One of Mexico’s largest industries is based almost entirely in the United States. It provides a consistent flow of cash, grows in size every year, and is in little to no danger of a recession. You can see it when you take a taxi in New York, visit a farm in the Midwest, or try to hire a nanny in Texas. Mexican immigrants living in the United States, a significant number of whom are without legal status, pumped $16.6 billion into Mexico’s economy last year which, as a part of export revenues, is second only to petroleum.

Legal and illegal immigration is a contentious issue for most Americans. Conservatives in particular are split on the subject, with social conservatives harkening for closed borders, while free-marketers advocate the unrestricted movement of goods and peoples. Recently, some Arizona residents living near the border with Mexico have taken to forming militia groups self-dubbed as “minutemen” - a reference to the American militias that acted against the British during the revolution - aimed at stemming the flow of illegal immigrants into the country.

Many in Washington consider immigration a soft topic, one that can easily rouse populist sentiment. They see no need to expend political capital by denouncing illegal immigrants and instilling fears into the minds of the public. In essence, it’s a win-win proposition: policymakers can act tough on security while denouncing large immigrant inflows with no danger of alienating the voter base. An NBC News/Wall Street Journal poll conducted between March 31 and April 3, 2005 revealed that 59 percent of Americans rate immigration as an extremely important or quite important issue. While 48 percent of Americans believe that immigration weakens national character, 41 percent believe immigration adds diversity to American society and strengthens the country. A majority 53 percent oppose Mr. Bush’s “guest-worker” program for dealing with illegal immigrants, 45 percent see immigrant workers as an economic threat, and 46 percent see them as an economic benefit.

Solutions to the issue can be found on both sides of the political spectrum. Some want the government to stop wasting money on ineffective border patrols and to start working towards harmonizing the existing situation through talks with Mexico. Others support strengthened border controls, an expanded, more active INS, and, harsher punishments for repeat offenders. Restrictionists, those who subscribe to the latter philosophy, often cite economic discord as the primary motivation for their views.

Although definitive studies on the impact of illegal immigration on the economy are lacking, unqualified assertions abound. Restrictionists describe immigrants as unproductive, undesirable elements who take advantage of the welfare state. Their claims are contradicted by economists, who have found that immigrants participate in the labor force at a higher rate than natives and attain the same productivity levels. The Urban Institute estimates that illegal immigrants contribute $25-30 billion more in taxes than they receive in services, a far cry from the “resource-drain” label restrictionists have bestowed on these workers. The New York Times recently reported that illegal immigrants may even be responsible for the fiscal health of FDR’s greatest program, Social Security. Immigrants file papers using fake ID’s, which have become commonplace since the introduction of the 1986 Immigration Reform and Control Act. While the Act set penalties on employers hiring illegal immigrants, fake ID’s allow the employer to plead ignorance. Although these immigrants contribute payroll taxes, they cannot collect benefits due to their legal status. This “unintended surplus” is estimated at $10 billion per year, constituting 10% of the total surplus. Given the long-term imbalance the system faces, such an amount is nothing to scoff at.

Legal immigrants, who are disproportionately job-seekers and family members of citizens, have also come under fire from certain conservative groups. Populist sentiments have become the symptoms of widespread belief that highly-skilled foreign workers depress wages for American job-seekers, a charge corroborated by economic studies. But to call this an indictment of the process would not only be inaccurate, but counter-productive. Efficient resource allocation and cost-minimization are basic principles of economics. The employment of foreign laborers who are willing to work at lower costs indicates that the market’s wage rate for domestic workers is too high: an effect of economic principles in action. Fiddling with them will only create economic inefficiency, with the undesirable side-effect of thwarting highly-skilled labor to competitor nations. Immigration may have the short-term effect of crowding out the labor market, resulting in fewer jobs for domestic workers desiring higher wages. In the long-term, however, the economy will benefit by stronger economic growth and reinvestment of the resources saved by reducing costs, thus creating higher-paying jobs for skilled American laborers. Tampering with market forces in order to satisfy ideological goals is short-sighted. This is not a great revelation; it’s simply macroeconomics.

Ageing populations, especially in the Western hemisphere, have become a cause of concern to economists. In the next few decades, both skilled and unskilled younger workers in Western Nations will be required to support the Medicare and Pension costs imposed by retired workers. The Economist reports that fertility rates in Western countries are below replacement levels; immigrants in general have higher fertility rates, produce more children, and participate in the labor force at greater rates. As the median age in industrialized nations rises, populations will decline, domestic workers will become scarce, and incentives for youths from less-developed nations to immigrate may become necessary. Fast-growing economies in developing nations, like China and India, will not only possess a competitive advantage over our industries, due to their lower labor costs, but will also have the added benefit of higher fertility rates and a large working-age population.

In a 2000 study headed by Joseph Chamie of the United Nations Population Division, it was found that the European Union needed an inflow of 3 million immigrants per year in order to stabilize the working-age population, lest the ratio between workers and retirees becomes unsustainable. On the other hand, it is estimated that America’s large immigrant population, and their descendants, will be responsible for 80% of the increase in population – which is expected to be around 40% - over the next 50 years. Our relatively high levels of immigration have provided us with a useful buffer to impending labor market shortages.

Despite these obvious benefits, free and open immigration has a stigma attached to it. Daniel Griswold of the Cato Insitute, a libertarian think-tank, points out that the United States was faced with a similar situation in the 1940s, when illegal immigration from Mexico was surging. Under the Bracero (1942-1964) program we responded with an increase in temporary work visas. Barriers to entry were eliminated and illegal immigration dropped substantially. A principle had been discovered: a Mexican worker has greater incentive to stay for the long-term if he cannot return. President Bush made a bold initiative with the temporary worker program he proposed in January of last year. Now, he needs to follow up on it.