Economic Potential from the Shadows

July 22, 2013

By Chris Stiffler

Colorado’s economy isn’t performing as well as it could, and one big reason is the nation’s dysfunctional immigration system prevents thousands of people from realizing their full working potential. 

Although Colorado already depends on the economic activity of the unauthorized immigrant population (about 5 percent of the state’s labor force is undocumented), their contribution could be much greater. For these workers are not just workers –they are consumers, tax payers, neighbors, entrepreneurs, students, with the potential to be higher-spending consumers, higher-paying taxpayers and more productive workers.   

 A path to citizenship will help employ workers in jobs that best suit their skills which will manifest in higher wages.  Naturalized immigrants make more money — 10 to 15 percent more, we estimate – than non-naturalized immigrants with the same demographic and human capital characteristics.  

Why does obtaining citizenship boost wages?  Removing the uncertainty of unauthorized status encourages immigrants and their employers to invest in education and training that eventually leads to stronger skills and higher wages.  Legalization signals employers that workers want to be rooted in American society. And legal immigrants are more likely to open more bank accounts, move to better jobs, buy homes, and start businesses.

Citizenship provides a people with an incentive to improve their English language skills and other forms of education that helps them get better jobs. 

Another reason why legalized immigrants get higher-paying jobs is that the risk to employers for hiring them disappears.  Many employers won’t hire undocumented labor and those that do usually compensate for the risk by paying immigrants less.  And, newly-authorized workers would be granted the same worker protections as others, making them less likely to be victims of unsafe working conditions or being cheated out of pay. 

Legalization makes a huge difference in other ways. Today, undocumented immigrants face deportation if caught.  So, many pursue low-paying jobs often well below their skills because their status is less likely to be discovered.   Legalization would allow workers a better chance to rise as high as their skills and education will take them. 

Legalization also would increase immigrants’ already strong entrepreneurship.  Bringing new ideas and connections to the Colorado economy, immigrants start small businesses at a high rate.  Colorado’s documented immigrant population already contributes significantly to small business activity in the state, adding 9% of Colorado’s entrepreneurship.  Legalization would make it easier for undocumented business owners to obtain loans, rent property, and apply for government permits, making them more likely to start small businesses or expand existing ones. 

 Legal status could boost the wages of 115,000 previously-undocumented workers by up to $4,000 a year.  As newly-legalized workers and families spend new earnings on clothes, groceries, apartments, and restaurant meals, it creates a ripple effect through the economy — stores sell more and hire additional workers

Legal status would also increase the tax contributions of the immigrant population for two reasons.  First, higher wages mean paying more in income and sales taxes.  Second, more people would come out of the shadows and file income tax returns.  Immigration reform would increase the newly-legal immigrants’ tax contribution to Colorado by $43 million, according to the Institute on Taxation and Economic Policy.

In short, federal immigration reform would help unleash economic productivity in Colorado, to the benefit of everyone. 

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