Traverse City Record-Eagle

June 29, 2013

CBO's report misses mark

By FactCheck.org
Traverse City Record-Eagle

---- — Two senators opposed to the Gang of Eight immigration bill are telling only half the story with their claims that the nonpartisan Congressional Budget Office warned the bill would be bad for wages and unemployment.

That may be true over the next decade, but the CBO’s conclusion was just the opposite for the long term. Moreover, the CBO said it is not clear whether the bill would negatively impact most current American workers even in the short term.

The Congressional Budget Office released two reports on the so-called Gang of Eight Senate bill, the Border Security, Economic Opportunity, and Immigration Modernization Act: one, a cost estimate of the bill; the other, an assessment of its economic impact.

With the reports dropping on June 18, both opponents and proponents took to the Sunday political shows citing various aspects of the reports to bolster their cases.

While there is plenty of fodder in the CBO reports for both sides on issues related to the bill’s impact on deficits and reducing illegal immigration, we are taking a closer look at claims by Republican Sens. Mike Lee and Jeff Sessions - both opponents of the Senate bill - regarding the CBO’s findings about the impact on unemployment and wages.

Sessions also claimed that the Federal Reserve Bank of Atlanta, in addition to the CBO, has said that the Senate bill would “impact all Americans that are out there working today adversely.”

But the Atlanta Fed didn’t say that, and it didn’t study the impact of the bill. To the contrary, a 2008 paper by two Atlanta Fed researchers concluded that “changing the legal status of undocumented workers” would “forestall the negative impact” of illegal immigration on the wages of U.S. workers in industries that employ “undocumented workers.”

Wages and unemployment

On “Fox News Sunday” on June 23, Sen. Mike Lee, a Republican from Utah, said, “We have to remember at the end of the day, that CBO told us early this week that this will be bad for wages. It will be bad for unemployment.”

Those sentiments were echoed by Sen. Jeff Sessions, a Republican from Alabama, who said on CBS’ “Face the Nation“: “We’re going to have lower wages and higher unemployment according to the CBO analysis of this bill. Why would any member of Congress want to vote for a bill at a time of high unemployment, falling wages, to bring in a huge surge of new labor that can only hurt the poorest among us the most?”

It’s true that in its study on the economic impact of the proposed Senate bill, the CBO concluded that “temporary imbalances in the skills and occupations demanded and supplied in the labor market, as well as other factors, would cause the unemployment rate to be slightly higher for several years than projected under current law.” The CBO concluded that average wages also would dip slightly over the next decade.

But eventually, the report said, average wages would increase, by 2025 and in the years after, compared with what they would be under current law.

As CBO Director Doug Elmendorf explained in a June 18 memo:

Elmendorf, June 18: CBO’s central estimates also show that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033 under the legislation than under current law. Average wages would be slightly lower than under current law through 2024, primarily because the amount of capital available to workers would not increase as rapidly as the number of workers and because the new workers would be less skilled and have lower wages, on average, than the labor force under current law. However, the rate of return on capital would be higher under the legislation than under current law throughout the next two decades.

Not all workers would feel the effects equally, the CBO added. In the short-term, those with lower and higher average skills would experience a slight overall decrease in wages.

CBO, June 18: 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. As a result, 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.

Elmendorf went on to explain that even the short-term pain may not be felt by current U.S. residents. That’s because CBO’s estimates looked at the effect on wages and unemployment for all U.S. workers under the bill, including those afforded a path to citizenship, not just current U.S. residents. So, Elmendorf wrote, even though average wages would dip slightly in the first 10 years, that does “not necessarily imply that current U.S. residents would be worse off.”

Elmendorf, June 18: The estimated reductions in average wages and per-capita GNP for much of the next two decades do not necessarily imply that current U.S. residents would be worse off, on average, under the legislation than they would be under current law. Both of those figures represent differences between the averages for all U.S. residents under the legislation - including both the people who would be residents under current law and the additional people who would come to the country under the legislation - and the averages under current law for people who would be residents in the absence of the legislation. As noted, the additional people who would become residents under the legislation would earn lower wages, on average, than other residents, which would pull down the average wage and per capita GNP; at the same time, the income earned by capital would increase. CBO has not analyzed the full economic effects of the legislation separately for the incomes of people who would be U.S. residents under current law.

Sessions’ warning about lower wages and higher unemployment was framed in the context of currently high rates of unemployment and falling wages, and so the short term impact is a legitimate issue. However, by failing to also mention the longer-term impact projected in the report, both Sessions and Lee are only telling part of the story.

Federal reserve and Harvard economists

Sessions also claimed on “Face the Nation” that CBO, the Federal Reserve Bank of Atlanta and “Harvard economists” all said the Senate bill would “impact all Americans that are out there working today adversely.”

Sessions, June 23: I really believe that the numbers in the bill, the lack of enforcement effectiveness in the bill, puts us in a position where it will impact all Americans that are out there working today adversely. And the CBO has said that. The Federal Reserve in Atlanta has said that. Harvard economists have said that. There’s really little doubt about that.

As we’ve already explained, the CBO didn’t say the Senate bill would negatively affect “all Americans that are out there working today.”

And the Federal Reserve Bank of Atlanta didn’t say that, either. Jean Tate, a spokeswoman for the bank, told us “the Atlanta Fed has not studied the impact of any particular legislation.”

Sessions’ office referred us to a 2008 working paper titled “The Labor Market Experience and Impact of Undocumented Workers” by Atlanta Fed researchers Julie Hotchkiss and Myriam Quispe-Agnoli. The authors reviewed literature on the impact of illegal immigration on the wages of U.S. citizens in industries that employ “undocumented workers.” It said “undocumented workers” have “limited employment and grievance opportunities” and, as a result, employers take advantage of them - which drives down wages for documented workers in that same industry.

The Fed paper said the impact on wages varied depending on job skills. It cited a 2007 study, for example, that found the wages of “native manual laborers” were 0.8 percent lower, but the impact on the wages of professional occupations was “insignificant.”

And that’s not all. In conclusion, Hotchkiss and Quispe-Agnoli offered three options to “forestall the negative impact of a growing number of undocumented workers” - including “changing the legal status of undocumented workers. Extending to all immigrants the same employee rights afforded documented workers would eliminate a primary source of the measured downward wage pressure in industries that hire undocumented workers.”

In other words, one way to improve the wages of U.S. workers in industries that employ “undocumented workers” is to make them legal - which is exactly what the Senate bill would do.

We pointed this out to Andrew Logan, a Republican staffer on the Senate Budget Committee who referred us to the Atlanta Fed paper. (Sessions is the ranking Republican on the Budget Committee.)

In an e-mail to us, Logan said that “the FRB (Federal Reserve Bank) paper is just one component of a large body of academic research that looks at labor markets and immigration.” True, but Sessions claimed that the Atlanta Fed paper said something that it did not say.

Lastly, Sessions cited the work of Harvard economist George Borjas - although incorrectly in the plural as “Harvard economists” - in making his case that all U.S. workers will be adversely affected by the Senate bill. Sessions’ office referred us to an April article Borjas wrote for the Center for Immigration Studies, a nonprofit that advocates “low immigration.”

Borjas’ paper concludes that while “the overall net impact on the native-born is small, the loss or gain for particular groups of the population can be substantial” - particularly for those without high school diplomas.

Borjas: Classifying workers by education level and age and comparing differences across groups over time shows that a 10 percent increase in the size of an education/age group due to the entry of immigrants (both legal and illegal) reduces the wage of native-born men in that group by 3.7 percent and the wage of all native-born workers by 2.5 percent.

So, Sessions accurately cited Borjas’ work. But Sessions goes too far when he concludes that the CBO, the Atlanta Fed and Borjas all show there is “really little doubt” that all U.S. workers would be adversely affected by the Senate bill. That is a debatable point - as Borjas himself illustrates in his April article. Borjas’ article reviews current literature on the issue - including the work of economists Gianmarco Ottaviano and Giovanni Peri, who have found that immigration has a positive impact on the wages of most U.S. workers.

Borjas disagrees with Ottaviano and Peri, and rebuts their work in his article. But, as we have written before, supporters of the Senate bill cite the economists’ work that says immigration will increase U.S. employment and wages.

The official Senate Judiciary Committee report on the immigration bill cites the work of Ottaviano and Peri when it says, “One recent study found that over the period from 1990 to 2006, immigration increased average wages for native workers by 0.6 percent and had essentially no effect or a positive effect on the wages of even the least-educated U.S.-born workers.”

But Ottaviano and Peri also found that immigration has “a substantial negative effect (− 6.7%) on wages of previous immigrants in the long run” - a point ignored in the Senate report.

And that’s our larger point: The facts cited by both sides in the immigration debate are not always what they seem.

By Robert Farley and Eugene Kiely for FactCheck.org.