Commission on Security and Cooperation in Europe

Testimony :: Dr. Raúl Hinojosa-Ojeda
Director - North American Integration and Development Center


I want to begin by commending the Commission on Security and Cooperation in Europe for providing the visionary leadership in holding this field hearing on “Los Angeles: The Regional Impacts and Opportunities of Migration”. In doing so, the commission explicitly sends the message that the issue of migration is indeed a global phenomenon that requires a global comparative perspective, not only in terms of origins and dynamics, but in terms of how national and local governments must learn from one another to develop best practices solutions for what is sure to be a growing global policy challenge throughout the 21st century. In addition, I am gratified by the focus on “impacts and opportunities” as our research at the UCLA NAID Center has focused on exactly how the immigration debate has repeatedly failed to understand the immense economic benefits of global migration and remittance flows and the even larger economic opportunities of properly reforming our broken immigration laws. Our research provided specific calculation on how legalizing and empowering needed workers with full legal status combined with full access to financial services will together produces dramatic win-win economic outcomes in both sending and receiving societies. At the same time our research focuses on the devastating and counter-productive effects of current U.S. anti-immigrant policies, providing detailed calculations on the widespread economic dislocation and will only push migration further underground into accelerating vicious cycles of exploitation and poverty here and abroad. While local Los Angeles officials and business have recently taken the bold move to criticize the DHS policy of increased raids in Los Angeles as having potentially negative economic effects, our research summarized below indicates that the negative effects will be much larger than recent fractional estimates suggest.

I also particularly welcome the opportunity to comment on the comparison between the North American and European regional experiences since this has also been a long standing research interest of the UCLA NAID Center which I am privileged to direct. The world has a great deal to learn from the very successful experiment of integrating poor and rich countries in Europe, with the right balance of policies and institutions for freer migration and enhanced banked remittances flows. Europe and North America also have a great deal to learn from poor countries who have recently introduced innovative “leapfrog” technologies (combining mobile phones, debit cards and micro-finance) that can empower transnational migrants and their money, promising unprecedented beneficial effects on migrant sending and receiving societies at this critical moment in world economic development.

For your consideration, I would like to make the following six points in two parts:

I. Global and Regional Impacts

1) Global migration and remittance flows are a vital source of economic development in both rich and poor countries and will become even more important through mid-century as the world will have to absorb the migration of 2.5 billion people in poor countries moving from rural to urban settings (Slide 1), at the same time that rich countries such as the U.S. will be undergoing a demographic implosion (2).

2) Migration and remittance flows are vital for the economic wellbeing of all countries in North America, responsible for more wealth generation and cross border transfers than the substantial trade and investment flows within the NAFTA region (3).

Migration and remittance flows are especially vital to California and even more to Los Angeles area.

-Over the last 25 years, rapidly growing share of California and Los Angeles output is based on foreign born workers, rising from 16.8% of the civilian workforce in 1980 to 34.5% in 2005 (4).

- The cumulative value of output produced by the foreign born workers from 1980 to 2005 in California is an astonishing $5.5 Trillion, and approximately $1.5 Trillion in Los Angeles (5).

-These dynamics are even more exaggerated at the level of specific transnational corridors, such as in the case of Oaxaca and California (6)

II. Policy Options and Opportunities

3) Achieving the right policy approach on migration and remittance will have a much more significant impact than trade and investment liberalization agreements, although the latter are receiving a great deal more attention from international policymakers.

-UCLA NAID Center research has shown that applying the same methodological tools used to estimate the net benefits of trade agreements such as NAFTA and the Doha Round indicates that much greater net benefits would be produced by a move towards legalization of migration, and even more by full incorporation of immigrant financial flows into the banking and micro-finance environment (7).

4) Policy Option 1: More Anti-Immigrant enforcement, or “A Day Without A Mexican”. NAID Center research has consistently shown that the impact of stepped-up anti-immigrant enforcement would have a negative effect on overall economic output that makes the movie version really seem like a Hollywood tale. The effect of actually removing significant portions of the undocumented workforce would have particularly devastating consequences for California and Los Angeles economic activity. In fact, the recent study that received much media attention actually underestimates the potential effects since it only focused on three of the most visible sectors employing undocumented workers (fashion, food and furniture), as well as significantly limiting potential negative impacts only to lost wages and taxes, rather than to overall output (value added) per workers. Properly conducting these calculations indicates that the removal of the undocumented could reduce output by as much as $225 billion for California and $80 billion for Los Angeles using 2005 data. The general equilibrium effects in both for both Mexico and the United States clearly amplify the impact of the elimination of this critical source of U.S. labor supply and Mexican labor demand and associated remittances. Both countries would face unprecedented economic dislocation that comparative swamps the worst periods of economic depression and social upheaval of the 20th century.

It is important to note that using conventional general equilibrium tools, even slightly increasing enforcement “symbolically” could have the effect of lowering wages for native workers and actually increasing the flow of undocumented. The current policies of DHS/ICE are thus having the ironic effect of pushing migration further underground, lowering the wages of the undocumented, and thus further INCREASING the demand for cheap, exploitable labor.

5) Policy Option 2: Legalization and Financial Access. The NAID Center has published a variety of research reports on the effects of a legalizing the flow of needed immigrant labor into the US and California economies. The results were first presented in 2001 with the support of grants from both labor unions and employer groups and have been amended and enhanced over the years. Many of the empirical assumptions for the modeling were based on the historical record of the short term and long term effect of the Immigrant Reform and Control Act of (IRCA) 1986. Based on surveys conducted by the Department of Labor under President George H.W. Bush, indicated a number of very interesting dynamics which we were able to replicate and project resulting from a new legalization in the current era, including:

• -Wage increases for newly legalized workers of between 15-20% after a decade or more of declining wages;

• -closure of worst cases of “sweat shop” operations in both he cities and the fields

• -a dramatic increase (over 200%) in newly legalized workers self-expenditures on their own education, including ESL, GED and job training, results in worker productivity increases commensurate with higher wages

• -the steepest reductions in illegal crossing across the US Mexican border in history, without expenditures on border walls).

In addition to the legalization provisions of IRCA, however, the new legalization scenario also contained a “North American Visa” proposal that would make available full labor rights work visa based on the new equilibrium demand for employment. This would have the effect of eliminating a fatal flaw in IRCA that did not allow for new legal immigration to meet expected demand, resulting in the renewed growth of undocumented crossings after 1994.

The sum total of this scenario, as presented in Slide XX, indicates that in fact legalization of current stock and future flows of migration can results in increased economic productivity with lower inequality in both sending and receiving economies. A seemingly ironic consequence, but not unlike the trajectory observed in European integration 30 years ago, is that legalized migration flows with more rights not only results in higher wages and well being on both sides of the border. Legalization thus also results in a reduction in the demand for immigrants and an improvement in the sending economies, particularly if increased remittances are able to be channeled into productive investments.

As important a “win-win” outcome which is generated by legalization, another major finding of the UCLA NAID Center research has been that securing full financial access for migrant families and their communities is by far the most powerful dynamic in producing an upward convergence between rich and poor countries as a results of migration and remittance flows. A recent study of the 20 year impact of IRCA by the NAID Center concluded that by far the most important long term economic impact of IRCA has been the ability of legalized families to move out of an unbanked, cash economy into the building of assets and wealth through financial instruments of all types, starting with checking savings accounts, health and life insurance, mortgages, auto, educational, and small business loans (XXX). The multiplier effect of this process also produced dramatically amplified impacts in the communities where newly legalized immigrants live.

The NAID Center has also analyzed these same dramatic multiplier effects in the origin villages and communities through the channeling of cash remittances through locally organized micro-financial institutions (MFIs). These MFIs can offer products such as micro-savings, micro insurance and micro-credits, to both remittance receiving and non-receiving households, generating the capacity for converting the inflow of cash remittances into local savings and investments employment and sustainable development at an unprecedented scale in the history of these poor communities.

Towards this goal of financially empowering migrants, there is a great learn from more recent experiences in poor countries in the introduction of new “leapfrog” technologies (combining mobile phones, debit cards and micro-finance) that can empower transnational migrants and their money, having dramatically beneficial effects on sending and receiving societies at this critical moment in world economic development.

6) Towards Real Comprehensive Reform: European and North American economic integration in a globalized world

I want to conclude with a comment on the comparison between the North American the European regional experiences. In comparatively analyzing the Spanish and Mexican experiences since 1960 (Slide XX), our research has found that Spain made much better progress in closing the income gap with rich countries in Europe than Mexico did with respect to the US. Our analysis showed that combining free trade with significant investments from the European Structural Development Funds (approximately $1,000 per person per year) clearly had a positive effect in closing the gaps between Spain and the EU average income. Yet our analysis shows that even greater explanatory power must be given to the role of migrant remittances sent back to Spain through a highly developed system of Cajas de Ahorro, generating large multiplier effects though local savings and investments in migrant sending regions of Spain.

The experience of Los Angeles confirms the critically strategic need to couple the efforts for the legalization of migration with an accelerated moved towards full financial empowerment, as exhibited in the Spanish case. As the world grapples with the challenges of increased globalization through trade, investment, migration and remittances, we should always keep in mind the very successful experiment of integrating poor and rich countries in Europe, with the right balance of policies and institutions for freer migration and enhanced banked remittances flows.

1. Eduardo Porter, "Broad Legalization Would Cut Immigration," Wall Street Journal, August 29, 2001; based on Raul Hinojosa-Ojeda, "Comprehensive Migration Policy Reform in North America: The Key to Sustainable and Equitable Economic Integration," North American Integration and Development Center, UCLA School of Public Policy and Social Research, August 29, 2001.