Analysis: What Is the Economic Impact of Immigration Reform?

Nov. 19, 2012— -- Leaders from both parties are talking about immigration reform as a central issue in 2013. Among other things, such a bill could potentially legalize 11 million undocumented immigrants who are currently living in the shadows.

How would that impact the economy?

There are a few different opinions out there.

To begin with, there is no certainty that a reform bill will materialize or, if it does, what it will look like. But there are some existing reports that, based on hypothetical scenarios, give an estimate.

"I wouldn't get too wedded to any particular or exact number, but I think you can learn a lot from the approach of going ahead and trying to make a projection," said David Dyssegaard Kallick, a senior fellow at the Fiscal Policy Institute, a nonpartisan organization that studies immigration and the economy. "You can see the magnitude of things."

To get an idea of what the numbers mean, we looked at two reports from respected researchers — one often cited by reform advocates and another cited by immigration restrictionists. Here's how each breaks down:

1. "The Economic Benefits of Comprehensive Immigration Reform" by UCLA professor Raúl Hinojosa-Ojeda, published by the Cato Institute, a libertarian think tank

Summary: Immigration reform would add $1.5 trillion to the U.S. gross domestic product (GDP) over 10 years.

This report looks at three scenarios projected over a 10-year period: comprehensive reform, a guest worker program and mass deportation.

- Comprehensive reform would include a pathway to citizenship for undocumented immigrants who register, pay a fine and pass a criminal background check. That would add $1.5 trillion to the GDP over 10 years.

- A temporary worker program with no path to citizenship would add $792 million to the GDP, about half as much as reform.

- Mass deportation would result in $2.6 trillion in lost GDP over 10 years.

How does Hinojosa-Ojeda get these numbers?

He starts by looking at the last large-scale legalization program in the United States. That would be the 1986 amnesty under President Ronald Reagan. Via this program, nearly 3 million undocumented immigrants became lawful residents. The post-amnesty data -- which looks at a minimum period of three years, between 1988 and 1991 -- showed that legalization boosted wages for undocumented workers.

He then takes the wage increase experienced after the 1986 amnesty by this group and applies that to the number of people projected to seek legalization this time around. In Hinojosa-Ojeda's version of comprehensive reform, the immigration system is also adjusted so that the flow of immigrant workers entering the country during the 10-year period his report covers are doing so legally. He adds the higher wages that those legal workers would receive to his projection. "What you get are these very powerful increases in wages for the legalized population and the existing population," Hinojosa-Ojeda says.

This approach has its limitations, according to Laura Hill, a policy fellow at the Public Policy Institute of California (see her report below). The economic conditions of the late 1980s and early 1990s aren't the best indicator for predicting the impact in the present day, she says. "The world might have changed since 1986," Hill says. "That doesn't mean there wouldn't be any gains from legalization, it's just not the same magnitude of Hinojosa's work."