CBO says immigration bill aids investors, not wage earners

The Senate’s pending immigration bill would boost investors’ and owners’ share of the economy for at least twenty years, and shrink some Americans’ wages and salaries for at least 10 years, according to a report from the Congressional Budget Office.

“The rate of return on capital would be higher [than on labor] under the legislation than under current law throughout the next two decades,” says the report, titled “The Economic Impact of S. 744.”

The higher rate of return would also push up the interest rates by paid by American taxpayers for the federal government’s $17 trillion debt, the report says.

The threat of lost wages has spurred opposition from populist conservatives, including Alabama Sen. Jeff Sessions, and from left-wing politicians, such as Vermont Sen. Bernie Sanders.

Populist conservatives who oppose the immigration bill, and some progressives who back the bill, also have long bemoaned the declining percentage of new wealth earned via blue-collar wages and professionals’ salaries.

President Barack Obama strongly backs the immigration rewrite, but has complained about the trend.
“In all countries around the world, you’re seeing growing inequality, and so we have to find ways to make sure that ladders of opportunity exist for those at the bottom, and that profits and increased productivity all does not just benefit those at the top,” Obama told a German audience in Berlin.

Last September, those worries were buttressed by a report from the Federal Reserve Bank of Cleveland, which showed that labor’s share of income has dropped by roughly 10 points since the early 2000s.

In turn, the share of income earned via capital has increased by the same percentage.

The federal Bureau of Economic Affairs estimates that labor’s share fell from roughly 67 percent to 58.2 percent.

The Bureau of Labor Statistics estimates the share fell from 75 percent in 1979 to 67 percent in 2007.

The result of this economic shift is that economic inequality widened, according to the authors of the reserve’s report, Margaret Jacobson and Filippo Occhino.

But once the economy recovers, the widening gap “will be reversed as the recovery continues … [and] the labor share will pick up and converge to its long-run trend value,” says the September report.

The pending bill will roughly double the inflow of immigrants over the next 20 years to roughly 46 million, or about 1 immigrant for every 7 Americans.

At least 85 percent of the immigrants will be low-skilled, and will not pay enough in taxes to cover the cost of routine government benefits, said Robert Rector, a budget analyst at the Heritage Foundation.

“It is very difficult to imagine that those households could pay enough in taxes to pay for their benefits,” he told reporters Wednesday.

The huge inflow of new workers will force down average wages, the CBO predicted. Average wages would then increase after 2025 as the market balanced itself out, according to the prediction.

“Because the bill would increase the rate of growth of the labor force, average wages would be held down in the first decade after enactment by a reduction in the ratio of capital to labor, which would make workers less productive,” said the densely written report.

The lost wages would be felt most by the low-skill Americans, but also by the smaller population of high-skill worker who will face an influx of competition from roughly 5 million skilled immigrants, and from a changing pool of roughly 2.5 million skilled guest-workers, the CBO report said.

“The legislation would particularly increase the number of workers with lower or higher skills but would have less effect on the number of workers with average skills. … The wages of lower- and higher-skilled workers would tend to be pushed downward slightly (by less than ½ percent) relative to the wages of workers with average skills,” said the CBO report.

Bill supporters dismissed the criticism.

The immigrant low-skill workers “complement our labor force, they make it more efficient,” said Diana Furchtgott-Roth of the Manhattan Institute. Even if the gain for capital increases inequality, “what’s important is not the degree of inequality, but the ability [of Americans] to move between income groups,” she said.

Increased immigration will help that movement because it will increase the economy’s efficiency, she told The Daily Caller.

The CBO report shows that low-skill and high-skill workers may not gain as much as middle-skill workers, but “average wages across all skills increase in the long term,” said Josh Culling from Americans for Tax Reform, which is backing the immigration rewrite.

The decline in average wages is caused by the arrival of many new low-skill immigrants, not by drops in Americans’ wages, he said.

The bill’s opponents’ dismiss these defenses.

For example, said Rector, the bill authors allow low-skill workers to be imported until the unemployment rate rises to 8.5 percent.

“What they’re really saying is that we don’t give a darn about those [American] low-skill workers,” Rector said.

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