Immigrants, both low-skilled and high-skilled, contribute to the economy, but their fiscal benefits vary significantly depending on skill levels, new research suggests.
Immigration is often seen as a solution to the aging populations in many Western countries, providing a younger workforce to support the financial needs of pensions and healthcare systems. The common belief is that an influx of immigrants results in a positive fiscal impact by increasing the number of tax-paying workers. However, new studies indicate that this assumption may oversimplify the reality.
Research shows that while high-skilled immigrants typically have a clear fiscal benefit, the impact of lower-skilled migrants is more complex and may even be negative, depending on the circumstances.
The fiscal impact isn’t the only factor in immigration debates. Immigration also plays a role in addressing labor shortages, managing population decline, and influencing the cultural dynamics of the areas where migrants settle. Nevertheless, the financial implications of immigration have gained more attention, especially as immigration levels hit record highs in countries like the U.S. and across Europe. According to a Gallup poll from last year, 44% of U.S. voters think immigration worsens the tax situation, while 18% believe it improves it.
Interestingly, the recent increase in immigration is expected to reduce the U.S. federal deficit, according to the Congressional Budget Office (CBO). However, this positive impact is more pronounced among high-skilled immigrants. While less-skilled workers can still stimulate wage growth for more educated individuals, state and local budgets might bear more costs than benefits from these workers.
Fiscal contributions fluctuate throughout a person’s life. Young immigrants often rely on government services like education without contributing through taxes. Once they enter the workforce, they start to pay more in taxes than they consume in public services. In retirement, they may draw on pensions and healthcare, again consuming more than they contribute.
A report from the U.K.’s Office for Budget Responsibility indicates that the average migrant worker contributes a net of £225,000 (around $300,000) to public finances by the age of 85, while the average U.K. resident has a net negative contribution of £146,000. However, not all migrants contribute equally. High-wage migrants contribute a net £684,000, while low-wage migrants contribute a net negative £578,000.
Low-wage immigrants, many of whom are asylum seekers, have become a significant portion of recent arrivals in both the U.S. and Europe. The CBO did not provide estimates for how this surge would impact local budgets, but it did anticipate state and local governments would incur more costs than revenues from these groups.
In the Netherlands, a study using data on 17 million residents found that non-Western immigrants with minimal education cost the government an average of €360,000 ($400,000) over their lifetime. By contrast, non-Western immigrants with a master’s degree contributed a net positive €130,000. Asylum seekers, in particular, cost the Dutch state an average of €475,000 ($530,000) over their lifetimes, including second-generation costs, primarily due to lower educational attainment, which affects skill levels and wages.
In the U.S., a 2017 National Academy of Sciences report estimated that an immigrant with less than a high-school education would receive $109,000 more in benefits than they would pay in taxes over their lifetime, based on 2012 figures. However, some economists argue that these figures don’t capture the full picture. Immigrants contribute to the economy by enabling capital growth—employers benefit from their labor, which in turn increases capital income, such as profits and dividends, that is also taxed.
Economist Michael Clemens of George Mason University suggests adding capital income to the equation, which could result in even low-skilled immigrants contributing a net $128,000 over their lifetime to U.S. public finances rather than subtracting $109,000.
Additionally, low-skilled workers can enhance the productivity of high-skilled ones. For example, a cleaner enables a surgeon to focus on their medical work, or access to affordable childcare allows a professional to work more hours. According to a 2020 study, these effects contribute between $700 and $2,100 annually to public finances per low-skilled immigrant.
In Denmark, however, some research shows that businesses reliant on low-cost immigrant labor may invest less in automation, potentially slowing productivity growth.
Despite these insights, the public conversation on immigration tends to focus on border security rather than the fiscal benefits immigrants might offer. Recent CBO estimates show that illegal immigration could add $897 billion to the U.S. Treasury over the next decade, or approximately $3,500 per adult.
A well-crafted immigration policy that balances high- and low-skilled workers could yield even greater economic advantages. However, meaningful reform to U.S. immigration law has been stalled for over three decades, making comprehensive change difficult in the near future.
