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What are the economic impacts of undocumented immigration on the US?
Executive Summary
Undocumented immigration produces a mix of measurable fiscal contributions and localized fiscal costs, while also reshaping labor markets and long‑term economic growth in ways that depend on policy choices. Studies converge that unauthorized immigrants add substantial tax revenue, consumer spending, and labor supply, yet they also impose state‑level public service costs and create distributional effects on wages and public budgets [1] [2] [3]. The economic net impact varies by scenario: integration or legalization increases tax receipts and GDP, while mass deportation scenarios project large GDP losses and fiscal costs [4] [5].
1. Why billions in taxes and spending matter — the fiscal contribution story
Multiple assessments estimate that undocumented households collectively pay tens of billions annually in federal, state, and local taxes and possess large spending power that supports demand across the economy. Data cited in recent analyses show undocumented households paid roughly $89.8–$96.7 billion in taxes in 2022–2023 and held hundreds of billions in spending power and housing wealth, figures that sustain consumption, rental markets, and municipal revenues [1] [2] [6]. These contributions are concentrated through payroll, sales, and property-related taxes and are likely to grow if work authorization expands. Emphasizing these receipts highlights that undocumented immigrants are not merely recipients of services but net economic actors whose consumption and tax payments undergird local economies, particularly in sectors with thin profit margins like hospitality and agriculture [1] [6].
2. Where the costs show up — public services and local burdens
While aggregate tax contributions are substantial, several analyses document localized fiscal strains—especially at the state and local level—stemming from education, healthcare (emergency care), and social services. Estimates in the literature show state and local costs can be concentrated in school districts and hospitals serving high numbers of unauthorized immigrants, generating political tensions over service funding and resource allocation [3]. Cost burdens are uneven: some jurisdictions report net fiscal benefits when long‑run tax flows and economic multipliers are counted; others report short‑run strains requiring budget adjustments or state aid. Policy design matters: legislative changes that extend legal status or improve tax compliance can shift the balance toward net fiscal gains at all government levels [3] [2].
3. The labor market tug-of-war — displacement, complementarities, and wages
Evidence indicates mixed labor market effects: undocumented workers expand the labor supply and fill jobs in agriculture, construction, hospitality, and certain STEM and healthcare niches, supporting industries and reducing production costs [6] [1]. Some studies report modest downward pressure on wages for low‑skill native workers, while other research finds immigrants largely complement native labor and occupy roles that are hard to fill domestically, minimizing displacement [7] [8]. The magnitude of wage effects depends on local labor market flexibility, the skill mix of immigrants, and policy responses; legalization tends to raise wages and mobility for immigrants while lowering informal employment and employer wage suppression [3] [4].
4. The counterfactual matters — deportation scenarios highlight economic fragility
Modeling of mass deportation scenarios shows substantial macroeconomic downside risks: estimates project GDP reductions ranging from around 1.0% to as high as 7.4%, significant job losses, lower wages for some groups, and elevated fiscal costs to implement mass removals [4] [5]. These studies argue that removing millions of workers would create immediate labor shortages in critical sectors, spike production costs, and reduce aggregate demand through lost incomes and spending. The economic case against large‑scale removals is not purely fiscal; it also centers on supply‑chain disruption, lost entrepreneurship, and reduced long‑term tax bases created by immigrants and their children [5] [8].
5. Policy levers change outcomes — legalization, enforcement, and targeted reforms
Research consistently shows that policy choices matter most: pathways to legal status and work authorization increase tax revenues, improve labor market matching, and raise wages for immigrants, while enforcement‑only strategies often produce high short‑run costs and limited long‑term fiscal benefits [3] [6]. Proposals combining targeted enforcement with legalization, employer verification, and labor‑market protections yield different economic outcomes than proposals focused solely on removal. Stakeholders advocating for legalization stress revenue gains and stability [1], while enforcement proponents emphasize rule of law and local fiscal pressures [3]. The economic evidence therefore supports viewing undocumented immigration through a policy lens where integration amplifies net fiscal and growth benefits, and punitive approaches risk contractionary effects [4] [5].