The Effects of Changes to Immigration Policy on the United States’ Population

The Effects of Changes to Immigration Policy on the United States’ Population

Demographics Immigration Tax Policy

The Effects of Changes to Immigration Policy on the United States’ Population

PWBM · · 7 min read
The Effects of Changes to Immigration Policy on the United States’ Population

We project that increasing annual net legal immigration leads to a younger and more educated U.S. population. These population changes are likely to have a positive impact on entitlement finances and tax burdens relative to current policy. In contrast, decreasing annual net legal immigration likely has the opposite effects.

By Zheli He and Austin Herrick

Introduction

In 2017, immigrants were about 13 percent of the U.S. population. So, it is not surprising that changing immigration policy has a notable impact on U.S. demographic trends. In this post, we project the impact of increasing and decreasing annual net legal immigration1 on the age distribution and education level of the U.S. population. Specifically, we project demographics under current policy relative to policies which decrease annual net legal immigration by 50 percent and increase annual net legal immigration by both 50 percent and 100 percent.

Population Size

Under current policy, we project that the U.S. population continues to increase over the next few decades, although at a declining rate. Figure 1 below shows the population growth path under current policy and under policies that increase and decrease annual net legal immigration.

Figure 1: U.S. Population Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048 (millions of people)

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Figure 1

Figure 2 shows the growth of immigrants2 as a share of the U.S. population. We project that under current policy, this share continues to grow, by an average of 0.76 percent annually between 2018 and 2048. This growth occurs even with no change to policy because new immigrants are younger than native-born Americans. Thus, we expect immigrants have more years to live. Intuitively, increasing/decreasing the annual net flow of immigrants increases/decreases the fraction of the U.S. population that is foreign born.

Figure 2: Foreign-Born Percent of U.S. Population Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048

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Figure 2

Impact on Educational Attainment

Increasing or decreasing annual net legal immigration affects the educational attainment of the U.S. population. Of legal immigrants who arrived since 2014, about half held a bachelor’s or advanced degree, compared to a third of native-born Americans.

In fact, recent immigrants are better-educated than ever before. We previously showed that in recent years, immigrants arrive to the U.S. from different countries than in the past. These new arrivals are more likely to immigrate from Asia compared to prior immigrants who were more likely to immigrate from Mexico or Central America. We project that the share of immigrants arriving by country is the same in future years as it is now. We also previously examined how these trends increased the educational attainment of recent immigrants.

Therefore, increasing or decreasing annual net legal immigration changes the composition of the immigrant population.3

Figure 3 shows that the share of the U.S. population with a bachelor’s or advanced degree increases under current policy.4 Policies that increase annual net legal immigration lead to faster growth in educational attainment because immigrants are more likely to have a bachelor’s or advanced degree.

Figure 3: Percent of Age 25+ Population Holding a Bachelor's Degree Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048

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Figure 3

Impact on Age Distribution

Newly arrived immigrants are generally of working age. Thus, the rate of immigration also affects the age distribution of the population, including the old-age dependency ratio5 and the child dependency ratio.6

As can be seen in Figure 4, increasing the rate of immigration increases the working age population relative to the retired age population because immigrants are younger than native-born citizens. Under current policy, in 2048, the old-age dependency ratio is 38 percent. If legal immigration is doubled, then, in 2048, this ratio is 35 percent. If legal immigration is halved, then, in 2048, this ratio is 40 percent.

Figure 4: U.S. Old-Age Dependency Ratio Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048

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Figure 4

Policies that lower the old-age dependency ratio, such as increasing legal immigration, are likely to improve federal finances which positively impacts private capital formation and economic growth. Pay-as-you-go old-age entitlement programs such as Social Security and Medicare accounted for about 45 percent7 of non-interest federal spending in 2018. Increasing/decreasing net legal immigration improves/worsens the finances of these programs because it increases the working-age population. Furthermore, qualifying for full benefits takes many years. In addition, while immigrants help pay for other federal spending, such as for defense, they do not generate additional significant costs for the military. Thus, immigrants somewhat reduce the federal tax burden of the average native-born American.

Figure 5 shows that legal immigrant flows have the opposite effect on the child dependency ratio because immigrants tend to have higher fertility rates than native-born Americans. Nonetheless, increasing the population of children leads to larger workforces in the future. In turn, a larger working-age population provides long-term reductions to the old-age dependency ratio. At the same time, increasing the population of children creates short-term costs, especially on state and local governments, to provide K-12 education and other programs. In the long run, however, this fiscal burden may be offset once the children of immigrants become taxpayers.

Figure 5: U.S. Child-Age Dependency Ratio Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048

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Figure 5

  1. Net immigration to the U.S. is currently about 800,000 people per year.  ↩

  2. In PWBM’s Microsimulation (PWBMsim), an immigrant is defined as an individual living in the United States who was born abroad (not to U.S. citizen parents). Immigrants can be authorized, unauthorized, or naturalized.  ↩

  3. Percent of U.S. Foreign-Born Population from Mexico Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048 Percent of U.S. Foreign-Born Population from Asia Under Current Policy and Three Options for Annual Net Legal Immigration Policy, 2018-2048  ↩

  4. We project educational attainment increases for both the native-born and immigrant population.  ↩

  5. Ratio of working age population (18 - 64) to people aged 65 or older.  ↩

  6. Ratio of working age population (18 - 64) to people aged 17 or under.  ↩

  7. https://www.cbo.gov/about/products/budget-economic-data#2  ↩