Remittance-Senders (Mostly Illegals) Ship $25 Billion a Year Out of the U.S.

By David North, October 31, 2010

The classic labor market focus of restrictionists is on illegal alien workers vs. legal resident workers – but I want to add another question to the conversation: where do the workers spend their money?

Fundamentally, we do not want the labor force to be needlessly expanded by floods of illegal alien workers, disadvantaged by their status, and willing to work for less than the prevailing wage.

Similarly we are opposed to needless flows of legal nonimmigrant workers (such as H-1Bs), who while legal, also tend to depress labor markets, to the detriment of legal resident workers.

Legal resident workers are defined as those, both citizens and immigrants, who have a permanent right to jobs in the U.S. Resident workers may be Anglo or Hispanic or Asian, Black or white, Native American or Inuit.

So far, so good. Whether your concern is the rule of law (illegal immigrants are, after all, illegal) or if you are worried about justice in the labor market, you will want to reduce (or better, eliminate) illegal aliens from the work force.

This chain of thought ought to be enough to convince policy makers that we should enforce our immigration laws, but all too often it is not. Some policy makers, for instance, identify with the illegals rather than with the legal residence workers, or they side with exploitative employers who prefer to pay lower-than-prevailing wages; in either case, they tend to undermine the enforcement of the law.

Let me add another, not-routinely-discussed, dimension to the matter: that is, where do various groups of workers spend their incomes?

Do they spend it on themselves and their families in the U.S., thus supporting the U.S. economy, generally, or do send part of their income, via remittances, overseas, thus sapping the U.S. economy?

The overwhelming majority of legal resident workers live with their immediate families in the U.S., and spend their incomes, or channel their savings, into the U.S. economy. It is different with many of the illegal alien and nonimmigrant workers.

Often illegals are separated from their families but remain supportive of them back in the homeland. Similarly, many nonimmigrant workers have jobs here but relatives abroad. Both groups send substantial remittances to their distant families – probably as much as $25 billion a year, and this money is almost totally lost to the American economy.

So, if we want to stimulate our economy, we, as a nation, should only give jobs to people who will spend (or save) all or nearly all their incomes within the U.S. economy, and not give jobs to remittance payers, who will not do that.

Since there is a large overlap between illegal aliens and nonimmigrant workers, on one hand, and remittance payers, on the other, it means that the nation as a whole should reduce the number of jobs held by such migrants.

There still would be illegal aliens whose entire families are in the U.S., and nonimmigrant workers, accompanied by their families, but these are two relatively small sub-populations. We will call them alien non-remitters.

Thus, if we are to improve the American economy for legal residents, we have three reasons for restricting the role of illegal aliens:

a. they have no lawful right to be here;
b. they are depressing wages, particularly for low-skilled legal residents; and
c. they are shipping money out of the country.

Too often in the past restrictionists have failed to use the third of these three arguments.

When the open-borders types declare that illegal immigrants are useful to the economy, it is helpful to remind that them that the illegals are the principal players in the $25 billion a year drain on the American economy caused by remittances.

I was reminded of the significance of remittances – but not of the related drain on our economy – at a high-minded seminar in Washington on October 29. It was hosted by Inter-American Dialogue, a Third-World-oriented entity, and featured a discussion of a report by Manuel Orozco about money-transfer techniques used by remittances senders. (For more on the organization and remittances, see its newsletter, Migrant Remittances.)

Everyone in the room appeared to think that remittances were a totally good thing, for the families back home, for the homeland economies, and/or for the banks and other middlemen who handled these financial transfers. My question about the extent to which remittances were taxed by sending nations was not greeted happily. (For more on how one state, Oklahoma, has laid a modest 1 percent fee on outgoing wire transfers of money, see my CIS Backgrounder "Charging More for Immigration: Closing Financial Loopholes in the U.S. Migration Process," pp. 12-14.)

The problem with studies of remittances – like so many studies of immigration – is that those doing the studying almost universally think the phenomenon is both interesting and a boon to mankind, and the problems therein are to be disregarded. That substantial chunks of remittances have been used to raise the price of rural real estate, or the price of brides, in the homeland is usually not mentioned, and the damage to the economy of the sending nation is never discussed.

My favorite image of ill-used remittances came to me during a visit to rural southern Albania a few years ago. Albanian guestworkers, primarily toiling in Italy and Greece, often figured that they should invest remittances and sweat equity in building houses back home; the problems were that building costs were larger than expected, and the market for completed homes in that part of the country was weaker, so the countryside is littered with half-built houses. (Albania's banks had been shattered by a nation-wide Ponzi scheme at the time, so putting the money in the partially constructed houses was not totally irrational.)

Nothing like that was mentioned at the seminar, as those around the table discussed the potential use – now quite limited – of computers and cell phones to send money from the U.S. to other nations. Most worker remittances leaving the U.S. goes through what the speakers called "cash-to-cash" wire transfers. This is pretty advanced, however, compared to the way that most remittances arrive in Albania, according to the previously cited newsletter. They are carried on the persons of other migrant workers, heading back to the homeland.

Because of the Third World focus of most work done with remittances, it is far easier to find out how much money arrives in a developing nation that it is to measure the amount leaving a developed nation. However, the Congressional Budget Office in 2005 estimated that $25.5 billion left the U.S. in 2003 in this category. For more on that see its report, "Remittances: International Payments by Migrants."

The CBO made no effort to estimate the amounts sent by illegal migrants as opposed to those sent by legal ones.