The Economic Cost of Michigan House Bills 4083 and 4090

New Research: The Economic Cost of Michigan House Bills 4083 and 4090
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Michigan has become a national leader in welcoming new Americans through innovative programs to attract and retain global talent and spur economic growth. These efforts have paid off: Immigrants and refugees play a crucial role in stemming population decline across the state and help fill labor gaps in critical sectors—from hospitality and agriculture to STEM and healthcare. Despite these benefits, the Michigan House is considering two bills that threaten to exacerbate workforce shortages and damage Michigan’s reputation as a welcoming state.

If passed, House Bills 4083 and 4090 would punish cities, counties, and local government entities that limit cooperation and information sharing with federal authorities on immigration matters, effectively forcing local law enforcement to act as immigration enforcement agents. In doing so, Michigan would be following in Arizona’s footsteps, whose similarly restrictive Senate Bill 1070 led to the loss of an estimated 10 percent of its undocumented population[1] statewide after it was enacted in 2010. This departure led to a large decline in tax revenue and significant struggles for several key industries, especially those with hard to fill jobs like construction and hospitality.

SB 1070 should be a cautionary tale. Like in Arizona, undocumented immigrants in Michigan are overwhelmingly employed. According to new data from New American Economy, 84.7 percent of undocumented immigrants in Michigan are of working age (ages 16 to 64). They pay more than $352 million each year in taxes, including nearly $115 million in state and local taxes, and hold more than $2 billion a year in spending power to inject into the local economy. The costs of losing a significant portion of these workers could be substantial for Michigan’s economy.

This brief models what the economic costs would be if HB 4083 and HB 4090 were signed into law, creating a hostile environment, and 10 percent of the state’s undocumented population were to leave as a result. The research found that the state would risk losing millions of dollars in taxes and nearly $464 million in state gross domestic product in just one year.

Specifically, the research found that:

  • If 10 percent of undocumented immigrants left Michigan, the state would lose $9.0 million in federal taxes, and $5.4 million in state and local taxes.
  • This 10 percent includes an estimated 5,792 employed workers, whose departure would reflect a $221.6 million loss in wage earnings. State-wide, business owners in industries including the automotive industry, restaurant and food services, construction, and agriculture would be greatly affected.
  • The state would also lose an additional 1,699 jobs that were dependent on undocumented immigrant consumers and supporters of industry. These indirect job losses would result in another $98.3 million loss in wage earnings.
  • In total, Michigan would lose $463.9 million in Gross Domestic Product (GDP).

The economic loss as it relates to jobs, earnings, taxes, and GDP is proportional to the number of undocumented immigrant workers that would leave the state. For instance, if 20 percent of undocumented immigrants leave Michigan, the economic cost will be twice the above numbers, and so on.

The losses are significant. Because of the role undocumented immigrants play in the state labor market—including their critical role in particularly labor-intensive jobs—U.S.-born workers, with different skill sets and professional interests, would only fill a small number of the positions vacated by immigrants.[2] Some businesses may have to close altogether because they can’t find the appropriate workforce to fill vacant positions, leading to job losses for the U.S.-born individuals employed by those businesses. Economic activity will decrease across the board, having a dramatic effect on U.S.-born workers and many of the state’s important industries that depend on paying customers, such as retail and service industries.

Methodology for Estimating Potential Economic Cost of Michigan House Bills 4083 and 4090

To estimate the potential economic cost of the passage of HB 4083 and HB 4090, we first obtained 2017 American Community Survey (ACS) one-year data using the Integrated Public Use Microdata Series (IPUMS) portal. We then applied the methodological approach outlined by Harvard University economist George Borjas to arrive at an estimate of the undocumented immigrant population in Michigan.[3] We identified the top five industries in which undocumented immigrants worked, and created a new category that lumps all undocumented workers working in industries other than the top five.

By using the above data and industry multipliers from the Regional Input-Output Modeling System (RIMS II), we estimated the total loss in jobs, worker earnings, and Gross Domestic Product (GDP) over a one-year period in Michigan if 10 percent of the undocumented immigrants leave the state as a result of the proposed bills.[4] RIMS II is a standard economic impact tool developed by the Bureau of Economic Analysis and is widely used in economic impact studies by government agencies, corporations, and researchers.

Our model for the economic impact on Michigan if 10 percent of undocumented immigrants leave the state is based on a study by Gonzalo Sanchez of Texas A&M University.[5] His research on Arizona SB 1070, a similarly controversial legislation requiring state law enforcement to enforce federal immigration law in Arizona, found that noncitizen Hispanics—a proxy used to estimate the state’s undocumented population—decreased by 10 to 15 percent after the bill passed. We argue that, although the passage of HB 4083 and HB 4090 may not have the same legal implications as Arizona SB 1070, it would create a similarly hostile political climate that would encourage undocumented immigrants to leave Michigan.

The RIMS multipliers provided the information we needed to calculate the direct, indirect, and induced economic cost in each industry. The direct cost comes from the impact on the top 10 industries that would be directly affected by the loss of undocumented workers, and the indirect cost is the impact on the industries that provide goods and services to the top 10 industries. Induced cost, on the other hand, is the impact on industries affected across the board because of loss of consumption from undocumented workers. When estimating the economic cost, we chose the RIMS multipliers corresponding to the top five industries that undocumented immigrants worked in. For the category that lumps the rest of the undocumented immigrant workers together, we apply the smallest multiplier among the rest of the industries to be conservative in our estimates.

Aside from the loss of jobs, worker earnings, and GDP, we also calculated the potential loss in federal and in state and local tax revenues over a single year if 10 percent of undocumented immigrant workers leave the state. To estimate the tax contributions of 10 percent of Michigan’s undocumented immigrants, we randomly selected 10 percent of the undocumented immigrant population in Michigan, then estimated tax contributions for that random 10 percent sample.[6] We repeated this estimation process 100 times, then took the minimum tax estimation out of the 100 iterations for a conservative estimate. We estimated state and local taxes using the tax rates estimates produced by the Institute on Taxation and Economic Policy (ITEP).[7] For federal tax estimates, we used data released by the Congressional Budget Office in 2014 and calculated federal taxes based on the federal household income tax brackets.[8]

Notes

[1] The study referenced used Arizona’s Hispanic noncitizen population as a proxy to estimate the state’s undocumented population. New American Economy uses its own methodology to estimate the undocumented population.

[2] Ottaviano, Gianmarco I. P. and Giovanni Peri. 2012. “Rethinking the Effect of Immigration on Wages.” Journal of the European Economic Association 10, no. 1: 152-07. Available online.

[3] Borjas, George J. 2016. “The Labor Supply of Undocumented Immigrants.” NBER Working Paper (National Bureau of Economic Research, Inc.). Available online.

[4] Bureau of Economic Analysis. “RIMS II Multipliers.” Accessed August 3, 2018. Available online.

[5] Sanchez, Gonzalo. 2015. “The Response of the Hispanic Noncitizen Population to Anti-Illegal Immigration Legislation: The Case of Arizona SB 107.” Working Paper. Available online.

[6] Gee, Lisa Christensen, Matthew Gardener, and Meg Wiehe, 2016. “Undocumented Immigrants’ State and Local Tax Contributions.” Institute on Taxation and Economic Policy. Available online.

[7] Institute on Taxation and Economic Policy. 2015. “Who Pays? A Distributional Analysis of the Tax Systems in All Fifty States.” Available online.

[8] Congressional Budget Office. 2014. “The Distribution of Household Income and Federal Taxes, 2011.” 17, no. 4: 695.

About Us

New American Economy is a bipartisan research and advocacy organization fighting for smart federal, state, and local immigration policies that help grow our economy and create jobs for all Americans. More…