The latest revisionism regarding the economic impact of immigration comes to us courtesy of the Cato Institute, a long-time fixture in the DC libertarian think-tank space. Its Center for Trade Policy Studies recently published a study touting the alleged benefits of "immigration reform"—aka amnesty. [Peter B. Dixon (email him) and Maureen T. Rimmer (email her), Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform, Cato Center for Trade Policy Studies, August 13, 2009(PDF)]

Aided by a complex economic model, the study creates a peculiar parallel universe in which the neither the laws of economics nor historical experience seem to apply. We cite a couple of examples:

Cato: "A major finding of the study is that the program of tighter border enforcement…strongly reduces the welfare of U.S. households. A principal effect is that it raises the wage rate of the illegal immigrants who remain in the United States, in effect transferring income from legal residents of the United States to illegal immigrants… '

VDARE.COM: Yes: fewer illegal border crossers would indeed mean higher wages for those already in the country. But it would also raise wages for the millions of native-born who are currently undercut, unemployed, or out of the labor force entirely due to low-wage illegal competition.  Amazingly, the Cato study completely ignores this effect.

How many natives lose out to illegal aliens in the workforce? Any such estimate starts with a tally of unemployed or under-employed U.S.-born high school dropouts:

An average 650,000 native-born dropouts were unemployed last year—10.1% of their labor force. That's the good news. The bad news: the vast majority of uneducated natives—over 10 million—were too discouraged even to look for work. Labor force participation for them was a measly 38.4% compared to 61.3% for their foreign-born counterparts.

Of course, in Cato's view this is no problem: uneducated natives do not want to do the work done by illegal aliens.

But if this were the case, there should be occupations manned entirely by immigrants. But a recent CIS analysis of Census Bureau data shows the opposite. Occupations widely thought to be overwhelmingly immigrant are, in fact, dominated by the native-born:

• Maids and housekeepers: 55% native-born

• Butchers and meat-processors: 63% native-born

• Ground maintenance workers: 65% native-born

• Construction: 65% native-born

• Janitors: 75% native-born

In only four of the 465 civilian occupations surveyed did immigrants account for more than 50% of workers. These four employed less than 1% of the U.S. workforce.

Stricter border controls would tend to create labor shortages in most of these occupations. But eventually, market forces would kick in: wages would rise, more native-born Americans would enter the workforce, employers would invest in productivity enhancing equipment. That would be good for most workers, although profits might take a hit—no-no as far as Cato is concerned.

Cato: "Reducing the number of illegal workers by 28.6 percent sends ripples through the economy in a number of important ways. It leads to a long-run reduction in the U.S. capital stock (equipment, buildings, roads, and other structures) by 1.7 percent… and an overall reduction of the output of goods and services (that is, GDP) of 1.6 percent."

VDARE.COM: Au contraire! If the supply of illegal aliens were to suddenly dry up, employers would respond in two ways. First—as discussed above—they would above offer higher wages, increased benefits, and safer working conditions. At the same time, employers would look for ways to substitute capital for these suddenly more expensive native workers. Labor scarcity stimulates capital investment, exactly the reverse of Cato's conclusion.

Real world examples of capital replacing well-paid labor abound. Automated switches have replaced most telephone operators. Cars are increasingly produced by robots guided by few workers rather than labor-intensive assembly lines. Thanks to serve-yourself gas pumps, we have fewer attendants but more gas stations.

In too many industries, however, cheap immigrant labor has stifled such innovations. California agriculture was at the forefront of mechanization during the 1960 to 1975 period—roughly from the end of the Bracero program which allowed the importation of Mexican farm workers to the onset of mass illegal immigration. Today, the harvesting of fruit and vegetables in California's Central Valley is among the most labor-intensive activities in North America. And that won't change if the Western Growers Association has anything to do with it.

Southern California's apparel industry has fallen behind both domestic and international competitors, even some of its lowest-labor-cost competitors, in applying the array of production and communications technologies available to the industry (such as computer assisted design and electronic data interchange.) [Looking (in vain) for 'Jobs Americans Won't Do' , Social Contract, Volume 16, Number 2 (Winter 2005-2006)]

Similarly, pre-fab, modular home-building innovations have been put on hold, thanks to a national construction labor pool that ranges from 31 percent foreign born (ordinary laborers) to 45 percent foreign born (plaster and stucco masons).

Of course, a diminished supply of illegal alien workers could lead to a substantial redistribution of wealth—from employers and upper-income users of immigrant services to ordinary workers.

Most Americans would come out ahead. Cato's corporate funders would not.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.