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Shifting Immigration Toward High-Skilled Workers

Summary: We evaluate two immigration policies that shift 10 percent of future low-skilled immigration toward either: (i) high-skilled immigrants (“HSI”) that otherwise maintains the current share of STEM workers within the high-skilled group, or (ii) only high-skilled STEM workers (“HSI STEM”) that increases the share of STEM relative to other high-skill workers. The number of total immigrants remains the same under both policies. Both policies grow the economy, reduce federal debt, and increase wages across all income groups: lower-skilled, higher-skilled non-STEM workers, and higher-skilled STEM workers. In fact, this policy change affords the rare opportunity of a “Pareto improvement” benefitting all groups.

Key Points

  • 10 percent of low-skilled immigrants equals just 25,000 workers in 2025, or about 0.01 percent (one percent of one percent) of the total U.S. working-age population. Over the next 30 years, 750,000 immigrant workers would be converted from low to high skill, still representing just 0.35 percent of the total U.S. working-age population in 2054. The total number of immigrant workers remains unchanged.

  • This policy has an outsized impact on economic growth relative to the size of the policy change. We project that the HSI policy would increase GDP by 0.1 percent by 2034 and 0.4 percent by 2054, while HSI STEM policy would increase GDP by 0.3 percent by 2034 and 0.7 percent by 2054.

  • Both policies reduce outlays and increase revenues over the 10-year budget window ending in 2034, decreasing primary deficits by $65.3 billion under the HSI policy and $152.6 billion under the HSI STEM policy.

  • All education, occupation, income, and age groups gain from both policy changes. The gains also benefit low-income workers the most relative to their earnings before these policy changes. Wages for low-skill workers increase by 0.5 percent within a decade and by 1.3 percent over the long run. Future low-skill workers born today gain between $10,000 and $16,000 in lifetime value from HSI and HSI STEM, respectively.


Shifting Immigration Toward High-Skilled Workers

Introduction

Under current law, total immigration is projected to increase the U.S. adult population (ages 21 and older) by 15.3 million by 2054, accounting for approximately 40 percent of growth in total adult population (see Figure 1). Based on historical trends, about 35 percent of new immigrants are expected to have a high school diploma or less, classifying them as low-skilled labor. In contrast, about 65 percent are anticipated to have some college education or higher, placing them in the high-skilled labor category. Among these high-skilled immigrants, we estimate that only about 15 percent will work in STEM occupations.

Figure 1: Total Adult Population, 21 and older, 2025-2054

Source: Penn Wharton Budget Model

Illustrative Policy Changes

We analyze two illustrative policy changes that alter the skill composition of new immigrants while keeping the total number of projected immigrants constant. These policy changes reduce the number of low-skilled visas by 10 percent and increase the number of high-skilled visas by the same amount. The difference between the two policies is how we allocate high-skilled visas.

  • High-skill immigration (HSI): Additional visas are issued to high-skilled non-STEM and high-skilled STEM immigrants so that their proportions among all high-skilled immigrants remain consistent with current immigration projections.

  • High-skill STEM immigration (HSI STEM): All additional visas are issued to high-skill STEM immigrants.

Table 1 shows the projected number of new immigrant households entering the U.S. under current law and two illustrative policy scenarios. Between 2025 and 2054, an estimated 7.5 million low-skilled immigrants, 12.5 million high-skilled non-STEM immigrants, and 2.1 million high-skilled STEM immigrants are expected to enter the country legally through existing visa programs. By 2054, new low-skilled, high-skilled non-STEM, and high-skilled STEM immigrants will account for approximately 3.50 percent, 5.85 percent, and 1.00 percent of the total workforce, respectively.

Under the HSI and HSI STEM policies, the annual inflow of low-skilled immigrants is reduced by 10 percent, leading to a total decline of 0.75 million over the 2025 to 2054 period. By 2054, new low-skilled immigrants as a share of the workforce will decrease from 3.50 percent to 3.15 percent.

Under the HSI policy, the reduced number of low-skilled immigrants is reallocated proportionally according to the current-law distribution: 85 percent to high-skilled non-STEM and 15 percent to high-skilled STEM immigrants. This reallocation results in approximately 650,000 additional high-skilled non-STEM immigrants and 100,000 additional high-skilled STEM immigrants compared to current law. By 2054, these changes increase the new high-skilled non-STEM and new high-skilled STEM immigrants as a share of the total workforce from 5.85 percent to 6.15 percent and 1.0 percent to 1.05 percent, respectively.

Under the HSI STEM policy, the number of high-skilled non-STEM immigrants will remain unchanged from current law. In contrast, the reduction in low-skilled immigrants will be entirely offset by an increase of 750,000 high-skilled STEM immigrants. As a result, from 2025 to 2054, 2.9 million high-skilled STEM immigrants will enter the U.S., representing a 35 percent increase compared to current law. By 2054, new high-skilled STEM immigrants as a share of the workforce will increase from 1.0 percent to 1.35 percent, while the share of new high-skilled non-STEM immigrants remains unchanged at 5.85 percent.

Table 1: Demographic Composition by Education and Occupation

Cumulative number of new immigrants (millions of households)

2025 2029 2034 2039 2044 2049 2054
Current Law
Low-skilled 0.3 1.2 2.4 3.6 4.9 6.2 7.5
High-Skilled non-STEM 0.4 2.0 4.1 6.1 8.2 10.4 12.5
High-Skilled STEM 0.1 0.3 0.7 1.0 1.4 1.8 2.1
High-Skill Immigration
Low-skilled 0.2 1.1 2.1 3.3 4.5 5.6 6.7
High-Skilled non-STEM 0.4 2.1 4.3 6.5 8.6 10.9 13.2
High-Skilled STEM 0.1 0.4 0.7 1.1 1.5 1.8 2.2
High-Skill STEM Immigration
Low-skilled 0.2 1.1 2.1 3.3 4.5 5.6 6.7
High-Skilled non-STEM 0.4 2.0 4.1 6.1 8.2 10.4 12.5
High-Skilled STEM 0.1 0.5 0.9 1.4 1.9 2.4 2.9

Note: Numbers are rounded to the nearest 100,000.
Source: Penn Wharton Budget Model

Economic Effects

Table 2 illustrates the economic and debt impacts of the HSI and HSI STEM policies. Under both policies, GDP, capital, wages, and consumption steadily rise, while debt declines over the 2025–2054 period as more high-skilled non-STEM and STEM workers immigrate to the U.S. By 2054, under the HSI policy, GDP and capital increase by 0.4 percent, average wages rise by 0.2 percent, and debt is 0.4 percent lower than under current law (see Table 2.A). Wage growth also drives a 0.4 percent increase in consumption.

The effects are even more pronounced under the HSI STEM policy, which results in a larger influx of STEM workers. By 2054, GDP and capital will increase by 0.7 percent and 1.0 percent, respectively; average wages will be 0.5 percent higher, and debt will be reduced by 0.8 percent compared to current law (see Table 2.B). The stronger wage growth under this policy leads to a 0.6 percent increase in consumption. Total hours worked are mostly unaffected under both policies.

The reason for these improvements is twofold. First, both policies replace lower-income immigrants with higher-income immigrants. Higher-income workers have a higher propensity to save, which increases capital, GDP, and wages. Higher incomes also produce more tax revenues, which decreases debt and further increases capital. Second, the increase in the number of high-skilled STEM workers increases TFP, positively affecting GDP, wages, and capital even further.

Table 2: Economic Effects of Immigration Policies

Percent Change from Baseline

A. High-Skill Immigration
2034 2039 2044 2049 2054
Gross domestic product 0.1 0.2 0.2 0.3 0.4
Capital stock 0.0 0.1 0.2 0.3 0.4
Hours worked 0.0 0.0 0.0 0.0 0.0
Average wage 0.0 0.0 0.0 0.1 0.2
Consumption 0.1 0.2 0.2 0.3 0.4
Debt held by the public -0.1 -0.2 -0.3 -0.3 -0.4
B. High-Skill STEM Immigration
2034 2039 2044 2049 2054
Gross domestic product 0.3 0.4 0.5 0.6 0.7
Capital stock 0.1 0.3 0.5 0.7 1.0
Hours worked 0.0 0.0 0.0 0.0 0.0
Average wage 0.1 0.2 0.2 0.3 0.5
Consumption 0.3 0.4 0.4 0.5 0.6
Debt held by the public -0.3 -0.5 -0.6 -0.8 -0.8

Source: Penn Wharton Budget Model

Economic Effects by Education and Occupation Groups

Table 3 presents the effects of the two illustrative immigration policies on wages, consumption, and hours worked for each group, including low-skilled, high-skilled non-STEM, and high-skilled STEM workers.

Under the HSI policy, wages for low-skilled workers increase by 1 percent by 2054 (see Table 3.A), while wages for high-skilled workers increase only slightly. Although higher TFP raises wages for all groups, the reduction in low-skilled labor supply drives a more significant wage increase for low-skilled workers because of their increased scarcity and their complementarity with high-skilled labor. In contrast, the increase in high-skilled non-STEM and STEM workers, combined with the reduced availability of low-skilled workers, offsets the TFP-driven wage gains for high-skilled workers.

Table 3.B highlights the stronger wage effects under the HSI STEM policy. With a larger influx of STEM workers and a greater boost to TFP, wage growth is more pronounced across all groups. By 2054, wages for low-skilled workers are projected to be 1.3 percent higher than under current law, while wages for high-skilled non-STEM and high-skilled STEM workers increase by 0.4 percent and 0.3 percent, respectively.

For both policies, changes in consumption closely follow wage trends. Consumption increases among low-skilled workers by between 0.9 and 1.2 percent by 2054, while high-skilled workers’ consumption increases by no more than 0.5 percent. Average hours worked decrease slightly more for low-skilled than high-skilled workers, but those declines are never greater than 0.2 percent.

Table 3: Economic Effects of High-Skill Immigration by Education and Occupation

Percent Change from Baseline

A. High-Skill Immigration
2034 2039 2044 2049 2054
Wages
Low-skilled 0.4 0.5 0.7 0.8 1.0
High-Skilled non-STEM 0.0 0.0 0.0 0.0 0.1
High-Skilled STEM 0.0 0.0 0.0 0.0 0.1
Consumption per Capita
Low-skilled 0.3 0.5 0.6 0.7 0.9
High-Skilled non-STEM 0.0 0.0 0.0 0.0 0.0
High-Skilled STEM 0.0 0.1 0.1 0.1 0.2
Average Hours Worked
Low-skilled -0.2 -0.2 -0.2 -0.2 -0.1
High-Skilled non-STEM 0.0 0.0 0.0 0.0 0.0
High-Skilled STEM 0.0 0.0 0.0 0.0 0.0
B. High-Skill STEM Immigration
2034 2039 2044 2049 2054
Wages
Low-skilled 0.5 0.7 0.9 1.1 1.3
High-Skilled non-STEM 0.1 0.1 0.2 0.3 0.4
High-Skilled STEM 0.0 0.1 0.1 0.2 0.3
Consumption per Capita
Low-skilled 0.4 0.6 0.8 1.0 1.2
High-Skilled non-STEM 0.1 0.1 0.2 0.2 0.3
High-Skilled STEM 0.1 0.1 0.2 0.3 0.5
Average Hours Worked
Low-skilled -0.1 -0.2 -0.2 -0.2 -0.2
High-Skilled non-STEM 0.0 0.0 0.0 -0.1 -0.1
High-Skilled STEM -0.1 -0.1 -0.1 -0.2 -0.2

Source: Penn Wharton Budget Model

Deficit Effects

Table 4 presents the conventional deficit effects of both policies. Outlays decline slightly in both scenarios, primarily due to a reduced number of low-skilled workers relying on income security programs such as Medicaid and SNAP. Over the 2025–2034 period, outlays decrease by $12.3 under the HSI policy and by $13.9 under the HSI STEM policy.

At the same time, revenues increase significantly due to higher tax collections driven by rising incomes. Under the HSI policy, revenues grow by $53.1 billion, while the HSI STEM policy generates an even larger revenue increase of $138.7 billion.

As a result, primary deficits over the 2025-34 period decline by $65.3 billion under the HSI policy and by $152.9 billion under the HSI STEM policy. When accounting for dynamic effects, the reductions amount to $57.0 billion under the HSI policy and $145.2 billion under the HSI STEM policy.

Table 4: Deficit Effects of the Illustrative Immigration Policies

Increase or decrease (-), billions of dollars

Provision 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2025 -
2034
High-Skill Immigration
Outlays -0.3 -0.5 -0.7 -1.0 -1.1 -1.4 -1.5 -1.7 -1.9 -2.0 -12.3
Revenues 1.0 2.1 3.0 3.9 4.7 5.7 6.7 7.6 8.5 9.8 53.1
Primary Deficit -1.4 -2.6 -3.8 -4.8 -5.8 -7.1 -8.2 -9.4 -10.4 -11.8 -65.3
High-Skill STEM Immigration
Outlays -0.4 -0.6 -0.9 -1.1 -1.3 -1.6 -1.7 -1.9 -2.1 -2.3 -13.9
Revenues 4.8 8.0 10.8 12.4 13.7 15.3 16.5 17.3 19.0 20.8 138.7
Primary Deficit -5.2 -8.6 -11.7 -13.4 -15.0 -16.9 -18.3 -19.2 -21.1 -23.1 -152.6
Memorandum:
Increase or decrease (-) in primary deficit with dynamic effects, High-Skill Immigration -2.2 -3.1 -4.1 -4.7 -5.2 -5.5 -3.0 -9.3 -9.6 -10.4 -57.0
Increase or decrease (-) in primary deficit with dynamic effects, High-Skill STEM Immigration -6.2 5.4 -13.1 -15.1 -15.6 -17.3 -18.3 -19.1 -22.3 -23.8 -145.2

Source: Penn Wharton Budget Model

Dynamic Distributional Effects

Dynamic distributional analysis considers how a policy affects households across the income and age distribution, including the unborn (represented by a negative age index at the time of the reform). It asks how much, on average, households in each (income, age) bucket value the proposed policy change over their entire lifetime, represented as a one-time transfer at the time of the policy change. Dynamic distributional analysis is the standard in academic research, where conventional analysis is rarely used due to several key limitations that dynamic analysis addresses.

Tables 5.A and 5.B report policy “equivalent variations” for the two policies reported in Table 2 and break down the results by type of worker. A positive equivalent variation means that the person would be better off under the policy reform; a negative equivalent variation means that the person would be worse off under the policy reform. For example, as shown in Table 5.A.A, a low-skilled household aged 60 at the time of the policy change and with a gross income in the highest 20th percent of the income distribution receives $9,665 of value from the HSI policy. Put differently, this household is indifferent between adopting this policy and receiving a one-time payment of $9,665 without this policy change.

While all education, occupation, income, and age groups benefit from the HSI policy, Table 5.A shows that low-skilled workers generally experience greater gains than high-skilled non-STEM workers. With less low-skilled immigration, low-skilled workers’ wages increase more than those of high-skilled workers, contributing to the improvement in welfare. The benefits tend to increase the longer a household is exposed to the policy change, with future generations seeing the largest gains while those nearing retirement benefit the least. Retirees benefit from slightly higher interest rates.

While benefits generally increase by quintile income, low-skilled workers are an exception. Many households in this group rely heavily on means-tested income security programs such as Medicaid or SNAP. Although higher TFP drives wage growth, it can also reduce eligibility for these benefits, partially offsetting the gains from higher earnings.

As Table 5.B illustrates, the HSI STEM policy generally provides greater benefits across all education, occupation, income, and age groups compared to the HSI policy. The benefits that households receive from the HSI STEM policy are, on average, twice as large as those from the HSI policy.

Table 5: Dynamic Distributional Effects

Amount of one-time payment that makes somebody indifferent between adopting and not adopting the proposed policy.

A. High-Skill Immigration
B. High-Skill STEM Immigration

Note: "Gross Income" refers to each household's income in the year of the policy change. We categorize households not yet in the labor force (ages 20 and younger) by their gross income in the year they enter the labor force. We calculate the gross income distribution across all groups of workers. Empty cells in panel A indicate that no low-skilled workers have incomes at that level.
Source: Penn Wharton Budget Model


Appendix: PWBM’s Model and Enhancements

An overview of our heterogeneous-agent overlapping-generations dynamic model (OLG) is provided in our 2024 publication “Policy Options for Reducing the Federal Debt: Spring, 2024” (available here). Over the next two years, PWBM will release additional details about our model to make our framework more accessible to academics, experts, and policy advocates.

This appendix briefly outlines the new components we have integrated into our model to analyze immigration policies. These enhancements and parameters are either directly sourced from published research or have been newly estimated. The new model components include:

  • Incorporating STEM Workers' Contribution to Total Factor Productivity (TFP): The model now explicitly accounts for the contributions of both native and immigrant STEM workers to TFP and skill-biased productivity growth. As the STEM workforce expands, technological advancements and process efficiencies accelerate, leading to higher wages, increased investment, and stronger long-term growth.

  • Modeling Skill Complementarities and Substitution Effects: The basic version of our OLG model includes low and high-income workers but treats them as perfect substitutes. To better account for the different effects that natives and immigrants have on labor supply and the economy, we introduce a framework that differentiates between low-skilled, high-skilled non-STEM, and high-skill STEM workers.

The following empirical concepts are now included in our analysis:

  • Immigration projections: The PWBM produces immigration projections that we now use in the OLG model, including immigrants’ education and occupation groups.

  • Estimate of the STEM workers' contribution to Total Factor Productivity: The PWBM now incorporates empirical evidence on the relationship between TFP and the number of workers in STEM occupations. Through a linear regression analysis, we estimate a constant elasticity of TFP with respect to the number of STEM workers using data on labor supply from the Current Population Survey’s Annual Social and Economic Supplements (ASEC), estimates of the capital stock from the Bureau of Labor Statistics (BLS), and gross domestic product data from the National Income and Product Accounts (NIPA).

  • Parameters determining the degree of substitutability or complementarity between groups: We use estimated parameter values from economic literature to assess how low-skilled, high-skilled non-STEM, and high-skilled STEM workers interact in the labor market.

  • Estimates of group-specific earnings processes: Members of the different skill and occupational groups face different earnings processes, which we estimated from the Panel Study of Income Dynamics (PSID) and the CPS ASEC.



Felipe Ruiz Mazin and Felix Reichling produced this analysis under the direction of Felix Reichling and Kent Smetters. Mariko Paulson prepared the brief for the website.

  Year	Native-Born	Foreign-Born
  2025	203	49
  2026	205	50
  2027	206	51
  2028	208	51
  2029	209	52
  2030	210	53
  2031	211	53
  2032	212	54
  2033	213	55
  2034	214	55
  2035	215	56
  2036	216	56
  2037	217	57
  2038	218	57
  2039	218	58
  2040	219	59
  2041	219	59
  2042	220	60
  2043	221	60
  2044	221	61
  2045	222	61
  2046	223	62
  2047	223	62
  2048	224	63
  2049	224	63
  2050	225	63
  2051	225	64
  2052	226	64
  2053	227	64
  2054	227	65
Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
-20	12154	10986	17399	23406	
-15	12548	10819	16719	21988	
-10	12297	11666	15579	20241	
-5	11841	9782	14338	18565	
0	11404	10136	12932	16487	
5	10645	9407	11447	14486	
10	9835	7909	9675	12332	
15	9175	6489	7926	10040	
20	9576	5640	6543	7968	
25	8279	4221	4934	6348	9459
30	8818	3065	3315	5936	10334
35	8802	2461	4484	7254	11381
40	8838	6700	7037	7034	12879
45	1772	2166	4060	6017	11788
50	1094	1114	3500	5934	11221
55	1315	1537	3065	6095	11301
60	1348	1519	2217	5060	9665
65	1846	1124	1980	3703	8614
70	0	109	683	1258	3075
75	0	214	535	974	2658
80	0	158	372	744	2319
85	0	12	97	353	1381
Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
-20	3362	5404	7804	11064	15796
-15	3328	5315	7585	10826	15780
-10	3240	5005	7158	10161	14603
-5	3044	4456	6286	8854	12781
0	2750	3878	5447	7583	10891
5	2338	3376	4791	6722	9641
10	2114	2870	4113	5951	8919
15	1816	2476	3595	5116	7477
20	1789	2305	3282	4752	6997
25	1391	1931	2938	4729	7878
30	1285	1733	2552	4153	7648
35	3358	1551	2266	3988	8270
40	1881	1396	2209	4169	9563
45	1436	1308	2124	4078	10659
50	1410	1449	2079	4078	10974
55	712	825	1524	4189	11145
60	360	836	1743	3643	9970
65	148	859	1303	2750	8156
70	0	554	980	1908	5855
75	0	248	656	1066	3553
80	0	312	409	668	2742
85	0	150	426	488	1897
Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
-20	2232	11172	19195	22584	31555
-15	2166	10788	20768	22297	30954
-10	1976	10028	18042	21267	29508
-5	1922	9719	18039	19340	26380
0	1886	6915	12325	17489	23488
5	1675	6148	11190	15787	21257
10	1555	5877	10489	14495	18977
15	1404	5047	9253	13266	18108
20	1167	4623	8428	12143	16951
25	1873	6881	10533	11016	16957
30	3826	6561	8637	11525	17867
35	4102	6048	7298	9002	16765
40	2080	3805	5582	8189	16289
45	875	2908	5283	8626	16742
50	132	2421	3554	5345	12126
55	1980	2467	3896	6422	12927
60	1272	1587	2345	3859	9056
65	565	707	794	1295	5186
70	0	212	920	2740	6155
75	0	53	301	1255	4119
80	0	110	267	834	2954
85	0	124	326	651	2127
Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
-20	17025	15661	24230	32577	
-15	17226	15002	22506	29420	
-10	16636	15703	20685	26746	
-5	15887	12982	18366	23461	
0	14957	12931	16446	20450	
5	13456	11752	14418	17966	
10	12701	10687	12654	15641	
15	11794	8810	10538	13168	
20	11078	7307	8784	10778	
25	11376	7167	8208	9649	13238
30	9653	4142	5704	9562	15941
35	10651	4272	6997	10237	16148
40	9746	7145	8297	9790	17651
45	1467	2302	4602	9511	19329
50	5509	4965	5843	9933	19642
55	3228	4387	5801	10078	20360
60	1619	684	4017	8929	19166
65	2512	2145	3876	7471	17126
70	0	367	1105	2209	6159
75	0	140	849	1754	4847
80	0	204	725	1304	4174
85	0	60	602	989	3413
  Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
  -20	7850	14270	19790	27015	38198
  -15	7466	13484	18422	24967	35422
  -10	7039	12264	16771	22577	31326
  -5	6335	10519	14182	18981	26244
  0	5661	9045	12162	16232	22464
  5	4751	7799	10534	14176	19652
  10	4227	6709	9173	12485	17631
  15	3666	5876	8143	11129	15685
  20	3254	5314	7372	10164	14386
  25	2910	4387	6348	9640	15073
  30	3728	4448	5742	8495	14486
  35	6840	3986	5483	8417	15664
  40	6291	3627	5185	8765	18046
  45	7326	5199	5305	8784	20210
  50	1506	2731	4605	8503	21178
  55	1387	2090	3631	8038	21383
  60	1039	1901	3565	7307	20048
  65	879	1401	2588	5684	16979
  70	0	269	1178	2522	9180
  75	0	670	1164	2013	7555
  80	0	560	1247	1665	6003
  85	0	396	700	1032	4399
Age	0 to 20	20 to 40	40 to 60	60 to 80	80 to 100
-20	5996	27864	43887	50140	66159
-15	5559	26042	44973	47459	60622
-10	4870	23366	37661	43321	54586
-5	4592	21321	35487	37430	45871
0	4316	15074	25092	32351	38994
5	3814	13046	21905	28133	33970
10	3453	11825	19754	25001	29697
15	2799	9855	17039	22427	27674
20	2302	8749	15099	20194	25796
25	3516	12159	17413	18004	25226
30	7091	11934	15133	19339	27541
35	7496	8381	9436	11148	22762
40	6222	9191	11525	15884	29162
45	4879	8736	11624	16735	30797
50	3392	5008	7048	10852	24293
55	4852	6312	8172	12165	26326
60	667	1113	4508	9245	22644
65	1612	1145	1835	3310	11859
70	0	350	1664	4327	10777
75	0	364	1090	2703	8237
80	0	209	699	1834	6382
85	0	210	594	1370	4490