, the effects of immigrants on labor supply show up more quickly than their effects on labor demand. Consequently, it takes time for immigration’s full economic benefit to come to fruition. For example, while a wave of immigrants may arrive and compete for a factory’s jobs immediately, it may take years before the company builds another factory to accommodate the rise in demand caused by that wave of immigration.

However, many economists agree that overall, immigration has no negative net economic impact, even among low-skilled native workers.

#2: Tax Contributions

Another common argument against immigration is that immigrants receive more in government benefits than they contribute in taxes—profiting at the expense of the native taxpayer. In terms of federal welfare benefits, the numbers tell a different story: Legal immigrants (who, unlike undocumented immigrants, are eligible for non-emergency federal welfare) receive significantly less support from the federal government than the average native. Whereas the average native receives $6,081 a year in welfare benefits, the average immigrant receives $3,718.

Undocumented immigrants are also unlikely to receive more from the government than they contribute. Multiple studies have found that as many as 50-75% of undocumented immigrants pay income taxes. They do so (often following the advice of their attorneys) because tax returns serve as proof that the immigrants have been living in the United States for years and contributing honestly to society, which makes them more likely to win permission to stay in the country in future court cases. Since they’re ineligible to receive benefits such as Medicare and Social Security, these undocumented immigrants help the economy because they likely contribute more in taxes to the state than they receive.

According to a report by the National Academy of Sciences, it’s true that at the state and local level, the average first-generation immigrant collects more in benefits than they contribute (factoring in public education and utilities). However, the average second- and third-generation immigrant contributes more to the state than they receive, creating a positive economic impact over a long enough timeline.

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