Nobel prize-winning economist Milton Friedman famously quipped, “You can't have free immigration and a welfare state.” Despite the children pouring across the southern border, who are under the care of Uncle Sam, America has a relatively small welfare state.
Though still larger than preferred, America’s welfare state is small compared to the redistributive welfare systems in Europe. New research shows that several European welfare states are so large that native citizens are made worse off by immigration. By contrast, the American welfare system is small enough that immigration still benefits native-born citizens. Let us hope that it stays that way, with enforcement of current laws.
The latest National Bureau of Economic Research working paper by Giovanni Peri (University of California, Davis) and Michele Battisti, Gabriel Felbermayr, and Panu Poutvaara (all of the Ifo Institute in Germany) examined immigration under a more realistic model that accounts for imperfectly competitive labor markets and government welfare programs. Seven European nations with large, poorly-designed welfare programs would actually be made worse off by more immigration: Austria, Belgium, Germany, Luxembourg, the Netherlands, Sweden, and Switzerland. However, even in these countries the effect of immigration on natives is small: a one percentage point increase in immigration causes a drop in living standards of less than five-hundredths of one percent.
Meanwhile, the slimmer U.S. welfare system ensures that immigration would still benefit native-born Americans. Of the 20 OECD countries in the study, U.S. citizens would experience above-average gains from increased immigration. Peri’s prior work concluded that higher levels of STEM immigrants would raise native-born wages and that allowing more legal immigration would create jobs.
Opponents of reform often claim immigrants will come to America to collect welfare checks without working. If generous welfare benefits were the main reason behind an immigrant’s decision to move, the authors’ research shows that America would not be the prime destination.
In 1996, federal welfare programs were fundamentally changed under the landmark Personal Responsibility and Work Opportunity Act, well-known for devolving welfare to state governments. PRWORA is less well-known for eliminating most welfare eligibility for legal immigrants, who had previously been treated the same as U.S. citizens.
In 2011, Marianne Bitler (University of California, Irvine) and Hilary Hoynes (University of California, Davis) examined the effects of the 1996 law on immigrants in a paper entitled “Immigrants, Welfare Reform, and the U.S. Safety Net.” Bitler and Hoynes found that “participation in the safety net declined for immigrants compared to natives, and the declines were largest for food stamps and SSI.” Low income immigrant households with children rely less on the safety net compared to native households. Because of their reliance on work over the safety net, the job losses during the Great Recession affected low-income immigrants more than low-income natives. Many immigrants left the United States and returned to their home countries.
Despite concerns that immigrants would come to America and live off taxpayer dollars, the Congressional Budget Office found that more immigration would reduce the federal deficit. Its analysis of the Border Security, Economic Opportunity, and Immigration Modernization Act, which would increase immigration and border security, found immigration reform would decrease the budget deficit by nearly $200 billion over the next 10 years, and an additional $700 billion in the following 10 years. Without raising tax rates the government would earn new revenue by taxing earnings of additional working immigrants.
Some European countries are learning that the hard way that, “You can't have free immigration and a welfare state.” Their excessive welfare states subsidize immigration and bring down the living standards of the native-born population. In the past, the United States has had this problem. Our laws should be enforced so that immigrants, including children, do not cross American borders to live off welfare. They should come here because America is the land of opportunity, where they can get jobs and work to give their families better lives.
Jason Russell is a research associate at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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