Illegal Aliens: National Net Cost Estimates Vary Widely (Letter Report,
07/25/95, GAO/HEHS-95-133).
Pursuant to a congressional request, GAO examined the costs of providing
benefits and services to illegal aliens, focusing on: (1) current
estimates of the national net costs of illegal aliens to all levels of
government; (2) the variation in these estimates; and (3) areas in which
the estimates could be improved.
GAO found that: (1) illegal aliens in the United States generate more in
costs than revenues to federal, state, and local governments combined;
(2) estimates of the national net cost of illegal aliens vary greatly,
ranging from $2 billion to $19 billion; (3) a great deal of uncertainty
remains about the national fiscal impact of illegal aliens, because
little data exists on illegal aliens' use of public services and tax
payments; (4) displacement costs and revenue estimates account for much
of the variation in the estimates of the national net costs of illegal
aliens; (5) the estimates are difficult to assess because the studies do
not always clearly explain the criteria used to determine which costs
and revenues are appropriate to include in the estimates; and (6) the
cost estimates could be improved by recognizing the difficulties
inherent in collecting data on a hidden population, focusing on key
characteristics of illegal aliens, and explaining more clearly which
costs and revenues are appropriate to include in such estimates.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-95-133
TITLE: Illegal Aliens: National Net Cost Estimates Vary Widely
DATE: 07/25/95
SUBJECT: Illegal aliens
Cost analysis
Federal aid programs
State-administered programs
Statistical methods
Education or training costs
Health care costs
Immigration and naturalization law
Eligibility criteria
IDENTIFIER: California
Social Security Program
Supplemental Security Income Program
AFDC
Aid to Families with Dependent Children Program
Food Stamp Program
JTPA
Head Start Program
Special Supplemental Food Program for Women, Infants, and
Children
National School Lunch Program
Personal Responsibility Act of 1995
OASDI
Old Age Survivors and Disability Insurance Program
Medicaid Program
Job Training Partnership Act Program
WIC
New York
Illinois
Texas
Florida
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Cover
================================================================ COVER
Report to Congressional Requesters
July 1995
ILLEGAL ALIENS - NATIONAL NET COST
ESTIMATES VARY WIDELY
GAO/HEHS-95-133
National Net Cost of Illegal Aliens
Abbreviations
=============================================================== ABBREV
AFDC - Aid to Families With Dependent Children
HUD - Department of Housing and Urban Development
INS - Immigration and Naturalization Service
IRCA - Immigration Reform and Control Act
JTPA - Job Training Partnership Act
WIC - Special Supplemental Food Program for Woman, Infants, and
Children
Letter
=============================================================== LETTER
B-252730
July 25, 1995
The Honorable Alfonse M. D'Amato
United States Senate
The Honorable Lamar S. Smith
Chairman, Subcommittee on
Immigration and Claims
Committee on the Judiciary
House of Representatives
The Honorable Elton Gallegly
House of Representatives
The Honorable Bill McCollum
House of Representatives
The Honorable Dana Rohrabacher
House of Representatives
In recent years, growing public concern about illegal aliens in the
United States has focused on their use of public benefits and their
overall costs to society.\1 Some 3-1/2 to 4 million illegal aliens
resided in the United States in 1994, according to government
estimates. States' concerns about the strain on their budgets from
providing public benefits and services to illegal aliens have
prompted six states to file suit against the federal government for
reimbursement of some of these costs.\2 In one state, California,
voters recently passed a measure that would deny state-funded public
benefits to illegal aliens, including education, nonemergency health
services, and other social services.\3
Information on the effects of illegal aliens residing in the country
can be useful to lawmakers in developing appropriate policy responses
to address the problems created by illegal immigration. For example,
information on the extent, if any, to which illegal aliens impose a
fiscal burden on U.S. taxpayers provides one indication of the
magnitude of the effects of illegal aliens. The current debate about
how to address the problems of illegal immigration has generated a
renewed interest in the findings of studies that have attempted to
estimate the public fiscal impact of illegal aliens.
You asked us to examine existing estimates of the overall costs, to
all levels of government, of providing benefits and services to
illegal aliens. Because illegal aliens not only receive public
benefits but also pay taxes, we examined estimates of the public net
costs of illegal aliens: the government costs they generate, minus
the revenues they contribute to government. We previously reported
to you on estimates of selected costs for illegal aliens incurred by
the states in which most of this population resides.\4 This report
(1) assesses existing estimates of the national net cost of illegal
aliens to all levels of government, (2) examines the items that
account for much of the variation in these estimates, and (3)
identifies areas in which the estimates could be improved.
In developing this information, we identified 13 studies of the net
costs of illegal aliens issued between 1984 and 1994; only 3 of these
studies estimated the national net cost, and we examined them in
detail. They are (1) Donald Huddle's\5 initial study of 1992 net
costs, The Costs of Immigration; (2) the Urban Institute's critique
of that study, How Much Do Immigrants Really Cost? A Reappraisal of
Huddle's "The Cost of Immigrants";\6 and (3) Huddle's updated study,
The Net National Costs of Immigration in 1993.\7 In addition, we
consulted various experts in the field of immigration about issues
that arose in assessing estimates of the fiscal impact of illegal
aliens (see app. IV for a list of persons consulted).
--------------------
\1 An illegal alien is a person who is in the United States in
violation of U.S. immigration laws. Such a person may have entered
(1) illegally; that is without the Immigration and Naturalization
Service (INS) inspection (undocumented), or by using fraudulent
documentation or (2) legally, under a nonimmigrant visa or other
temporary condition but subsequently violated the terms of the visa
or other terms of entry.
\2 Florida, California, Arizona, Texas, New Jersey, and New York.
\3 California voters approved Proposition 187 on November 8, 1994.
Many of the restrictions on eligibility for public services have not
taken effect because lawsuits blocked implementation of the measure.
\4 Benefits for Illegal Aliens: Some Program Costs Increasing, But
Total Costs Unknown (GAO/T-HRD-93-33, Sept. 29, 1993). This
testimony included estimates of costs for illegal aliens in
California, New York, Texas, Florida, and Illinois.
\5 Donald Huddle is a professor emeritus of economics at Rice
University.
\6 The methodology of the revenue estimates in this study is set out
in greater detail in a study by Jeffrey Passel, Immigrants and Taxes:
A Reappraisal of Huddle's "The Cost of Immigrants" (Washington, D.C.:
The Urban Institute, 1994).
\7 Huddle's updated study was issued with an accompanying paper that
discusses some of the major areas of difference in the national net
cost estimates. See A Critique of the Urban Institute's Claims of
Cost Free Immigration: Huddle Findings Confirmed (Washington, D.C.:
Carrying Capacity Network, 1994).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
All three national studies concluded that illegal aliens in the
United States generate more in costs than revenues to federal, state,
and local governments combined. However, their estimates of the
national net cost varied considerably, ranging from $2 billion to $19
billion. Because little data are available on illegal aliens' use of
public services and tax payments, the various indirect approaches
used to estimate costs and revenues were often based on assumptions
whose reasonableness is unknown. Moreover, the studies varied
considerably in the range of costs and revenues they included and
their treatment of certain items, making them difficult to compare.
As a result, a great deal of uncertainty remains about the actual
national fiscal impact of illegal aliens.
We did find that a relatively small number of costs and revenues
account for much of the variation in the estimates of the national
net cost of illegal aliens. For example, one study included costs of
$3.9 billion for certain benefits, such as education, provided to
U.S. citizen children of illegal aliens and the other two studies
did not include these costs. In addition, the two studies that
included estimates of Social Security costs--$3.3 billion versus
$0--differed in their approaches to this item and appear to have
estimated different costs. In these and other instances, the
estimates were difficult to assess because the studies did not always
clearly explain the criteria used to determine which items were
appropriate to include.
Better data on the illegal alien population and clearer explanations
of which costs and revenues are appropriate to include would help
improve the usefulness of estimates of the national net cost.
Recognizing the difficulties inherent in collecting better data on a
population with an incentive to keep its status hidden from
government officials, any future studies would benefit from focusing
on some of the key characteristics of the illegal alien population.
These include the population's size, geographic distribution, age
distribution, income distribution, labor force participation rate,
tax compliance rate, and extent of school participation. Clearer
explanations of which costs and revenues are appropriate to include
also would be helpful. The appropriateness of including any
particular item may depend on the policy questions addressed by a
study. If studies were more explicit about the questions they
address, their estimates would be easier to compare and more useful
to lawmakers.
BACKGROUND
------------------------------------------------------------ Letter :2
Illegal immigration is an important issue, especially in California,
New York, Texas, Florida, Illinois, Arizona, and New Jersey--the
states estimated to account for over three-fourths of the illegal
alien population. Illegal aliens are a concern not only because they
are breaking immigration laws but for various other reasons. For
example, state and local governments are especially concerned about
the effect on their budgets of providing benefits and services to
illegal aliens. In addition, there are concerns about whether the
presence of illegal alien workers has negative effects on the
employment of U.S. workers.
SIZE OF THE POPULATION
---------------------------------------------------------- Letter :2.1
Public concern about the number of illegal aliens residing in the
United States led to the passage of major immigration legislation in
the 1980s. In an effort to reduce the size of the nation's illegal
alien population, estimated at 3 to 5 million in 1986, the Congress
enacted the Immigration Reform and Control Act of 1986 (IRCA). IRCA
attempted to deter the inflow of illegal aliens by prohibiting
employers from hiring anyone not authorized to work. IRCA also
provided that under certain circumstances, an illegal alien's status
could be adjusted to lawful permanent resident.\8 Almost 3 million
illegal aliens acquired lawful permanent residence as a result of
IRCA.
Despite a brief drop in the estimated number of illegal entries to
the United States after IRCA was enacted, the inflow of illegal
aliens has subsequently increased, so that the size of the illegal
alien population is now estimated to have increased once more to
pre-IRCA levels. INS estimated that there were 3.4 million illegal
aliens residing in the country in October 1992. Updating this
estimate would place the illegal alien population at about 4 million
in 1994.\9 The Bureau of the Census estimated that the size of the
illegal alien population was between 3.5 million and 4 million in
April 1994.\10
--------------------
\8 Aliens who either entered the United States before January 1,
1982, and had been living illegally in the country continuously since
that time or who worked in agriculture were eligible to seek
adjustment of their status.
\9 Robert Warren, "Estimates of the Unauthorized Immigrant Population
Residing in the United States, by Country of Origin and State of
Residence: October 1992," unpublished report, U.S. Immigration and
Naturalization Service (Washington, D.C.: 1994). We updated the
estimate to 1994 by using the report's estimate of a 300,000 annual
increase in the size of the national illegal alien population.
\10 Edward W. Fernandez and J. Gregory Robinson, "Illustrative
Ranges of the Distribution of Undocumented Immigrants by State," U.S.
Bureau of the Census, Population Division, technical working paper
no. 8 (Washington, D.C.: U.S. Department of Commerce, 1994).
ELIGIBILITY FOR FEDERAL
BENEFITS
---------------------------------------------------------- Letter :2.2
Illegal aliens are not eligible for most federal benefit programs,
including Supplemental Security Income, Aid to Families With
Dependent Children (AFDC), Food Stamps, unemployment compensation,
financial assistance for higher education, and the Job Training
Partnership Act (JTPA).\11
However, they may participate in certain benefit programs that do not
require legal immigration status as a condition of eligibility, such
as Head Start, the Special Supplemental Food Program for Women,
Infants, and Children (WIC), and the school lunch program.\12 In
addition, they are eligible for emergency medical services, including
childbirth services, under Medicaid if they meet the program's
conditions of eligibility. Illegal aliens may apply for AFDC and
food stamps on behalf of their U.S. citizen children. Although it
is the child and not the parent in such cases who qualifies for the
programs, benefits help support the child's family.
Illegal aliens may not work in the United States or legally obtain
Social Security numbers for work purposes. However, many illegal
aliens do work and have Social Security taxes withheld from their
wages based on falsely obtained numbers.\13 Illegal aliens are not
explicitly barred from receiving Social Security benefits;
nonetheless, some illegal aliens may not be able to collect benefits
because an individual generally must have obtained a valid Social
Security number to receive credit for work performed.
--------------------
\11 While illegal aliens are ineligible by law for housing
assistance, the Department of Housing and Urban Development (HUD)
allowed them to receive assistance until final regulations
implementing eligibility restrictions were issued. HUD issued that
final rule on eligibility of aliens for housing assistance on March
20, 1995 (60 Fed. Reg. 14816, 1995); the rule became effective June
19, 1995.
\12 Certain welfare reform proposals being considered by the Congress
would further restrict the eligibility of illegal aliens for federal
benefits. For example, the Personal Responsibility Act of 1995 (H.R.
4) would make illegal aliens ineligible for federal means-tested
public benefit programs, except for certain emergency assistance.
\13 This can occur in various ways. For example, an illegal alien
might provide an employer with (1) a Social Security number that had
been assigned to another person, (2) a counterfeit Social Security
card, or (3) a genuine Social Security card that was obtained by
furnishing fraudulent documents to the Social Security
Administration.
TYPES OF REVENUES GENERATED
---------------------------------------------------------- Letter :2.3
Illegal aliens generate revenues as well as costs; these revenues
offset some of the costs that governments incur. Research studies
indicate that many illegal aliens pay taxes, including federal and
state income taxes; Social Security tax; and sales, gasoline, and
property taxes. However, researchers disagree on the amount of
revenues illegal aliens generate and the extent to which these
revenues offset government costs for benefits and services.
STATE EFFORTS TO ESTIMATE
FISCAL IMPACT OF ILLEGAL
ALIENS
---------------------------------------------------------- Letter :2.4
Over the past few years, the states with the largest illegal alien
populations have developed estimates of the costs they incur in
providing benefits and services to illegal aliens. These estimates
vary considerably in the range of costs included and methodologies
used. Two states, California and Texas, also have estimated the
public revenues that illegal aliens generate.
In a recent report, we reviewed California's estimates of three costs
for illegal aliens--elementary and secondary education, Medicaid, and
adult incarceration--and various revenues from this population.\14
Although we adjusted the cost estimates based on our assessment of
the state's assumptions, we cited several data limitations that
prevented us from developing precise estimates. The even more
extensive data limitations on the revenue side precluded us from
making any assessment of the revenue estimates.
--------------------
\14 Illegal Aliens: Assessing Estimates of Financial Burden on
California (GAO/HEHS-95-22, Nov. 28, 1994).
MOST STUDIES CONCLUDE
ILLEGAL ALIENS GENERATE MORE
IN COSTS THAN IN REVENUES
---------------------------------------------------------- Letter :2.5
The literature on the public fiscal impact of illegal aliens reflects
considerable agreement among researchers that illegal aliens are a
net cost, though the magnitude of the cost is a subject of continued
debate. We identified 13 studies issued between 1984 and 1994 that
developed estimates of the net costs of illegal aliens. Many of the
studies focused on the illegal alien population in specific states,
such as California or Texas, or specific areas, such as San Diego
County or Los Angeles County. In addition, the range of costs and
revenues included in the studies varied depending on the level of
government examined: local, state, federal, or some combination of
these. All but one study concluded that illegal aliens generated
more in public costs than they contributed in revenues to government.
(See app. I for a list of the studies.) Only 3 of the 13 studies
estimated the fiscal impact of all illegal aliens in the United
States on all levels of government.
NATIONAL NET COST OF ILLEGAL
ALIENS UNCERTAIN
------------------------------------------------------------ Letter :3
The three studies that have estimated the national net cost of
illegal aliens have generated considerable media attention and public
discussion. Each concluded that illegal aliens generate more in
costs than revenues at the national level, but their estimates of the
magnitude of the net cost varied considerably. The studies faced the
difficult task of developing estimates of the public fiscal impact of
a population on which little data are available. They generally
relied on indirect approaches; as a result, the reasonableness of
many of their assumptions are unknown. In addition, the studies
differed considerably in the range of costs and revenues they
included and their treatment of certain items, which makes them
difficult to compare. For these reasons, a great deal of uncertainty
remains about the actual national net cost of illegal aliens.
STUDIES' ESTIMATES OF NET
COSTS VARY CONSIDERABLY
---------------------------------------------------------- Letter :3.1
Donald Huddle estimated that the national net cost of illegal aliens
to federal, state, and local governments was $11.9 billion in
1992.\15 This estimate was followed by an Urban Institute review of
Huddle's work, which adjusted some of Huddle's cost and revenue
estimates and estimated a much lower net cost for 1992--$1.9
billion.\16 Responding to the Urban Institute's criticisms, Huddle
subsequently produced an updated estimate for 1993 that was higher
than his initial estimate--$19.3 billion.\17 (See app. II for a list
of the costs and revenues included in each of the estimates.)
The net cost estimates in each of the national studies are derived
from three major components: (1) the direct costs of providing
public benefits and services to illegal aliens, (2) displacement
costs--the costs of providing various types of public assistance to
U.S. citizens displaced from their jobs by illegal aliens, and (3)
public revenues attributable to illegal aliens. A comparison of
Huddle's initial study with the Urban Institute's study indicates
that the major differences were in their estimates of displacement
costs and revenues. Their estimates of direct program costs were
relatively similar, as shown in figure 1.
Figure 1: Estimated Net Costs
to Federal, State, and Local
Governments for Illegal Aliens
in the United States
(See figure in printed
edition.)
\a Donald Huddle, The Costs of Immigration (Washington, D.C.: 1993),
exhibits 5, 6, and 12.
\b Jeffrey S. Passel and Rebecca L. Clark, How Much Do Immigrants
Really Cost? A Reappraisal of Huddle's "The Cost of Immigrants"
(Washington, D.C.: 1994), pp. 1-8, supplemented by data from
Jeffrey Passel providing a breakdown of the cost estimates for
individual items; and Jeffrey S. Passel, Immigrants and Taxes: A
Reappraisal of Huddle's "The Cost of Immigrants" (Washington, D.C.:
1994), table 7c.
\c Donald Huddle, The Net National Costs of Immigration in 1993
(Washington, D.C.: 1994), exhibits 5, 6, and 12.
In their study, the Urban Institute researchers did not develop a
completely independent estimate but instead adjusted some of the cost
and revenue estimates in Huddle's initial study to obtain what they
believed to be a more reasonable estimate. The Urban Institute study
also added certain revenues that were not included in Huddle's
initial study, such as payroll taxes (Social Security and
unemployment compensation) and federal gasoline tax. In developing
their own estimate, Urban Institute researchers used some of Huddle's
assumptions. In particular, the Urban Institute study used Huddle's
estimate of the size of the illegal alien population--4.8 million
illegal aliens--for purposes of comparability, though the study
maintained that this estimate was too high.\18
Huddle's update of his earlier study differs substantially from the
Urban Institute study in all three components of the net cost
estimates, with the largest difference occurring between the
estimates of direct program costs (see fig. 1). The reason for this
difference is primarily because Huddle's updated study includes over
$10 billion for direct cost items that were not included in either
his initial study or the Urban Institute study.
--------------------
\15 This study and Huddle's updated study were commissioned by the
Carrying Capacity Network, a nonpartisan, nonprofit, national
organization whose stated mission is to increase understanding of the
interrelated nature of population growth, environmental degradation,
resource conservation, and quality-of-life issues in the United
States.
\16 The Urban Institute is a nonprofit, nonpartisan, policy research
organization. The two lead analysts in this research were Jeffrey S.
Passel and Rebecca L. Clark, director and senior research associate,
respectively, in the Institute's Program for Research on Immigration
Policy.
\17 Huddle recently updated his national net cost estimate to 1994.
The updated estimate relies on the same methodologies as the estimate
for 1993. However, the 1994 estimate uses higher per capita costs
for various public assistance programs, a higher estimate of the
income of illegal aliens, and an updated estimate of the size of the
illegal alien population. Huddle concluded that the national net
cost of illegal aliens in 1994 was between $16 billion and $21.6
billion. The lower figure is based on an estimated illegal alien
population of 4 million; the higher figure on a population of 5.4
million. See Donald L. Huddle, The Net National Costs of
Immigration into the United States: Illegal Immigration Assessed
(Washington, D.C.: Carrying Capacity Network, 1995).
\18 In other studies, the Urban Institute researchers have used
significantly lower estimates of the size of the illegal alien
population. For example, in Rebecca L. Clark and others, Fiscal
Impacts of Undocumented Aliens: Selected Estimates for Seven States,
the researchers used INS' national population estimate of 3.4 million
illegal aliens as of 1992.
STUDIES' ESTIMATES BASED ON
LIMITED DATA ON ILLEGAL
ALIEN POPULATION
---------------------------------------------------------- Letter :3.2
National data on illegal aliens' use of public services and level of
tax payments generally are not available. Various national databases
that contain extensive data on the resident population's use of
public services and household characteristics, for example, do not
have data on the immigration status of respondents who are not U.S.
citizens.\19 Questions about immigration status are not included on
Census surveys because they might provoke untruthful responses and
thereby affect the quality of the survey data, according to a Census
official.
Because of such data limitations, the national studies relied on
indirect approaches to estimate the costs and revenues attributable
to illegal aliens. In using these approaches, the studies made
assumptions whose reasonableness is often unknown. To estimate
direct program costs, for example, the studies multiplied their
estimates of the average number of illegal aliens who received a
benefit or service times the average annual program cost per illegal
alien. However, data generally are not available to assess whether
the assumptions used in estimating illegal aliens' recipiency
rates\20 and average costs were reasonable.
For example, for some programs, one or more of the studies assumed
that illegal aliens had the same recipiency rate and average cost as
the overall population served by the program. Huddle's updated study
made this assumption in estimating costs for Head Start and adult
education. For other programs, the studies adjusted the national
recipiency rate or average cost upward or downward to reflect a
presumed difference in the use of the program by illegal aliens. For
example, in estimating the cost of housing assistance, Huddle's
initial and updated studies assumed that the recipiency rate and
average cost were higher for illegal aliens than for the overall
population served by this program. The Urban Institute's study
assumed that the recipiency rate was higher but that the average cost
was the same.
For still other programs, the studies estimated the public service
use of illegal aliens by using data on populations that included
groups in addition to illegal aliens. For example, in their
estimates of the cost of primary and secondary education, the studies
used data on the school enrollment rates of populations that included
foreign-born children who were legal residents. The studies'
estimates of the enrollment rate of school-age illegal aliens ranged
from 70 to 86 percent.\21
To estimate revenues attributable to illegal aliens, Huddle's initial
study and the Urban Institute's study started with a preexisting
estimate of revenues collected from illegal aliens in Los Angeles
County for various federal, state, and local taxes.\22 The studies
calculated the per capita payments by illegal aliens in Los Angeles
County for each of these taxes. The studies then used different
methodologies to adjust these per capita tax estimates to apply them
to the national illegal alien population.\23
In contrast, Huddle's updated study used a different approach to
estimate revenues. The study developed an estimate of the income
distribution of the national illegal alien population from data on
the foreign-born population and on illegal aliens who were legalized
under IRCA. Based on this income distribution, the study used data
on the tax payments or tax rates associated with different levels of
income for the general population to estimate revenues from illegal
aliens.
--------------------
\19 These include Census Bureau databases such as the decennial
census, the Current Population Survey, and the Survey of Income and
Program Participation.
\20 Recipiency rate refers to the percentage of a population that
receives benefits from a particular program.
\21 Subsequent to its national net cost study, the Urban Institute
developed more detailed estimates of the costs of providing certain
education and public welfare benefits to illegal aliens. The Urban
Institute also expanded its critical analysis of the estimates for
these benefits in Huddle's initial study. See Rebecca L. Clark, The
Costs of Providing Public Assistance and Education to Immigrants
(Washington, D.C.: The Urban Institute, 1994).
\22 The estimates of tax payments by illegal aliens were developed in
a study by the Los Angeles County Internal Services Department titled
Impact of Undocumented Persons and Other Immigrants on Costs,
Revenues and Services in Los Angeles County, prepared for the Los
Angeles County Board of Supervisors (Los Angeles: 1992).
\23 For example, the Urban Institute study maintained that Huddle's
initial study inappropriately used data on geographic differences in
tax payments as a proxy for differences in tax rates.
STUDIES DIFFICULT TO COMPARE
---------------------------------------------------------- Letter :3.3
The national net cost studies vary considerably in the range of costs
and revenues they included and their treatment of certain items,
making the studies difficult to compare. The variation in the
studies reflects an absence of clear standards for determining the
items that are appropriate to include in such estimates. A consensus
on standards has not yet emerged because the three national studies
represent the initial efforts of researchers to develop estimates of
the total public fiscal impact of the illegal alien population.
Because the studies attempted to develop comprehensive estimates of
the fiscal impact of a population, it is important to determine
whether the items they included are appropriate. However, this is
difficult to determine because the studies did not always clearly
explain the rationale for including items that were excluded by other
studies or treating items differently from the way they were treated
by other studies. As a result, it is difficult to ascertain whether
the large variations in the studies' estimates for such items stem
from their addressing different policy questions or from differing
views about how to respond to the same question.
WHY NATIONAL ESTIMATES VARY
------------------------------------------------------------ Letter :4
A relatively small number of costs and revenues account for much of
the variation in the estimates of the national net cost of illegal
aliens. Some of these cost and revenue items were included in one
study but not the others. In the case of other items, the studies
differed considerably in the approaches or assumptions they used to
develop their estimates.
Our review focuses on differences between the Urban Institute's study
and Huddle's updated study. Four areas account for about 88 percent
of the difference between the studies' estimates of total costs: (1)
costs for citizen children of illegal aliens, (2) costs for the
portion of some services provided to the general public that are used
by illegal aliens, (3) Social Security costs, and (4) costs for
workers displaced from jobs by illegal aliens. On the revenue side,
about 95 percent of the difference in the studies' estimates is
attributable to differences in their estimates of local revenues (see
table 1).\24
Table 1
Major Areas of Difference Between Urban
Institute's Estimate and Huddle's
Updated Estimate of National Net Costs
(Dollars in billions)
Amount of difference
(Huddle's updated
estimate\a minus Urban
Areas of difference Institute's estimate\b)
---------------------------------- ------------------------
Costs
------------------------------------------------------------
Citizen children $4.58
General public services\c 5.77
Social Security 3.27
Displacement 4.29
Other\d 2.53
============================================================
Total difference in costs 20.44
Revenues
------------------------------------------------------------
Local 2.85
Federal and state 0.14
============================================================
Total difference in revenues 2.99
============================================================
Total difference in net costs 17.45
------------------------------------------------------------
\a Donald Huddle, The Net National Costs of Immigration in 1993,
(Washington, D.C.: 1994), exhibits 5, 6, and 12.
\b Jeffrey S. Passel and Rebecca L. Clark, How Much Do Immigrants
Really Cost? A Reappraisal of Huddle's "The Cost of Immigrants"
(Washington, D.C.: 1994), pp. 1-8, supplemented by data from
Jeffrey Passel providing a breakdown of the cost estimates for
individual items; and Jeffrey S. Passel, Immigrants and Taxes: A
Reappraisal of Huddle's "The Cost of Immigrants" (Washington, D.C.:
1994), table 7c.
\c These consist of county and city costs and state and federal
highway costs.
\d These include items that are in Huddle's updated estimate but not
in the Urban Institute's estimate. For example, Huddle's updated
estimate includes three federal programs for which illegal aliens are
ineligible: unemployment compensation, federal student aid, and job
training under JTPA. If illegal aliens receive these benefits, they
likely do so through fraudulent means. However, data generally are
not available to quantify the extent of fraud by illegal aliens in
these programs.
--------------------
\24 Huddle's updated study used a slightly higher estimate of the
size of the illegal alien population than his initial study and the
Urban Institute's study--5.1 million versus 4.8 million. This
factor, in addition to price inflation from 1992 (the year of the
Urban Institute's estimate) to 1993 (the year of Huddle's updated
estimate), accounts for about $1.0 billion of the $17.5 billion
difference between the net cost estimates, based on our calculations.
COSTS FOR CITIZEN CHILDREN
OF ILLEGAL ALIENS
---------------------------------------------------------- Letter :4.1
Huddle's initial study and the Urban Institute's study included
estimates of costs for U.S. citizen children of illegal aliens for
only one program--AFDC.\25 These costs represent cash payments
received by illegal aliens on behalf of their citizen children.
However, Huddle's updated study includes estimates of citizen
children costs for additional programs: primary and secondary
education; school lunch; Food Stamps; and English as a Second
Language, English for Speakers of Other Languages, and bilingual
education. Huddle's estimate of these additional items totals $3.9
billion.\26 In all these programs except Food Stamps, the benefits or
services are provided directly to citizen children.
The appropriateness of including these additional citizen children
costs depends on the policy question under consideration. For
example, if the question concerns the overall public fiscal impact
associated with illegal immigration, then including these costs would
be appropriate because they are a consequence of the failure to
prevent aliens from illegally entering and residing in the United
States. In addition, it would also be appropriate to include costs
and revenues attributable to adult citizen children of illegal aliens
(children 18 years old and older).\27 Alternatively, if the question
concerns the cost of benefits or services provided only to persons
residing unlawfully in the country, then it would not be appropriate
to include these costs. None of the three national studies, however,
clearly specifies the question it addressed.
--------------------
\25 Huddle's initial study estimated $820 million in AFDC costs; the
Urban Institute's study estimated $202 million. In our 1993
testimony, we estimated that AFDC costs for fiscal year 1992 were
$479 million, based on administrative data from the Department of
Health and Human Services.
\26 This cost estimate is difficult to assess because Huddle's
updated study does not explain the methodology used to estimate the
number of citizen children of illegal aliens.
\27 Huddle's updated study does not include such costs or revenues.
COSTS FOR GENERAL PUBLIC
SERVICES
---------------------------------------------------------- Letter :4.2
Huddle's initial study and the Urban Institute's study included
estimates of costs for the portion of some county government services
provided to the general public that are used by illegal aliens, such
as public safety, fire protection, recreation, roads, and flood
control. Huddle's updated study includes over $5.3 billion in
additional costs for miscellaneous public services not included in
his initial study or the Urban Institute's study, including federal
and state highway costs and costs for a range of city services, such
as police, fire, sewerage, libraries, parks and recreation, financial
administration, and interest on debt.\28
The studies' inclusion of costs for services to the general public
raises two issues: the specific services that should be included and
the appropriate methodology for estimating the costs of the services
attributable to illegal aliens. With regard to the first issue, the
national studies focused on local services provided to the general
public; the only such state or federal service that any of them
included was highway services. However, because there are other
state and federal services provided to the general public that
illegal aliens may use or benefit from, it is not clear that the
studies' estimates included all the appropriate items.\29 None of the
studies clearly addressed this issue.
A second issue involves the methodology used to estimate the costs of
services provided to the general public. Huddle's updated study
calculates the costs of the additional miscellaneous public services
on an average cost basis. However, this may yield questionable
estimates because the additional cost that governments incur for
these services due to the presence of each illegal alien could be
substantially lower or higher than the average cost per person of
providing the services. Using marginal cost--the cost of providing a
service to one additional user--would better reflect the additional
costs due to the presence of illegal aliens. For example, in areas
where illegal aliens constitute a small percentage of the population,
the marginal cost of providing them fire protection could be lower
than the average cost. On the other hand, if the number of illegal
aliens in an area necessitates the construction of new fire stations,
the marginal cost of fire protection for them could be higher than
the average cost. While using marginal costs would yield better
estimates, the data needed to estimate these costs are difficult to
obtain.
--------------------
\28 Huddle's updated study double-counts certain local costs, such as
those for education and public welfare. The study includes these
costs both in the estimates of miscellaneous county and city costs,
and in the estimates for specific program items, such as elementary
and secondary education, and AFDC.
\29 For example, state governments provide various environmental,
public safety, health, and judicial services; they also pay interest
on debt incurred to finance the broad range of services they provide.
SOCIAL SECURITY COSTS
---------------------------------------------------------- Letter :4.3
Social Security (the Old Age, Survivors, and Disability Insurance
program) has both a revenue side--payroll contributions from workers
and employers--and a cost side--benefits paid out. Huddle's initial
study did not include either Social Security revenues or costs.
Huddle's updated study, in response to the Urban Institute's study,
included both. On the revenue side, the researchers' estimates are
fairly close: Huddle estimates $2.4 billion in Social Security
revenues, compared with the Urban Institute's estimate of $2.7
billion.\30 However, on the cost side, the researchers draw sharply
different conclusions: Huddle estimates that illegal aliens
generated $3.3 billion in Social Security costs; the Urban Institute
estimates that no Social Security costs were generated by illegal
aliens.
This difference reflects a disagreement about the conceptual approach
to measuring Social Security costs. The Urban Institute study views
the Social Security costs for illegal aliens in a given year as the
amount of benefits paid to this population in that year. The
rationale for this view is that the federal government treats Social
Security costs and revenues on a current accounts basis: in
calculating the annual federal budget deficit (or surplus), Social
Security taxes are treated as revenues and Social Security benefits
as expenses. However, the Social Security Administration does not
have data on the amount of Social Security benefits paid to illegal
aliens; as a result, it is unclear whether the Urban Institute's
assumption that this amount was zero is reasonable.
In contrast, Huddle's updated study views Social Security costs in
terms of the "present value of future benefits" that illegal aliens
will collect. The study's cost estimate for 1993 represents the
present value of the portion of future Social Security benefits that
illegal aliens will receive that is attributable to their earnings in
1993.\31 Huddle's rationale for using this approach to Social
Security costs is the belief that the federal government is incurring
a substantial obligation for future benefits to illegal aliens.
However, the data needed to develop a reasonable estimate of the
amount of Social Security benefits that illegal aliens will collect
in the future are not available.\32
These different conceptual approaches to measuring Social Security
costs appear to address different questions. The current accounts
approach is relevant to the question of the current-year cost of
benefits provided to illegal aliens who generally have reached
retirement age. In contrast, the present value approach is more
appropriate for answering the question of the long-term costs that
will result from the presence of illegal aliens currently in the
labor force. The explanation of the Social Security cost estimate in
Huddle's updated study makes it difficult to discern whether he
explicitly sought to address a different question than the one
addressed by the Urban Institute's study.
--------------------
\30 The estimate in Huddle's updated study contains an arithmetical
error in the calculation of Social Security revenue from the highest
income group. Correcting this error would raise the estimate of
Social Security revenues to $2.7 billion, the same as the Urban
Institute's estimate.
\31 The present value of a future benefit is the amount that would be
sufficient, if invested at a given interest rate, to fund the
expected future stream of payments.
\32 For example, Huddle's estimate assumes that 75 percent of illegal
aliens in the work force eventually will collect Social Security
benefits, but data are not available to determine whether this is a
reasonable assumption.
DISPLACEMENT COSTS
---------------------------------------------------------- Letter :4.4
Although illegal aliens by law are not entitled to work in this
country, they often find employment. This raises questions about the
extent to which illegal aliens take jobs away from legal
residents--U.S. citizens and aliens residing legally in the country.
Job displacement can generate costs to all levels of government for
various forms of public assistance provided to legal residents who
lose their jobs. Huddle's initial and updated studies include $4.3
billion in costs for public assistance--Medicaid, AFDC, Food Stamps,
unemployment compensation, and general assistance--provided to
displaced U.S. citizen workers. In contrast, the Urban Institute's
study concludes that any job displacement costs are offset by the
positive economic effects of illegal aliens. These positive economic
effects include the new jobs and additional spending (the multiplier
effect) generated by illegal aliens' spending on goods and services.
Huddle's subsequent response to the Urban Institute's position is
that the social and economic costs associated with each of the
claimed economic benefits would have to be assessed.\33
It is very difficult to quantify the positive and negative effects of
illegal aliens on the economy. With regard to job displacement, our
analysis indicates that Huddle's $4.3 billion estimate is based on a
job displacement rate that is inconsistent with research findings on
this topic. While some studies have shown that job displacement may
occur, recent studies using national data generally have concluded
that displacement is either small in magnitude or nonexistent.
Huddle's estimate assumes a displacement rate of 25 percent; that is,
for every 100 low-skilled illegal alien workers, 25 U.S. citizens
were displaced from their jobs in 1993. The estimate cites Huddle's
own studies on job displacement to support the 25-percent rate.
However, these studies assume a correlation between the employment of
illegal aliens and the unemployment of native workers that is not
supported by any evidence. (See app. III for a more complete
discussion of Huddle's displacement cost estimate.)
With regard to positive economic effects, economic models have been
developed to estimate multiplier effects; however, the models have
not been used to measure the effects of subpopulations such as
illegal aliens. As a result, the extent to which the positive
economic effects of illegal aliens offset the costs they generate is
unclear.
--------------------
\33 For example, he maintains that researchers must ask "what is the
net enhancement of consumer spending if one consumer population
displaces another, or if added consumption must be financed by higher
public sector outlays." See A Critique of the Urban Institute's
Claims of Cost Free Immigration: Huddle Findings Confirmed, Carrying
Capacity Network (Washington, D.C.: 1994).
LOCAL REVENUES
---------------------------------------------------------- Letter :4.5
The national net cost studies estimated the amounts of various
revenues from illegal aliens collected by federal, state, and local
governments. These include income, sales, property, Social Security,
and gasoline taxes. (See app. II for a list of the revenues
included in the studies.) Developing reasonable estimates of these
revenues requires information about various characteristics of the
illegal alien population, such as its size, age distribution, income
distribution, labor force participation rate, consumption patterns,
and tax compliance rate. However, limited data are available on
these characteristics. Furthermore, the studies differ in some of
the revenues they include.
Huddle's initial estimate of the total revenues from illegal aliens
was $2.5 billion. The Urban Institute's study criticized Huddle's
estimate for omitting several revenues--the largest being Social
Security tax--and estimated $7 billion in total revenues. Huddle's
updated study, which estimated total revenues at $10 billion, added
several revenues that were not included in his initial study, such as
Social Security tax, federal and state gasoline taxes, and city
taxes. As shown in table 2, the major area of difference between the
revenue estimates in the Urban Institute's study and Huddle's updated
study was in their estimates of local revenues.
Table 2
Revenue Estimates in Urban Institute's
Study and Huddle's Updated Study
(Dollars in billions)
Urban Institute's Huddle's updated
Revenues estimate (1992)\a estimate (1993)\b
------------------- ------------------- ------------------
Federal 3.740 3.691
State 2.146 2.337
Local 1.087 3.933
============================================================
Total 6.973 9.961
------------------------------------------------------------
\a Jeffrey S. Passel and Rebecca L. Clark, How Much Do Immigrants
Really Cost? A Reappraisal of Huddle's "The Cost of Immigrants"
(Washington, D.C.: 1994), pp. 1-8, supplemented by data from
Jeffrey Passel providing a breakdown of cost estimates for individual
items; and Jeffrey S. Passel, Immigrants and Taxes: A Reappraisal
of Huddle's "The Cost of Immigrants" (Washington, D.C.: 1994), table
7c.
\b Donald Huddle, The Net National Costs of Immigration in 1993
(Washington, D.C.: 1994), exhibit 6.
Two factors help explain the difference in their estimates of local
revenues. First, Huddle's updated study includes some local revenues
not included in the Urban Institute's study, such as property taxes
paid by businesses.\34 Second, the researchers' estimates of the per
capita income of illegal aliens differ. The researchers use income
as a factor in estimating the different revenues because the amount
of revenues from illegal aliens is a function of their income levels.
The per capita income figure in Huddle's updated study ($7,013) is 36
percent higher than that in the Urban Institute's study ($5,155).
However, more recent work by the Urban Institute for the same general
time period can be used to obtain an income figure closer to
Huddle's--about $7,739.\35 If this higher figure was substituted in
the Urban Institute's study, the estimate of total revenues from
illegal aliens would increase to $10.5 billion, placing it closer to
the $10 billion figure in Huddle's updated study.
The reasonableness of the revenue estimates would remain unclear even
if the gap between the estimates was narrowed, due to the limited
data available on the characteristics of the illegal alien
population. For example, the estimates of illegal aliens' incomes
cited above are derived from two main sources: survey data on former
illegal aliens who were legalized under IRCA and 1990 Census data on
the foreign-born population (which does not distinguish illegal from
legal aliens). By using these sources to develop estimates, the
researchers assumed that the average income of illegal aliens was
similar to that of aliens legalized under IRCA or to the foreign-born
population (either to the population overall or subpopulations from
specific countries). However, the reasonableness of these
assumptions is unknown.\36
--------------------
\34 The source used by Huddle's updated study to estimate county
revenues does not break out the amounts of property taxes collected
from individuals versus businesses. The Urban Institute's study
included only the portion of county property taxes paid by
individuals.
\35 In Rebecca L. Clark and others, Fiscal Impacts of Undocumented
Aliens: Selected Estimates for Seven States, Urban Institute
researchers developed estimates of the per capita income of illegal
aliens in the seven states estimated to account for about 86 percent
of the illegal alien population. To obtain the $7,739 figure, we
assumed that the per capita income of illegal aliens in all other
states was the average of the seven states. We then weighted these
income estimates based on the INS estimate of the geographic
distribution of illegal aliens cited in the report.
\36 For instance, the average income of illegal aliens who were
legalized under IRCA may have been lower than that of illegal aliens
who were not legalized because the former group included a much
higher percentage of persons born in Mexico than the latter, and
Mexican-born residents have among the lowest incomes of the
foreign-born population. See Rebecca L. Clark and others, Fiscal
Impacts of Undocumented Aliens: Selected Estimates for Seven States,
chapters 2 and 6. Similarly, foreign-born residents who reside
legally in the United States may have higher or lower incomes than
illegal aliens who immigrated from the same countries and in the same
time period.
ESTIMATES OF NATIONAL NET COSTS
COULD BE IMPROVED
------------------------------------------------------------ Letter :5
Our review of the national net cost studies highlighted two key
issues: the limited data on the illegal alien population and the
considerable variation in both the items that the studies included
and their treatment of some of the same items. These issues led us
to conclude that considerable uncertainty remains about the national
fiscal impact of illegal aliens. Obtaining better data on the
illegal alien population and providing clearer explanations of which
costs and revenues are appropriate to include would help improve the
usefulness of the national estimates.
BETTER DATA ON ILLEGAL ALIEN
POPULATION NEEDED
---------------------------------------------------------- Letter :5.1
The limited availability of data on illegal aliens is likely to
remain a persistent problem because persons residing in the country
illegally have an incentive to keep their status hidden from
government officials. Yet as researchers explore new possibilities
for overcoming some of the obstacles to collecting data on this
population, some progress may be achieved.\37
Given the data gaps in so many areas, any effort to collect better
data should focus on those data that would have the greatest impact
in improving the estimates of net costs. Thus, emphasis could be
placed on obtaining data on illegal aliens' use of those public
benefits associated with the largest cost items or their payment of
those taxes associated with the largest revenue items. For example,
elementary and secondary education is estimated to be the single
largest program cost; thus, researchers could focus on obtaining data
on the number of illegal alien schoolchildren. However, researchers
may confront legal barriers in attempting to collect these data.\38
Another approach, which could be used in conjunction with the first,
would be to obtain data on characteristics of the illegal alien
population that would have broad usefulness by permitting researchers
to estimate several cost or revenue items. For example, data on the
illegal alien population's size, geographic distribution, age
distribution, income distribution, labor force participation rate,
and tax compliance rate would be useful in estimating many types of
revenues. Better data on the size of the population also would be
useful in estimating most of the public costs of illegal aliens.
--------------------
\37 We are in the initial process of developing an estimation
methodology that may prove useful in obtaining better data on the
illegal alien population. The methodology involves surveying
foreign-born residents about their immigration status in a way that
does not cause any respondent to identify himself or herself as an
illegal alien, yet would permit the development of reliable estimates
regarding the size and characteristics of the illegal alien
population.
\38 As we noted in our California report, many school districts in
California believe that the U.S. Supreme Court decision, Plyler v.
Doe, prohibits them from asking about the immigration status of
students. See Illegal Aliens: Assessing Estimates of Financial
Burden on California (GAO/HEHS-95-22, Nov. 28, 1994).
CLEARER EXPLANATION NEEDED
OF ITEMS THAT SHOULD BE
INCLUDED IN NET COST STUDIES
---------------------------------------------------------- Letter :5.2
Obtaining better data on the illegal alien population will not
resolve all the problems associated with estimating the net costs of
illegal aliens. Researchers will still face issues about which items
are appropriate to include in the estimates and how the items should
be treated. As we have seen, different decisions on these issues can
generate considerable variation in estimates of net costs.
Researchers need to clearly explain how they handled such issues in
order to facilitate comparisons of their estimates. For example,
when the decision about whether an item should be included or how it
should be treated depends on the policy question being asked, a study
should clearly acknowledge the question it addresses. The variations
in the national studies' treatment of costs for citizen children of
illegal aliens and Social Security costs were difficult to assess
because the studies did not make clear which questions they were
addressing.
FEDERAL EFFORT TO IMPROVE
ESTIMATES OF ALIENS' FISCAL
IMPACT
---------------------------------------------------------- Letter :5.3
Recognizing the need for better information on the effects of
immigration, a federal effort is under way to improve estimates of
the fiscal impact of legal and illegal aliens. The U.S. Commission
on Immigration Reform, a bipartisan congressional commission created
by the Immigration Act of 1990, is working on a final report to the
Congress, due in 1997, on a wide range of immigration issues. The
Commission provided an interim report to the Congress in September
1994.\39 The Commission has convened a panel of independent experts
organized by the National Academy of Sciences to review the
methodologies and assumptions of studies of the costs and benefits of
immigration. The panel will develop recommendations on the data
sources and methodologies that hold the greatest promise for more
precise measurement of the economic and social impacts of legal and
illegal immigration.
--------------------
\39 U.S. Immigration Policy: Restoring Credibility, U.S.
Commission on Immigration Reform (Washington, D.C.: U.S. Government
Printing Office, 1994).
CONCLUSIONS
------------------------------------------------------------ Letter :6
The three national studies that we reviewed represent the initial
efforts of researchers to develop estimates of the total public
fiscal impact of the illegal alien population. The little data
available on this population make it difficult to develop reasonable
estimates on a subject so broad in scope. Moreover, the national
studies varied considerably in the range of items they included and
their treatment of certain items, making their estimates difficult to
compare. As a result, a great deal of uncertainty remains about the
national fiscal impact of illegal aliens.
Obtaining better data on the illegal alien population would help
improve the national net cost estimates. Recognizing the
difficulties inherent in collecting better data on a population with
an incentive to keep its status hidden from government officials, any
effort to collect better data should focus on those characteristics
of the illegal alien population that are useful in estimating the
largest net cost items, or many of them. These characteristics
include the population's size, geographic distribution, age
distribution, income distribution, labor force participation rate,
tax compliance rate, and extent of school participation.
Clearer explanations of which costs and revenues are appropriate to
include would also help improve the usefulness of the estimates. The
appropriateness of including any particular item may depend on the
policy questions addressed by a study. If studies were more explicit
about the questions they address, their estimates of net costs would
be easier to compare.
The expert panel convened by the U.S. Commission on Immigration
Reform could serve as a forum for discussing some of these data and
conceptual issues. By exploring ways to provide lawmakers with
better information on the public fiscal impact of illegal aliens,
researchers could help provide a basis for the development of
appropriate policy responses to address the problems of illegal
immigration.
COMMENTS AND OUR EVALUATION
------------------------------------------------------------ Letter :7
We obtained comments on a draft of this report from the Urban
Institute and Donald Huddle (see apps. V and VI). In their
comments, the researchers restated their disagreements with each
other on a number of topics, including the size of the illegal alien
population, the appropriate treatment of costs for citizen children
of illegal aliens and Social Security costs, and the magnitude of
indirect costs such as those attributable to job displacement. The
researchers also cited areas in which they maintained that our report
did not sufficiently identify the problems with each other's
estimates. In addition, they provided technical comments that we
incorporated where appropriate to better characterize the
methodologies they used in their net cost estimates.
The Urban Institute researchers agreed with much of the report's
analysis and its conclusions about the need for better data on the
illegal alien population and sharper definitions of the accounting
framework used. However, they took exception with two points in our
report. They maintained that it is possible to test the
reasonableness of the underlying assumptions used in the net cost
estimates by developing estimates for reference groups\40 and that
their estimate of Social Security costs attributable to illegal
aliens was reasonable. Huddle disagreed with several of the report's
findings. He maintained that the report was too negative in claiming
that the reasonableness of many of the assumptions in the net cost
estimates is unknown. In elaborating this point, Huddle argued that
the results of various surveys of illegal aliens' use of public
benefits are consistent with the utilization rates in his cost
estimates. Huddle also asserted that our report's criticism of his
Social Security and displacement cost estimates were unjustified.
We believe that our report accurately describes the problems
researchers face in developing estimates of the national fiscal
impact of the illegal alien population. With regard to the
reasonableness of the assumptions in the net cost estimates, we agree
with Urban Institute researchers that developing cost and revenue
estimates for reference groups can provide a "reality check" on
estimates for illegal aliens, as well as a useful context for
assessing the net cost estimates. However, the use of reference
groups provides only a limited test and does not ensure that the
estimates for a particular immigrant group are reasonable. We find
Huddle's claim that the assumptions in his estimates are consistent
with the results of survey studies problematic for several reasons.
The utilization rates reported by these studies vary considerably,
the reliability of some of the studies has been questioned, and the
extent to which the findings of these studies can be generalized to
the illegal alien population nationwide is unclear.
On the issue of Social Security costs for illegal aliens, we continue
to believe that data limitations preclude the development of a
reasonable estimate. To support their estimate that these costs are
zero, the Urban Institute researchers cited some reasons why illegal
aliens are not likely to be receiving Social Security benefits.
Huddle, on the other hand, criticized the Urban Institute's estimate
by citing several reasons for believing that illegal aliens are
receiving benefits. Given the researchers' disagreement and the lack
of national data on the number of illegal aliens receiving benefits,
we have no basis for supporting either of these positions. Data
limitations also lead us to question Huddle's estimate of Social
Security costs. For example, Huddle claimed that at least 75 percent
of illegal aliens in the work force have valid Social Security
numbers, but he did not provide sufficient evidence to support this
claim. Moreover, data are not available to assess his claim.
Finally, with regard to the magnitude of displacement costs, we
continue to believe that Huddle's estimate overstates these costs
because it is based on a displacement rate that is inconsistent with
research findings on job displacement. (See pp. 32-33 for a more
detailed discussion of Huddle's comments and our responses on this
issue).
The comments from the Urban Institute and Huddle reinforce our
assessment of how difficult it is to develop estimates of the
national fiscal impact of illegal aliens, given the limited data
available. As noted in this report, obtaining better data on some of
the key characteristics of the illegal alien population could help
narrow the gap between the researchers' widely varying estimates of
the national net cost. Moreover, clearer explanations of the
approaches used would make the net cost estimates more useful.
--------------------
\40 The reference groups are citizens and groups of immigrants other
than illegal aliens. Urban Institute researchers noted that
estimates of total costs for a program (or total tax payments)
attributable to illegal aliens and reference groups can be tested by
comparing them with actual government program expenditures (or
revenues collected).
---------------------------------------------------------- Letter :7.1
Our work was conducted in accordance with generally accepted
government auditing standards. If you or your staff have any
questions concerning this report, please call me on (202) 512-7215.
Other GAO contacts and staff acknowledgments are listed in appendix
VII.
Jane L. Ross
Director, Income Security Issues
STUDIES OF THE NET FISCAL IMPACT
OF ILLEGAL ALIENS
=========================================================== Appendix I
Geographic
area and time Level of
Author(s) and period government Estimated net
date of study studied studied fiscal impact
------------- ------------- ------------- ---------------
Huddle (1994) United Federal, ($19 billion)
States, 1993 state, and
local
Passel and United Federal, ($2 billion)
Clark (Urban States, 1992 state, and
Institute) local
(1994)
Huddle (1993) United Federal, ($12 billion)
States, 1992 state, and
local
Huddle (1994) Florida, 1992 Federal, ($913 million)
state, and
local
Huddle (1994) Texas, 1992 Federal, ($1 billion)
state, and
local
Huddle (1993) California, Federal, ($5 billion)
1992 state, and
local
Parker and San Diego State and ($244 million)
Rea (1993) County, local
fiscal year
1992-93
Parker and San Diego State and ($146 million)
Rea (1992) County, local
fiscal year
1991-92
Texas Texas, 1993 State and ($130-$166
Governor's local million)
Office of
Immigration
and Refugee
Affairs
(1993)
Romero and California, State ($2.7 billion)
others (1994) fiscal year
1994-95
Los Angeles Los Angeles Local ($272 million)
County Board County,
of fiscal year
Supervisors 1991-92
(1992)
Los Angeles Los Angeles Local ($276 million)
County Chief County,
Administrativ fiscal year
e Office 1990-91
(1991)
Lyndon B. Texas, fiscal State $60-$227
Johnson year 1982 million
School of
Public Six Texas Local
Affairs cities, ($4-$30
(1984) fiscal year million)
1982
------------------------------------------------------------
Source: GAO analysis of studies.
COST AND REVENUE ITEMS INCLUDED IN
ESTIMATES OF THE NATIONAL NET
COSTS OF ILLEGAL ALIENS
========================================================== Appendix II
(Dollars in millions)
Huddle
's
update
d
Huddle's estima
initial te
estimate Urban Institute's (1993)
Items (1992)\a estimate (1992)\b \c
------------------- --------- -------------------- ------
Direct program costs
------------------------------------------------------------
Primary and $3,909 $3,679 $4,369
secondary
education
Primary and \d \d 2,828
secondary
education (citizen
children)
Federal student aid \d \d 72
Public higher 342 257 485
education
School lunch 109 107 121
School lunch \d \d 63
(citizen children)
Adult education \d \d 28
Head Start 17 9 12
English as a Second 858 771 1,074
Language, English
for Speakers of
Other Languages,
and bilingual
education
English as a Second \d \d 556
Language, English
for Speakers of
Other Languages,
and bilingual
education (citizen
children)
Compensatory 101 101\e 122
education
AFDC 820 202 919
Food Stamps\f \d 4 414
WIC 81 46 93
Elderly nutrition 1 1 1
Housing assistance 295 153 326
Low-income home 32 16 27
energy assistance
Criminal justice 1,031 1,031\e 541
(corrections)
Unemployment \d \d 856
compensation
JTPA \d \d 72
General assistance \d \d 92
Medicaid 479 463 509
Earned Income Tax \d \d 278
Credit and health
care tax credit
State and federal \d \d 435
highway costs
Community block \d \d 90
grants
County costs 2,021 2,021\e 2,472
City costs \d \d 4,887
Social Security \d 0 3,266
============================================================
Total direct $10,096 $8,861 $25,00
program costs 8
Displacement costs 4,291 0 4,290
============================================================
Total costs $14,387 $8,861 $29,29
8
Revenues
------------------------------------------------------------
Federal income tax $368 $515 $890
Federal excise tax 499 181 250
Federal gas tax \d 155 166
Social Security tax \d 2,721 2,385
Unemployment \d 168 \d
insurance tax
State revenues 1,335 2,146 2,337
Local revenues 284 1,087 3,933
============================================================
Total revenues $2,486 $6,973 $9,961
============================================================
Net costs (costs $11,901 $1,888 $19,33
less revenues) 7
------------------------------------------------------------
\a Donald Huddle, The Costs of Immigration (Washington, D.C.: 1993),
exhibits 5, 6, and 12.
\b Jeffrey S. Passel and Rebecca L. Clark, How Much Do Immigrants
Really Cost? A Reappraisal of Huddle's "The Cost of Immigrants"
(Washington, D.C.: 1994), pp. 1-8, supplemented by data from
Jeffrey Passel providing a breakdown of the cost estimates for
individual items; and Jeffrey S. Passel, Immigrants and Taxes: A
Reappraisal of Huddle's "The Cost of Immigrants" (Washington, D.C.:
1994), table 7c.
\c Donald Huddle, The Net National Costs of Immigration in 1993
(Washington, D.C.: 1994), exhibits 5, 6, and 12.
\d The estimate does not include this item.
\e The Urban Institute's estimate uses Huddle's initial estimate for
this item.
\f The Urban Institute's estimate is for the costs of benefits
received fraudulently by illegal aliens; Huddle's updated estimate is
for the cost of benefits to U.S. citizen children of illegal aliens.
REVIEW OF HUDDLE'S DISPLACEMENT
COST ESTIMATE
========================================================= Appendix III
In our view, Huddle's estimate of $4.3 billion in displacement costs
is based on a displacement rate that is too high. The estimate
assumes that for every 100 low-skilled illegal alien workers, 25 U.S.
citizens were displaced from their jobs in 1993. This assumption of
a 25-percent displacement rate is inconsistent with research findings
on job displacement.
HUDDLE'S RESEARCH ON DISPLACEMENT
Huddle's study cites his own work on job displacement to support the
claim that the level of displacement is at least 25 percent. In
several field surveys that focused on the labor market in the Houston
metropolitan area, Huddle claimed to have found displacement rates
that ranged from 23 to 53 percent in the 1980s.\1 The figures that
Huddle cited in his 1982-83, 1985, and 1989-90 "microstudies of job
displacement" are based on the percentages of unemployed native
workers he surveyed who were still unemployed after some period of
time. However, these figures cannot be construed as measures of
displacement by illegal aliens because the studies did not show that
the unemployed natives lost their jobs to illegal aliens or were
unable to find work because of the presence of illegal aliens in the
Houston labor market.
In effect, Huddle's microstudies of job displacement assumed a
correlation between the employment of illegal aliens and the
unemployment of native workers that was unsupported by any evidence.
In addition, even if the studies had accurately measured the level of
job displacement in Houston in the 1980s, the phenomenon of job
displacement is so sensitive to the locality where it is measured
that the studies' results for Texas cannot be generalized to the
nation.
OTHER RESEARCH ON DISPLACEMENT
In his national net cost study, Huddle maintains that the 25-percent
displacement rate is a conservative figure because an even higher
displacement rate can be derived from a study by Altonji and Card.\2
However, this contradicts the conclusion that the authors draw from
their own research. Altonji and Card summarize the results of their
study as indicating that immigrants have a small and potentially zero
effect on the employment rates of natives. Furthermore, Huddle's
interpretation of Altonji and Card's econometric results is based on
an incorrect use of statistics. Huddle sums the coefficients from
three separate regression equations, each with a different dependent
variable.\3
The work of other researchers does not support the claim of a
25-percent displacement rate. Our 1986 review of the literature on
job displacement concluded that illegal aliens may displace native
workers. However, it found that the available research was
inconclusive because it was limited and suffered from important
methodological weaknesses.\4 In addition, the experts that we
consulted during our review agreed that while there is no consensus
on what the average displacement rate might be, the literature on
displacement does not support the claim of a rate as high as 25
percent. Recent studies using nationwide data have concluded that
job displacement by aliens is either small in magnitude or
nonexistent.\5 The literature on job displacement that focuses
specifically on illegal aliens has reached the same conclusion.\6
HUDDLE'S COMMENTS AND OUR
EVALUATION
In his comments on a draft of our report, Huddle maintained that our
criticism of his displacement cost estimate was unjustified (see app.
VI). Huddle made four main points about our discussion of
displacement. First, he contended that we had misunderstood his
definition of displacement and were not including other types of
displaced workers, such as teenagers who could not find first-time
jobs and workers who had to physically move in order to look for
work. Second, Huddle maintained that the coefficients from the four
different equations in the Altonji and Card study are additive.
Third, Huddle claimed that we did not consider the effect of illegal
immigrants on wage depression as well as job displacement. Finally,
Huddle maintained that his interpretation of the literature on job
displacement was valid and that other experts would agree with him.
With respect to Huddle's definition of displacement, we do not agree
that it is valid to apply this broader definition in calculating the
costs of the array of social service benefits he cites. Workers who
have never entered the labor force cannot collect unemployment
benefits, for example, and teenagers in particular are not likely to
be individually eligible for the full range of welfare benefits.
Workers who migrate elsewhere, that is, those who are physically
displaced due to the presence of illegal aliens in the work force,
may not necessarily be jobless or earning such a low wage in their
new place of residence that they would be eligible for welfare
benefits. Most importantly, there is no evidence of how many
displaced workers remain permanently unemployed and, therefore,
continue to collect welfare over a long period of time. In our view,
ascribing full costs to this broader set of workers overstates the
true cost of displacement.
With respect to Huddle's claim that the coefficients in table 7.7 of
the Altonji and Card study are additive, we disagree. Adding the
coefficients on the first equation, which measures the ratio of
people in the labor force to the population as a whole, and the
second equation, which measures the ratio of employed persons to the
population as a whole, effectively double-counts all employed
persons, because the second ratio is a subset of the first. In
addition, no other researcher we consulted, including one of the
authors, interpreted the Altonji and Card study in the way that
Huddle did, nor did they agree with Huddle's methodology of adding
coefficients from separate regression equations to get a measure of
total labor displacement.
With respect to Huddle's claim that we overlooked the phenomenon of
wage depression, we did not make an evaluation of the impact of
illegal aliens on wage depression because that was outside the scope
of the net cost studies we reviewed. These studies specified job
displacement only, and it is our judgment that the evidence on job
displacement is much weaker than the evidence on wage depression.
Huddle's claim that job displacement and wage depression are close
substitutes in terms of their impact on the low-skill native work
force and on the net cost of public services is not supported by any
empirical evidence or reference to any relevant literature.
Finally, with respect to our overall conclusion and our
interpretation of the literature, we thoroughly reviewed the
literature and consulted with recognized experts on immigration (see
app. IV for a list of these persons). None of the experts we
consulted believes that a displacement rate as high as 25 percent is
supported by the research literature.
--------------------
\1 Donald L. Huddle, "Immigration and Jobs: The Process of
Displacement," The NPG Forum (May 1992), pp. 1-5.
\2 Joseph G. Altonji and David Card, "The Effects of Immigration on
the Labor Market Outcomes of Less-skilled Natives," Immigration,
Trade and the Labor Market, eds. John M. Abowd and Richard B.
Freeman (Chicago: University of Chicago Press, 1991).
\3 This is an inappropriate use of the results of multivariate
regression analysis and has no statistical meaning.
\4 Examples of methodological weaknesses included the use of
unreliable methods, such as hearsay, to identify illegal alien
workers and inappropriate statistical procedures to support
inferences (for example, cross-sectional or single-period data used
to support cause-and-effect inferences that implied a temporal
sequence). See Illegal Aliens: Limited Research Suggests Illegal
Aliens May Displace Native Workers (GAO/PEMD-86-9BR, Apr. 1986).
\5 See the studies by Altonji and Card, Enchautegui, Greenwood and
Hunt, and Greenwood and McDowell.
\6 See the studies by Winegarden and Khor, and Taylor and others.
EXPERTS CONSULTED BY GAO
========================================================== Appendix IV
George J. Borjas, Professor of Economics, University of California,
San Diego.
David Card, Professor of Economics, Princeton University.
Richard Fry, Division of Immigration Policy and Research, Bureau of
International Labor Affairs, U.S. Department of Labor, Washington,
D.C.
Briant Lindsay Lowell, Division of Immigration Policy and Research,
Bureau of International Labor Affairs, U.S. Department of Labor,
Washington, D.C.
Demetrios Papademetriou, Carnegie Endowment for International Peace,
Washington, D.C.
Stephen J. Trejo, Associate Professor of Economics, University of
California, Santa Barbara.
Sidney Weintraub, Center for Strategic and International Studies,
Washington, D.C.; Dean Rusk Chair in International Affairs, Lyndon B.
Johnson School of Public Affairs, University of Texas, Austin.
(See figure in printed edition.)Appendix V
COMMENTS FROM THE URBAN INSTITUTE
========================================================== Appendix IV
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(See figure in printed edition.)Appendix VI
COMMENTS FROM DONALD HUDDLE
========================================================== Appendix IV
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
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GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================= Appendix VII
GAO CONTACTS
Cynthia M. Fagnoni, Assistant Director, (202) 512-7202
Andrew Sherrill, Evaluator-in-Charge, (202) 512-7252
ACKNOWLEDGMENTS
In addition to those named above, the following persons also made
important contributions to this report: Deborah A. Moberly,
Evaluator; Alicia Puente Cackley, Senior Economist; Steven R.
Machlin, Senior Social Science Analyst; and William McNaught,
Assistant Director, Office of the Chief Economist.
BIBLIOGRAPHY
=========================================================== Appendix 0
Altonji, Joseph G., and David Card. "The Effects of Immigration on
the Labor Market Outcomes of Less-skilled Natives." Immigration,
Trade and the Labor Market, John Abowd and Richard B. Freeman, eds.
Chicago: University of Chicago Press, 1991.
Bean, Frank D., and others. "Undocumented Migration to the United
States: Perceptions and Evidence." Population and Development
Review, Vol. 13, No. 4 (1987), pp. 671-90.
Carrying Capacity Network. A Critique of the Urban Institute's
Claims of Cost Free Immigration: Huddle Findings Confirmed.
Washington, D.C.: 1994.
Clark, Rebecca L. The Costs of Providing Public Assistance and
Education to Immigrants, PRIP-UI-34. Washington, D.C.: The Urban
Institute, 1994.
Clark, Rebecca L., and others. Fiscal Impacts of Undocumented
Aliens: Selected Estimates for Seven States. Washington, D.C.: The
Urban Institute, 1994.
Enchautegui, Maria E. "Effects of Immigration on Wages and
Joblessness: Evidence from Thirty Demographic Groups." Washington,
D.C.: The Urban Institute, 1994.
Fernandez, Edward W., and J. Gregory Robinson. "Illustrative Ranges
of the Distribution of Undocumented Immigrants by State," technical
working paper no. 8. Washington, D.C.: U.S. Bureau of the Census,
Population Division, 1994.
Fix, Michael, and Jeffrey S. Passel. Immigration and Immigrants:
Setting the Record Straight. Washington, D.C.: The Urban Institute,
1994.
Greenwood, Michael J., and Gary L. Hunt. "Economic Effects of
Immigrants on Native and Foreign-Born Workers: Complementarity,
Substitutability, and Other Channels of Influence." Washington D.C.:
U.S. Department of Labor, Bureau of International Labor Affairs,
Division of Immigration Policy and Research, 1991.
Greenwood, Michael J., and John McDowell. "The Labor Market
Consequences of U.S. Immigration: A Survey," Working Paper 1, 1990.
Washington, D.C.: U.S. Department of Labor, Bureau of International
Labor Affairs, Division of Immigration Policy and Research.
Huddle, Donald. The Net National Costs of Immigration Into the
United States: Illegal Immigration Assessed. Washington, D.C.:
Carrying Capacity Network, 1995.
_____. The Net Costs of Immigration to Florida. Washington, D.C.:
Carrying Capacity Network, 1994.
_____. The Net National Costs of Immigration in 1993. Washington,
D.C.: Carrying Capacity Network, 1994.
_____. The Net Costs of Immigration to Texas. Washington, D.C.:
Carrying Capacity Network, 1994.
_____. The Costs of Immigration. Washington, D.C.: Carrying
Capacity Network, 1993.
_____. The Net Costs of Immigration to California. Washington,
D.C.: Carrying Capacity Network, 1993.
_____. "Immigration and Jobs: The Process of Displacement." The NPG
Forum (May 1992), pp. 1-5.
Los Angeles County Chief Administrative Office. Updated Revenues and
Costs Attributable to Undocumented Aliens. Los Angeles: 1991.
Los Angeles County Internal Services Department. Impact of
Undocumented Persons and Other Immigrants on Costs, Revenues and
Services in Los Angeles County. Report prepared for Los Angeles
County Board of Supervisors, Nov. 6, 1992.
Lyndon B. Johnson School of Public Affairs. The Use of Public
Services by Undocumented Aliens in Texas: A Study of State Costs and
Revenues, Policy Research Report, No. 60. Austin, Texas: Lyndon B.
Johnson School of Public Affairs, University of Texas, 1984.
Parker, Richard A., and Louis M. Rea. Illegal Immigration in San
Diego County: An Analysis of Costs and Revenues, report to the
California State Senate Special Committee on Border Issues. San
Diego: 1993.
Passel, Jeffrey S. Immigrants and Taxes: A Reappraisal of Huddle's
"The Cost of Immigrants." Washington, D.C.: The Urban Institute,
1994.
Passel, Jeffrey S., and Rebecca L. Clark. How Much Do Immigrants
Really Cost? A Reappraisal of Huddle's "The Cost of Immigrants."
Washington, D.C.: The Urban Institute, 1994.
Rea, Louis M., and Richard A. Parker. A Fiscal Impact Analysis of
Undocumented Immigrants Residing in San Diego County, report by the
Auditor General of California, C-126. Sacramento, California: 1992.
Romero, Phillip J., and others. Shifting the Costs of a Failed
Federal Policy: The Net Fiscal Impact of Illegal Immigrants in
California. Sacramento, Calif.: California Governor's Office of
Planning and Research, and California Department of Finance, 1994.
Taylor, Lowell J., and others. "Mexican Immigrants and the Wages and
Unemployment Experience of Native Workers," Policy Discussion Paper
PRIP-UI-1, Program for Research on Immigration Policy. Washington,
D.C.: The Urban Institute, 1988.
Texas Governor's Office of Immigration and Refugee Affairs.
Estimated Costs for the Undocumented Population. Austin, Texas:
1993.
U.S. Commission on Immigration Reform. U.S. Immigration Policy:
Restoring Credibility. Washington, D.C.: U.S. Government Printing
Office, 1994.
U.S. General Accounting Office. Illegal Aliens: Assessing
Estimates of Financial Burden on California (GAO/HEHS-95-22).
Washington, D.C.: 1994.
U.S. General Accounting Office. Benefits for Illegal Aliens: Some
Program Costs Increasing, But Total Costs Unknown (GAO/T-HRD-93-33).
Washington, D.C.: 1993.
U.S. General Accounting Office. Illegal Aliens: Limited Research
Suggests Illegal Aliens May Displace Native Workers
(GAO/PEMD-86-9BR). Washington, D.C.: 1986.
Vernez, Georges, and Kevin McCarthy. The Fiscal Costs of
Immigration: Analytical and Policy Issues, DRU-958-1-IF, background
paper presented at "The Public Costs of Immigration: Why Does It
Matter?" Rand, Center for Research on Immigration Policy, Santa
Monica, California, 1995.
Warren, Robert. "Estimates of the Unauthorized Immigrant Population
Residing in the United States, by Country of Origin and State of
Residence: October 1992." Unpublished report, U.S. Immigration and
Naturalization Service. Washington, D.C.: 1994.
Winegarden, C.R., and Lay Boon Khor. "Undocumented Immigration and
Unemployment of U.S. Youth and Minority Workers: Econometric
Evidence." The Review of Economics and Statistics, Vol. 73, No. 1
(1991), pp. 105-112.
RELATED GAO PRODUCTS
Illegal Aliens: Assessing Estimates of Financial Burden on
California (GAO/HEHS-95-22, Nov. 28, 1994).
Benefits for Illegal Aliens: Some Program Costs Increasing, But
Total Costs Unknown (GAO/T-HRD-93-33, Sept. 29, 1993).
Illegal Aliens: Despite Data Limitations, Current Methods Provide
Better Population Estimates (GAO/PEMD-93-25, Aug. 5, 1993).
Trauma Care Reimbursement: Poor Understanding of Losses and Coverage
for Undocumented Aliens (GAO/PEMD-93-1, Oct. 15, 1992).
Undocumented Aliens: Estimating the Cost of Their Uncompensated
Hospital Care (GAO/PEMD-87-24BR, Sept. 16, 1987).
Illegal Aliens: Limited Research Suggests Illegal Aliens May
Displace Native Workers (GAO/PEMD-86-98BR, Apr. 21, 1986).