This message comes from Capital One. Say hello to stress-free subscription management. Easily track, block, or cancel recurring charges right from the Capital One mobile app. Simple as that. Learn more at capitalone.com slash subscriptions, terms and conditions apply. This is Planet Money from NPR. When we asked for your questions right after the election, there were a few that we got again and again.
And the most important thing was how would mass deportation affect the economy? Another was how do you even measure the economic impact of immigrants and immigration? Well, we have some odds, some evidence, and it comes in the form of two stories. Hello, I'm Duncan's Planet Money, I'm Darien Woods.
First, Darien and our co-host, Will and Wong, have a story from another time the US cracked down on immigration with the express intent of helping the economy. We look at how that worked out. And then we take 20 years of research and we distill it into what immigrants contribute to economic growth. And we run the numbers for immigration in the US. Today stories come from Planet Money's daily podcast, The Indicator. Enjoy.
In 1880, the Chinese were the biggest group of immigrants in the Western US. They accounted for around 20% of all immigrants in the region. This was a time of open borders. Basically, if you had enough money to make the trip, you could come to the US. In Chinese immigrants arrived in the West in two big waves. First during the California Gold Rush of the 1850s, and then to build the Transcontinental Railroad about a decade later.
The new arrivals were mostly working-age, able-bodied men. Nancy Chen, it's a professor of economics at Northwestern University's Kellogg School of Management. The interesting thing about the Chinese is that they were very organized in the way they came to the US. She says that most of the Chinese immigrants came via US-based companies run by Chinese merchants who spoke English. They recruited workers in China, handled all the paperwork, and hired out teams of laborers to American employers.
They were able to go to very peripheral places and be productive. A whole group or a company of men would go to the frontier where they're building road roads or taking down trees or reclaiming land. And they would be self-sufficient. For example, the workers figured out their own housing and food. And so American employers really like working with them because you pay a price, and then it's not much hassle.
But the Chinese workers also faced racism and suspicion. Nancy says anti-Chinese sentiment gained momentum in the 1870s. There was a recession in the US that hit Western states more than Eastern ones. But when economic opportunities are less than to fall, I think there's often an unfortunately desire to pin it on someone. Lawmakers in Western states started to restrict how Chinese immigrants could work and live. They were banned from owning farmland or getting access to fishing grounds.
State and federal legislation also made it difficult, if not impossible, for Chinese men to enter interracial marriages or bring over their wives from home. These policies snowballed into the Chinese Exclusion Act of 1882. The law banned all Chinese-born laborers from entering the US for 10 years. It also prevented Chinese already in the US from becoming citizens. And these restrictions were extended and tightened over time.
The stereotypical immigrant story for America is you come from a country to America for better opportunities. And the Chinese Exclusion Act basically made that impossible to do for the Chinese. The exclusion laws also enabled an atmosphere of targeted racist violence. In what's now Wyoming and Oregon, white men massacre dozens of Chinese laborers. So Chinese immigrants left the US in large numbers. And of course, there were very few new Chinese migrants.
Nancy and several researchers recently published a working paper about the economic impact of the exclusion policies on the Western US. They calculated that the Chinese Exclusion Act reduced the Chinese labor supply by 64%. And remember, competition for jobs was one of the main justifications for the law. So Nancy wanted to study what happened to white US-born workers in Western states.
And you know, honestly, we thought we would find that they benefited. We thought this was going to be a story of winners and losers. But what we found was this was the story of losers and losers. Here's what Nancy means. She found that the white male labor supply in the West was reduced by 28%. Basically, in places that Chinese immigrants vacated, white workers also left. And there weren't enough new workers moving from eastern states to fill the gap.
A possible reason for the decline in white workers, Nancy says, is that the loss of the Chinese immigrants might have drained some towns of their economic vitality. The Chinese got really into service as they would run a bar or a hotel. Everyone is there. Everyone sleeps there. The Chinese leave, they shut down the hotel, they shut down the bar, they shut down the restaurant. All of a sudden, your town is a lot less attractive for everyone.
During the Chinese exclusion era, one sector where local white workers did appear to swap in for departing Chinese workers was mining. But Nancy says that's an exception to the broader trend. Like take manufacturing. There her paper documents are slow down. And this happened both in terms of output and in the number of businesses. Overall, Nancy says the number suggests that the Chinese Exclusion Act was a drag on economic growth in the Western US until at least 1940.
The Act wasn't repealed until 1943. That's after China joined the Allies in World War II. Nancy says her research on the Chinese Exclusion Act shows the danger of enacting wide sweeping policies. The legislation wasn't explicitly a deportation program, but it did lead to Chinese immigrants leaving the US in large numbers. The law had far reaching consequences that Nancy says weren't anticipated by lawmakers.
Even if we believe that immigration policy is there to serve the economic interests of American citizens. We want to think through the immigrants that we want to ban or that we want to reduce. What are they doing? Is it something that Americans value? And if they go, who's going to do the job? And what price will they do it for? And what will Americans have to pay for that? Next up, Adrian and I talk with Zeke Hernandez about his economic research on immigration.
Zeke's the professor at the University of Pennsylvania's Wharton Business School. And he says amid all the coverage in the political speeches, he's really noticed two narratives about immigrants taking hold. Immigrants are villains who are here to steal your job and undermine your safety and destroy American culture and our heritage. The other narrative is immigrants are the poor huddled masses who need our compassion and we must help them even if it costs us. It's either kind of fear or pity.
I'm definitely one of the villain immigrants. I was not going to say anything, but since you said it, it's out there in the open now. But you know, Zeke says this dichotomy between fear and pity, it distracts us from the larger truth about immigrants. Coming up, we break out of the binary. Zeke Hernandez has moved around a lot during his lifetime. He was born in Uruguay and his family moved from there to various parts of Central America
and eventually to Argentina. And there he says he noticed just how different economically countries could be. I was in the poorest slums of the city of Buenos Aires. And so, you know, when you see old men crying because they can't find work or women that are totally anxious because they can't feed their kids, that really moves you. When Zeke came to the US for college, he became fascinated with the question of why some countries prosper economically and others falter again and again.
The answer seemed to come down to people. I realized that if you want to explain the movement of investment, ideas, innovation, customers and just the evolution of economies and markets, you can't separate that from the movement of people. And since then, Zeke has been researching how immigrants shape economies around the world. He recently wrote a book laying out what he's learned called the Truth About Immigration. Why successful societies welcome newcomers.
So the argument I'm making is based on 20 years of research. Is that immigrants don't need your fear, they don't need your pity, they are good for you, good for you and your children. And that's both economically and socially. Zeke says the reasons for this can be broken down into five things. Five things any group of people contributes to economic growth. And because immigrants are people, they also contribute these things. They are talent, consumption, taxes, investment and innovation.
Let's unpack those. So we'll start with talent. Immigrants bring skills and the ability to work. They often fill jobs where there aren't enough native form workers willing or able to do them, which could be anything from picking fruit to practicing medicine. But Zeke says it would be a mistake to think that an immigrant's labor is the only thing they contribute to an economy.
Yeah, I mean, after they work, they have paychecks to spend, right? So the second thing they bring is consumption. In economic terms when immigrants enter an economy, they increase aggregate demand for goods and services. But that's really just the beginning of it. The more interesting part is what happens next. One is what I call a novelty effect, which is immigrants just because they have different tastes and preferences, right?
They grew up like a different foods or different kinds of music or they use technology a little bit differently or something like that. They are introducing new categories of products and services or brands that they liked where they came from. Yeah. So for example, in DC where I live, there's a large Ethiopian community and you're more likely to see in this area a demand for Ethiopian food and restaurants.
Or in a place with lots of Korean immigrants, retailers may be more likely to import Korean beauty products. So this is the novelty effect of immigrant consumer demand. Right, like I come from New Zealand and there is a fruit I cannot find in New York. It's called a phager and I order the mail order from California. What does it taste like? It's really tangy, sweet, bowl of perfume and delight. It's a tad to explain. Please send them to me.
I'm not sure they'll still be good by that. Now the third thing immigrants contribute is taxes. They pay sales taxes, payroll taxes that fund social security. And that's even true for many undocumented immigrants. Now in the short run, there is a cost to integrating newer immigrants, which is disproportionately born by local governments, you know, the cost of public education and social services like food assistance.
But in the long term, Zieg says that these costs are outweighed by the taxes immigrants pay. Zieg says that the average immigrant makes a net positive contribution of just over a quarter million dollars. The fourth thing that immigrants contribute to the economy, which Zieg says is often overlooked, is investment. And this can happen a couple of ways. For one thing, you can have foreign companies investing in the US.
The research I've done in the US, for example, shows that when immigrants increase by 1% as a share of a state's population, that state becomes 50% more likely to get investment from the immigrants home country than it otherwise would have been. If you want to see like a contemporary story on this, look no further than Boyo Campido, which is one of the fastest growing restaurant chains in the United States. And of all places, it's from Guatemala.
So you have this Guatemalan company over the past couple decades opening US locations at this point. They have over a hundred of them. And they open them in places where there tend to be a lot of immigrants from Central America. That's what I call the immigration investment jobs triangle, that is immigrants settle investment follows those investments create jobs and not jobs just for immigrants.
And then another way investment can happen is an immigrant to the US starts a business immigrants are also 80% more likely than native one people to start a business. And that means that they're putting their own capital, their own investment in a new business. Okay. Now that 80% is at the average for every business from a mom and pop restaurant to Google or zoom or do a lingo, which are immigrant founded firms.
The fifth and final thing immigrants contribute to economic growth according to Zeke is innovation. They bring ideas. Just check out some of these stats. Once that the estimates that in recent decades, immigrant inventors were responsible for one in three US patents. In addition, nearly half of Fortune 500 firms were founded by an immigrant or a child of immigrants.
So that rounds out the five things immigrants contribute to the economy, which again, any group of people has these five qualities. It's just that immigrants bring a different set of skills and different tastes and ideas, which help grow the economy in a way that it could not otherwise. Zeke says this is just as true for people who immigrate to the US illegally as those who come here legally.
I think the difference is that illegal or undocumented immigrants often have a ceiling on how much of those five things they can contribute because of their legal status. I'll tell you a short story on this. My barber is really good and we've become good friends over time. He confessed to me after years of getting to know each other that he's an undocumented immigrant. He's not in the country legally.
He also told me that his lifelong dream has been to start his own barber shop and he has $200,000 saved in cash ready to start this business, which almost knocked me off my chair. I was like, you have how much money? Wow. And I was like, wow, okay. And I said, well, why don't you do this? And he said, I can't because of my legal status.
So the real tragedy of illegal immigration when it comes to the economy is that we don't get as many of the five things that immigrants bring as we could if they were here legally. Now Zeke wants to be clear, he's not advocating for illegal immigration, but he is in favor of more legal pathways. To put it another way, there hasn't been a major update to US immigration policy in over three decades. And because of that, Zeke argues that the US economy is missing out.
Today's story is first aired on our other podcast, The Indicator From Planet Money. It comes out five days a week and it's always ten minutes or less. So check it out on your podcasting. These episodes of The Indicator were produced by Cooper Katzma Kim and Julia Richie with engineering by Quacy Lee and Maggie Luthar. They were fact-checked by Angel Coreras and Sierra Juarez, Kaken Cannon Edist The Show, and the Indicator's production of NPR.
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