Positive Effects: Low-Skilled Migration and Public Finances in the USA

Economic literature often assumes that immigrants without higher education strain national budgets. However, Dominik Sachs (University of St.Gallen) and Mark Colas (University of Oregon) argue that this perspective is too narrow. Their study, published in American Economic Journal: Economic Policy, explores not only the direct fiscal contributions of immigrants but also their indirect effects on the economic behavior and tax payments of others. 

For instance, a Mexican gardener working for several American families allows those families to spend more time working themselves, which increases their tax payments. Additionally, the gardening company owner earns higher profits from employing the gardener, and these profits are taxed as well. Such indirect effects on tax revenues have not been considered in previous studies. 

Positive Contribution to Public Finances 

The study uses data and institutions from the United States to demonstrate that even immigrants with limited formal education can contribute positively to public finances. In a conservative scenario, indirect fiscal benefits amount to approximately $750 per low-skilled immigrant annually, but under certain assumptions, this figure can rise to $2,000. These indirect effects can outweigh the direct fiscal costs often cited in other research, especially for low-skilled immigrants with a high school diploma. 

The methodology combines economic theory with empirical evidence. Unlike purely accounting-based approaches, it examines how migration influences the behavior of other market participants – such as changes in wages, working hours, or profits – and integrates these findings into a general equilibrium model. The authors emphasize transparency by deriving effects from established statistical relationships rather than relying on complex simulations. 

Implications for Migration Policy Discussions 

The study provides valuable insights for migration policy discussions, particularly in light of aging populations and growing labor shortages. While its findings cannot be directly applied to countries like Switzerland due to differences in tax systems, labor markets, and immigration structures, it encourages a more nuanced debate. Migration can offer fiscal benefits when all economic effects are considered. 

Both Wall Street Journal and The Economist  have highlighted the study's findings. They emphasize that indirect effects – often overlooked – can significantly expand our understanding of migration's impact on public finances. 

To the study 

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