Sample Research Paper on Refugees are good for Economic Growth

Refugees are good for Economic Growth

Introduction

Background

Migration of people as refugees has become a powerful force affecting majority of global economies. More than 175 million people who accounts for 3% of the global population, reside permanently outside their countries of birth. In United States, Florida has for a long time been a major entry point for immigrants especially due to its closeness to Central America and the Caribbean. According to year 2013 American Community Survey, about one in every five people of the 3.7 million Florida State’s population was born abroad (Héran, 2014).

Among these immigrants in Florida, about 25% were born in Cuba. Florida and specifically Miami was the destination of choice when Cuban refugees entered the United States. In a period of 15 years before the 1980’s about 500,000 Cuban business men and professionals arrived in Florida as refugees fleeing the regime of Fidel Castro. After 1980, most of them migrated to Florida mainly for economic reasons. This significant population of the Cuban refugees has had a big overall effect on Florida’s economic state. This paper looks at the economic impact of Cuban refugees to Florida State (Martin, 2010).

Problem statement

The issue of Cuban refugees has a lot of significance to Florida State economy. It is especially important in determining its impact in distribution of real income. The most important consideration is who has gains more between the natives and refugees as a result of the gains and costs associated with the immigration. In this case, an evaluation is made on the impact of these refugees on Florida’s labour market, housing markets and fiscal systems (Martin and Midgley, 2013).

After their movement to Florida, Cuban refugees formed part of the work force in Florida. Others started their own business and today, they are part of the foreign born owning almost 37% of the newly formed businesses in Florida State that assist in job creation. They also currently play a valuable role in boosting exports, for instance the Quich Foods Company that is founded by a Cuban immigrant distributes refrigerated and frozen foods locally and abroad (Zetter, 2012).

In housing markets, influx of Cuban refugees in Florida increased the competition for residential properties. This resulted to an increase in demand and contributed to growth of housing wealth. About an influx of 150,000 refugees moved to Dade County of Miami between the year 2000 and 2010 resulting to increase in value of an average home by $11,672. This added about $ 10.1 billion to the overall housing wealth.

In fiscal policy, Cubans in Florida make significant tax contributions to the state even more than the tax revenue paid by the natives. In total, they are able to pay about $18.8 billion in local, state and federal taxes. These tax revenues contribute to the overall health of the economy in Florida and in turn to the national economy in entirety.

Theory

Impact on Labour markets

Refugees’ impact on the labour market can be gauged by how it affects the wages and influences the rates of employment for the natives. A representation of an economy through economic models by a labour economist assists in explaining the effects of changes in basic valuables such as wages and population. The models show that there is an overall positive gain by natives due to refugees although is highly distributed. Within the native population, there are those who will gain and lose. Under the simplest model, a fixed amount of capital and a single type of labour predicts an overall gain from presence of refugees. Increased labour reduces the wages and in turn results in a higher gain to firms due to increased labour availability. The native’s loss in wages is offset by increase in productivity of the firm due to low labour costs in production. This implies that every worker is also an investor in the firm and benefits through an increased share value in the firm due to low costs of production.

However, in reality, availability of foreign capital freely adjusts capital thus eliminating the possibility of fixed capital in the economy. This changes the results since refugees do not affect the wages or generate any economic gains or losses to locals. This is because, if refugees raise amount of labour available, investors find it favourable to increase capital as well. The amount of capital per worker then remains constant. For instance, if the number of refugees entering into a county doubles the population, the capital per worker will be adjusted to the optimal level for investors, which is similar to the initial level.  The refugees will only duplicate the old economy by doubling the gross domestic product (GDP) but the per capita GPD will not change.

An even more rational economic model considers the existence of different types of labour that can possibly be provided by refugees. For instance, refugees may offer two types of labour; the skilled and unskilled labour. Natives will only benefit if the proportion of skilled people is different from that of refugees and the proportion of unskilled natives is different from refugees’ proportion.  If the composition is similar for refugees and natives then the economy will remain the same. This goes back to the scenario of replicated economy where a doubled population just doubles the economy without changing the per capita income. But if the proportion is different for refugees and natives, there will be change in relative wages. For instance, a higher proportion of refugees’ skilled workers will increase the supply of skilled people thus increasing low skilled workers wages.

Economists have also evaluated the relationship between employment and presence of refugees in an economy. They argue that if there are sizable effects on wages, participation in the labour force is then affected. If refugees have reduced the wages, a group of natives are likely to withdraw their labour force. Likewise, is wages substantially increased as a result of refugees, more people are likely to join the labour force. In reality the effects are usually very small such that the impact on participation of labour will be minor. There are also some social and institutional factors that make it challenging to move from a state of joblessness to employment status. For instance, jobs may be distributed in geographical locations that do not correspond with that of the people. In a market with a few of these factors refugees does not influence unemployment (Saiz, 2013).

Refugees impact on the housing market

Refugees undoubtedly raise the demand for housing. The elasticity of housing supply determines the refugees’ impact on the prices. Elasticity implies the sensitivity of the supply of houses to price changes. In some markets an insignificant change in prices is enough to raise the adequate supply that will put up with the rate of increasing demand. In such a case supply is considered to be elastic. In case of inelastic supply, a small rise in market demand results to higher prices. These markets take a much higher change in prices for supply to respond accordingly to rising demand. In the short run, housing markets influences the distribution of real income. Homeowners gain while tenants have to pay prices that are slightly higher (Blanchard & Johnson, 2014). These effects are likely to disappear in the long run. This is because as a location becomes expensive, fewer people will move away to look for more attractive places to live in. Therefore, after certain duration, natives and refugees can move from these expensive areas and the demand for housing will decline in refugee areas.

Impact on fiscal policy

Refugees cannot avoid the taxes of the host countries. In United States, refugees pay the federal, state and local taxes. Refugees raise the amount of tax revenues collected when they consume products and services produced within their states and in the country. The federal and state governments’ public expenditure that touches on both the natives and refugees is financed by the tax revenues. The higher the revenues the better it is for the governments’ fiscal policy. However, it also implies there is a higher group of people that will enjoy these services. This is because refugees also enjoy a number of public services benefits. The net contribution of all refugees is very essential to both the local and state policies (Somerville and Sumption, 2010).

Empirical Evidence

The available literature highlights the economists’ concern about the effect refugees may have on natives with low skills. One of the most active economists, George Borjas points out that the relative skills of refugees present in the US have been on a decline since the 1960s. Undoubtedly, U.S has been able to attract a high number of professionals with various skills like engineers, scientists, economists, Computer programmers among others. In 1990, 26.2% of refugees who were 25 years old males or even older had graduated from colleges. This was the same proportion for the natives. However, 37.1% of refugees had attained less than a diploma from high school and this was a higher proportion as compared to the natives. The question here is, was influx of 14.1% of the relatively low skilled individuals that affected low skilled workers wages? To answer this question extensive research was conducted (Martin, 2010).

A lot of research compares the wage changes from areas that have received a high inflow of refugees to wage changes in other areas (Pizarro, 2010). These are commonly referred to as area studies. Astonishingly, results obtained only show a weak negative relationship between the presence of refugees and wages received in sectors and areas where refugeesare likely to get employment.

Areas studies fall under criticism that they do not put into consideration the refugees and firms reactions towards the changes in economic conditions. For example, if refugees are settled in areas that are under economic booms, then it is not unusual that there will be a clearly emerging negative relationship between immigration and wages. Wages may have been greater in these areas if the refugees were not present. Nevertheless, it is not possible to separate impact of refugees from the economy’s positive booming effect. Firms are also likely to move to the areas refugees are expected to settle. This will raise the demand for labour in those areas (Somerville & Sumption, 2010).

A labour economist, David Card, conducted a study on the impact of Mariel boatlift on rates of employment and wages in Florida. This was the sudden flow of about 125,000 Cuban refugees who arrived in southern Florida in 1980. The movement was as a result of the Cuban Government decision that allowed Cubans to migrate from Mariel, an island port. The movement saw about 50% of the refugees settle in Miami in 1980. At the beginning, there was a sudden increase of the labour force in the city by 7%. Many more resettled refugees moved to South of Miami by 1983. These refugees were not skilled in terms of having a formal education or fluency in English. The study of this episode of immigration by Card had an advantage in that; its timing was not related to the growth of the economy in Miami and firms could not possibly anticipate it in advance. However, Card’s study implies that the wages of low skilled workers in Miami did not change as compared to other similar areas as a result of high number of low skilled refugees (Papademetriou et al., 2010)

Some economists view is that such high immigration to a certain area does not necessary indicate the impact of refugees on the wages. Richard Freeman, George Borjas and Larry Kats come together to provide the argument that natives mobility may frustrate the impact of local effects of immigration on wages. In the event that refugees exert downward pressure on the wages in the areas they are concentrated in, natives may prefer to leave or be reluctant to move to these areas. This way local economy becomes interconnected (Saad, 2011).

As natives move in response to the inflow of refugees to certain areas, then the impact of immigration on wages will be extend across the whole nation. The three estimated the impact of immigration on wages in a national aspect. To approximate the impact of immigration, they employed the economy’s simplified model and estimated general responsiveness of wages to variances in the supply of un-skilled workers.  They came up with a modest impact report that; in the event there was no immigration in 1990, high school dropouts wages would have been about 3% more compared to other workers wages. However, Borjas pointed out that these estimates could be criticized for the reason that they used uncertain calculations. Calculations were based on the adequacy of their model and its parameters accuracy. The empirical evidence thus concludes the actual degree of impact that immigration has on wages. Nevertheless it can fairly be argued that in United States, immigration had a negative impact on the growth of wages of the unskilled people. On the other hand it had a positive impact on the others (Saad, 2011).

In the case of employment, David Card used the area of study approach to look at the impact of wage effects on of labour participation. He found that immigration has very little impact on the employment of natives skilled in the same category. Bruce Meyer and Robert Fairlie from the universities of North-western and California respectively found out that native self employment can be negatively affected by immigration. It is more likely that refugees open businesses such as restaurants more than the natives will open. However, they also found that African Americans rate of self employment is not affected by immigration. Consequently, natives prefer to look for other available jobs instead of competing with the refugees businesses. This is because the presence of refugees does not have an effect on total employment (Kerr and Kerr, 2011).

Economists agree that, in U.S most people searching for jobs at the current wage rate are able to get one after some time. Moreover, Borjas opinion is that immigration contributes greatly to the labour market. This is because refugees are more flexible and can move faster in case changes in economic conditions. Thus, it can be concluded immigration results to a higher economic scale but does not necessarily change rate of unemployment (Kerr and Kerr, 2011).

Economic housing studies indicate that the supply of housing is fairly elastic at the national level. But in certain locations it may be highly inelastic. Additionally, refugees are likely to occupy the densely populated in cities where the supply is generally inelastic as shown in table II. This means the house rents and prices may increase at a fast rate in these areas as a result of population growth            . The focus here is on the impact of refugees on prices and rents of local housing. The Mariel boatlift immigration episode that is quite interesting due to its magnitude and exact timing is helpful in this case. It is also essential since it provides a good example on how a massive immigration had little effect on wages as was demonstrated by David Card. One year after this episode the rents in Miami rose from 7% to 11% and other immigrant destinations in U.S had the same results (Martin & Midgley, 2013).

An inflow of 1% of refugees results to a 1% increase in the value of housing. This show that refugees have a much more substantive effect on housing markets than labour markets. This is explained by the fact that natives avoid areas where refugees are more concentrated. In the short term, the housing market has an effect on distribution of real income. This is because when renters pay higher prices, home owners will gain from immigration. But in the long run these implications may disappear due to the idea of the economy being an interconnected system. High value of housing will make the areas unattractive to live in and with time refugees adopt the same tastes and motivations with the natives. Therefore, in time, some refugees and natives will more to areas that are less expensive. The demand for housing will decline in immigrant areas and rise on other parts of the country. Given that at the national level the supply is highly elastic, in the long run the effect of immigration on housing prices in the entire country may be relatively little (Martin & Midgley, 2013).

Some economists like Joe Gyouko argue that there is an interrelationship between housing prices, reinvestment in housing and costs of building. Investing in a housing unit that has a lower market value than it would cost to build is not a wise investment. The cost of doing replacements of parts of a house that have depreciated over time should not be greater than the market value of the replacements. Land lords are thus not expected to invest in such units. Refugees push up the demand and prices of houses at rundown areas. Major revitalizations are then expected when the market value of the houses is above costs of replacements. For this reason, immigration is necessary to raise the prices of an area in order to bring replacements (Martin & Midgley, 2013).

In fiscal policy, demographers have concluded that refugees are net contributors to the federal tax system. New refugees are able to pay both the social security taxes and federal income because of their high labour participation rates. According to a study by the National Research Council, there is a minimal negative contribution in some areas. Once both local and state taxes are taken into account, California and New Jersey were found to have a substantial deficit. The states have a high number of immigration families who are also the larger beneficiaries of public services like schools. This implies that the number of refugees in an area determines the distributive impact. Areas with high number of refugees and spending policies that are generous ensure they get more than they contribute in taxes.  In other areas, an additional budget is not necessary to supplement the refugees’ contribution to the federal budget. These two scenarios ensure the native taxpayers in the U.S have an average positive surplus from the refugees’ tax contributions (Pizarro, 2010).

Conclusion

Over a long period of time, immigration policy has been at the centre of many debates. This debate has not always been centred on the existing evidence. This paper supports the argument that immigration enables a country to have an overall economic gain. The Cuban refugees to Florida can be considered as one of the exceptional economic growth. Nevertheless, in the short run there are winners and losers. In a trending increase of a higher number of unskilled refugees in the population is related to much slower increase in wages of unskilled people. It is not easy to measure this effect since it is very small. The paper also highlights that refugees seem not to have a high impact on the levels of employment in United States. Refugees have a positive impact on the prices of houses and rents in areas that attract immigrants. This is an advantage to existing landlords and homeowners but it makes such areas less attractive especially to natives. Refugeestaxes contributes to the average United States taxpayer benefits through the federal, state and local taxes they contribute. However, income distributed through the tax system is not uniform. This is because; natives living in states with low refugees levels benefit more from their federal tax contributions. But in states that have a high number of refugees, there is a higher burden on the public services resulting to low benefits from immigrants’ taxes.

References

Blanchard, O., & Johnson, D. H. (2014) Macroeconomics (Ed.) Canadian Edition

Héran, F. (2014). Demographic trends, labour market needs and migration.Matching Economic Migration with Labour Market Needs, 23-35.

Kerr, S. P., & Kerr, W. R. (2011). Economic impacts of immigration: A survey(No. w16736). National Bureau of Economic Research.

Martin, P. L. (2010). Immigration and the US Labor market. Institute of Technology, 49.

Martin, P. L., & Midgley, E. (2013). Immigration: shaping and reshaping America.

Papademetriou, D. G., Sumption, M., Terrazas, A., Burkert, C., Loyal, S., & Ferrero-Turrión, R. (2010). Migration and refugeestwo years after the financial collapse: Where do we stand. Washington, DC: Migration Policy Institute.

Pizarro, J. M. (2010). What is the future for Latin American migration?. OECD Journal: General Papers2009(4), 129-152.

Saad, P. M. (2011). Demographic trends in Latin America and the Caribbean.Population Aging. Is Latin America Ready.

Saiz, A. (2013). The impact of immigration on American cities: an introduction to the issues. Business Review Q4, 14-23.

Somerville, W., & Sumption, M. (2010). Immigration and the labour market: Theory, evidence and policy. Equality and Human Rights Commission.

Zetter, R. (2012). Are refugees an economic burden or benefit?. Forced Migration Review41, 50-52.

Tables

Table 1

Population and Immigration in Florida as compared to the entire country

  United States Florida Florida’s Share
Population (1995) 263,200,000 14,210,000 5.4%
Population (1970) 203,302,000 6,791,000 3.3%
% Change in Population (1970-1995) 29.5% 109.2%  
Foreign Born (1990) 19,800,000 1,662,600 8.4%
Foreign Born (1970) 9,619,000 540,280 5.6%
% Change F.B. (1970-90) 105.8% 207.7%  
Legal Immigrants (1984 -93) 9,293,000 622,000 6.7%
Illegal Immigrants (1995 est.) 4.3-5.4 million 350-450,000 7-10%

Source: http://cis.org/FloridaImmigrants19702020

Table 11

Impact on housing in major immigrant areas in the cities (1983 -1997)

Rank MSA Population in 1983 (a) Immigrants 83 -97 (b) Impact

(a/b)*100

1 New York 8,491,429 1,653,393 19.47%
2 Los Angeles – Long beach 8,182,905 1,111,542 13.58%
3 Chicago 7,301,085 476,754 6.53%
4 Miami 1,776,909 455,085 6.53%
5 Washington D.C 3,809,206 359,918 9.45%
6 San Francisco 1,570,619 268,688 17.11%
7 Anaheim-Santa Ana 2,171,929 253,008 11.65%
8 Houston 3,205,171 230,027 7.18%
9 San Jose 1,419,521 215,957 15.21%
10 Boston 5,383,370 203,951 3,79%
11 Oakland 1,908,848 196,428 10.29%
12 San Diego 2,126,091 184,192 8.66%
13 Newark 1,953,893 172,904 8.85%
14 Philadelphia 4,818,838 155,583 3.23%
15 Bergen-Passaic 1,301,487 150,603 11.57%
16 Nassau-Suffolk 2,621,547 139,701 5.33%
17 Dallas 2,432,840 134,703 5.54%
18 Seattle-Bellevue- Everett 1,778,460 124,525 7.00%
19 Detroit 4,224,650 112,249 2.66%
20 Jersey City 568,869 111,619 19.62%
          20 Biggest Immigrant Cities 67,047,667     6,710,830          10.01%

Source: www.phil.frb.org