National Data | Remittances Are Good for Them and Us…Up To A Point

A recent study on Latino immigrants by the Inter-American Development Bank noted the record amounts of money—$30 billion—that they will send home as remittances this year.

But this is how the news was spun in the Wall Street Journal by reporter Joel Millman, a notoriously fanatical immigration enthusiast:

"Much has been made of the economic lifeline provided to Latin America by the billions of dollars transferred home by immigrant workers each year. But according to a new study, more than 90 cents out of every dollar earned by the immigrants stays in their adopted communities, creating a huge boost to local economies." [Joel Millman, "Immigrants Spend Earnings in U.S." May 17, 2004, p. 8, Wall Street Journal,]

For "perspective," Millman reminded his readers that what he says are the 16.7 million immigrant workers born in Latin America (i.e. 12 percent of total U.S. employment by my calculation) earned gross income of $450 billion last year.

Millman conveniently ignores one (at least) large negative: Immigrants depress wages. (See my earlier article Immigration Policy Costing American Workers $2,600 A Year.)  By my estimates:

  • Latino immigrants depress wages of native workers by an average of 4.2 percent

 

  • The average wage loss due to Latino immigrants is approximately $2,230 per native worker

 

  • Aggregate wages of native workers are $268 billion lower due to the presence of Latin American immigrants

What starts as a $450 billion "gain" to the American economy is thus cut by more than 50 percent after wage displacement is factored in.

And, as established for example by the National Academy of Science's 1997 report "The New Americans," even this small gain goes negative after factoring in the taxes that native-born Americans pay to provide public services for Latino immigrant workers and their extended families.

Furthermore, the $30 billion in remittance outflows may appear unimportant in the context of an $11 trillion U.S. economy. When compared to the standard international trade metrics, however, $30 billion is far from trivial:

  • Remittances account for about three weeks (5.6 percent) of the total U.S. current account deficit ($540 billion)

 

  • Remittances account for 5 months of the current account deficit with Latin America ($70 billion)

 

  • Remittances from California alone ($9.6 billion) are equivalent to three months of the U.S. trade deficit with Mexico [See Table 1 for remittances by state]

Apologists view remittances as a form of private investment. Like international aid flows, which they now surpass in dollar amount, remittances fund education, infrastructure, and job-creating investment. Subsequent economic growth reduces immigration to the U.S.

Or so the story goes.

The reality is more complex. Allan Wall, VDARE.COM's Mexico correspondent, has argued that remittances are functioning as a type of welfare, distorting incentives—not least for Mexico's kleptocratic elite, which can avoid reform.

Additionally:

 

  • Remittance receivers in Mexico are more likely to express an interest in emigrating to the U.S. (26%) than the general population (19 percent)

Thus the rapid rise of remittances not only reflects past immigration, but it also foreshadows future flows of people northward.

But don't look for this news in the Wall Street Journal—especially if Joel Millman can help it.

That's what VDARE.COM is for!

[Number fans click here for tables.]

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.