America's Immigration Paradox

America’s economic strength has long depended on immigration. Yet current restrictions—and the political narratives driving them—are undermining that foundation. To sustain long-term growth, innovation, and fiscal health, the United States must adopt immigration policies grounded in economic evidence and confront the political and cultural misperceptions that obstruct reform. The time horizon of immigration’s benefits is long, while its political salience is short, creating an asymmetry that distorts policy despite immigrants’ significant contributions to innovation, productivity, and public revenue.

Immigration is not merely a social or cultural issue—it is a foundational pillar of America’s economic competitiveness. We show that recent restrictions have significantly reduced growth, investment, and productivity, and propose that restoring an economically rational immigration policy requires both institutional reform and a recalibration of public attitudes.

H-1B Visas: A Case Study in Innovation Policy

A striking example of long-run economic dividends is the 1990 creation of the H-1B visa program. Initially a modest provision to admit 65,000 high-skilled workers annually, it helped catalyze U.S. technological leadership.

Research demonstrates that a 10 percent increase in H-1B admissions raises total invention by up to 2 percent (Kerr and Lincoln, 2010). Companies winning H-1B visa lotteries experience higher job growth, productivity gains, and profit margins compared to similar firms that do not receive visas (Doran, Gelber, and Isen, 2015). The benefits extend far beyond direct participants—studies estimate the program generates $7.5–$31.8 billion in annual net benefits, with native workers experiencing wage gains rather than displacement (Bound, Khanna, and Morales, 2017).

The entrepreneurial effects are equally striking. Immigrants have three times higher rates of firm formation compared to native-born individuals, with over half of U.S. unicorn startups founded or co-founded by immigrants, many initially entering on H-1B visas. Recent research reveals another crucial consequence: when multinational corporations face visa constraints, they hire needed talent at foreign affiliates rather than employing domestic workers. Each visa rejection leads to hiring 0.4 employees abroad, harming American competitiveness by limiting domestic innovation (Glennon, 2023).

The H-1B program demonstrates immigration’s innovation potential when policy aligns with economic evidence. But recent policy has moved in the opposite direction, creating measurable economic harm that extends far beyond immigrant communities to native-born American workers themselves.

Why Immigration Restrictions Are Particularly Costly Now

Current immigration restrictions come at the worst possible time for American economic competitiveness. The convergence of several historic trends makes talent attraction more critical than ever before.

The AI revolution requires unprecedented technical expertise precisely when global competition for skilled workers has intensified. China is rapidly expanding its research capacity while America restricts the very workers who drive technological breakthroughs. Meanwhile, America’s aging population creates mounting fiscal pressures that only expanded immigration can alleviate. The dependency ratio is rising just as Baby Boomers enter retirement, requiring more working-age immigrants to sustain Social Security and Medicare.

Post-pandemic labor shortages persist across critical sectors from healthcare to construction, while climate change promises to increase global migration pressures whether America prepares or not. In this environment, immigration restrictions don’t just limit growth—they actively undermine national competitiveness at a moment when America can least afford such self-inflicted wounds.

The Immediate Economic Costs of Current Restrictions

Immigration restrictions don’t just harm immigrants—they impose immediate costs on native-born Americans that contradict the policy’s stated purpose. New research by Mayda and Peri (2025) estimates that restrictions will reduce net inflows of high school-educated immigrants by 400,000 annually and college-educated immigrants by 200,000 annually. While these reductions represent only 0.3 percent of the working-age population, the economic effects are substantial and counterproductive.

The aggregate impact translates to a $205 billion annual reduction in GDP—equivalent to the entire economy of Ireland—with the average American projected to earn $270 less per year. Native-born workers, whom immigration restrictions ostensibly protect, are estimated to lose $200 annually in wages due to reduced complementarity effects and slower economic growth.

Mass deportation policies carry even higher economic costs through their broader disruption of local labor markets and production networks. My own work demonstrates that for every million unauthorized immigrant workers removed from the economy, 88,000 U.S. native workers lose their jobs (East et al., 2023). If deportation policies target three million unauthorized workers annually—a figure consistent with some policy proposals—the implied job losses for American workers would reach 263,000 positions per year.

These employment effects operate through well-understood economic mechanisms: reduced labor supply depresses business investment, increases production costs, limits new firm formation, and slows productivity growth. Rather than redistributing employment opportunities, immigration restrictions reduce the total number of jobs available in the economy.

The costs vary significantly across sectors critical to American priorities. Construction, where immigrants comprise 28 percent of the workforce, faces potential delays in infrastructure projects and increased costs that slow housing supply growth and AI data center buildout. Agricultural impacts present particularly acute concerns, as 73 percent of farmworkers are immigrants, creating risks to food security and supply chain stability. Healthcare, already strained by demographic aging, relies heavily on immigrant providers whose restriction could exacerbate existing shortages. In science and technology sectors, immigration restrictions directly reduce the workforce responsible for patent generation and technological breakthroughs—costs that seem far too high if the U.S. is truly in strategic competition with China.

Long-Term Strategic Costs: Fiscal and Demographic Pressures

Immigration restrictions impose substantial fiscal costs that compound their direct economic effects and threaten America’s long-term fiscal sustainability. Reduced immigration flows are projected to decrease federal tax revenue by $29.8 billion annually and local government revenues by $600 million. These revenue reductions constrain public investment capacity precisely when such spending is essential for maintaining competitiveness and addressing infrastructure needs.

Most critically, immigration restrictions exacerbate the fiscal challenges associated with demographic aging. Reduced working-age immigration accelerates population aging, increases the dependency ratio, and intensifies pressure on Social Security and Medicare systems. The Penn Wharton Budget Model demonstrates that lifting employment-based green card caps would help reduce the federal deficit by expanding the tax base and reducing the fiscal burden of aging (Penn Wharton Budget Model, 2024).

Clemens (2022) finds that even humanitarian immigration programs generate positive fiscal returns, with post-2017 reductions in refugee admissions costing the U.S. economy $9.1 billion annually while reducing government revenues by $2 billion net of public outlays. This suggests that immigration restrictions impose costs across all categories of admission, not just economic migrants.

Conclusion: Immigration as Strategic Asset

The economic evidence demonstrates that immigration restrictions impose substantial costs on economic growth, innovation, and fiscal sustainability. From the productivity effects documented in state-level analyses to the innovation spillovers generated by high-skilled visa programs, immigration consistently emerges as an economic force multiplier rather than a zero-sum redistribution mechanism.

However, economic analysis alone cannot guarantee policy success. As Rodrik (2011) observes in his globalization paradox, democratic politics, national sovereignty, and global economic integration often exist in tension. Research demonstrates that the salience of immigration issues frequently drives voters toward restrictionist parties, particularly when cultural anxieties dominate economic considerations (Alesina and Tabellini, 2024).

Recent empirical work by Colussi, Giavazzi, and Gruyters (2021) suggests that public attitudes toward immigration are shaped by complex interactions between economic self-interest and cultural concerns, implying that achieving sustainable and durable immigration reform will require addressing both economic and cultural dimensions of public concern.

The stakes of this policy challenge extend far beyond immigration itself. America’s historical economic leadership has been inextricably linked to its ability to attract global talent and integrate diverse populations into a dynamic economy. Preserving this advantage requires recognizing immigration not as a burden to be managed but as a strategic capability to be cultivated.

The choice facing American policymakers is therefore not whether to have immigration, but whether to have immigration policy that serves long-term economic interests or short-term political calculations. The economic evidence strongly supports the former approach, but achieving it will require political leadership that can articulate the full costs of restriction and the transformative potential of reform.

References

Alesina, A., and M. Tabellini (2024). “The Political Effects of Immigration: Culture or Economics?” Journal of Economic Literature, 62(1), 5-46.

Bound, J., G. Khanna, and N. Morales (2017). “Understanding the Economic Impact of the H1B Program on the U.S.” NBER Working Paper No. 23153.

Clemens, M. A. (2022). “The Economic Effects of Refugee Restrictions.” Oxford Review of Economic Policy, 38(3), 449-467.

Clemens, M. A., C. E. Montenegro, and L. Pritchett (2019). “The Place Premium: Bounding the Price Equivalent of Migration Barriers.” Review of Economics and Statistics, 101(2), 201-213.

Colussi, A., M. Giavazzi, and L. Gruyters (2021). “The Political Effects of Immigration: Culture or Economics?” NBER Working Paper No. 30079.

Doran, K., A. Gelber, and A. Isen (2015). “The Effects of High-Skilled Immigration Policy on Firms: Evidence from H1B Visa Lotteries.” NBER Working Paper No. 20668.

East, C. N., A. L. Hines, P. Luck, H. Mansour, and A. Velasquez (2023). “The Labor Market Effects of Immigration Enforcement.” Journal of Labor Economics, 41(4), 957-996.

Glennon, B. (2023). “How Do Restrictions on High-Skilled Immigration Affect Offshoring? Evidence from the H-1B Program.” Management Science, 69(11), 6293-6313.

Hainmueller, J., and D. J. Hopkins (2014). “Public Attitudes Toward Immigration.” Annual Review of Political Science, 17(1), 225-249.

Kerr, W. R., and W. F. Lincoln (2010). “The Supply Side of Innovation: H1B Visa Reforms and U.S. Ethnic Invention.” Journal of Labor Economics, 28(3), 473-508.

Mayda, A., and G. Peri (2025). “Immigration and border policies.” In G. Gensler, S. Johnson, U. Panizza, and B. Weder di Mauro (Eds.), The Economic Consequences of The Second Trump Administration: A Preliminary Assessment. CEPR Press.

Penn Wharton Budget Model (2022). “Macroeconomic Effects of a 25 Percent Increase in Legal Immigration.” University of Pennsylvania.

Penn Wharton Budget Model (2024). “Exempting Employment-Based Green Cards Reduces the Federal Deficit.” University of Pennsylvania.

Peri, G., K. Shih, and C. Sparber (2015). “STEM Workers, H1B Visas, and Productivity in U.S. Cities.” Journal of Labor Economics, 33(1), 225-255.

Rodrik, D. (2011). The Globalization Paradox: Democracy and the Future of the World Economy. Oxford University Press.