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VI. Economic Benefits

This section analyzes two issues:

  • the economic impact of undocumented immigrants in Texas, including their contributions to state employment, wages and revenues over a 20-year period (2005 through 2025); and
  • the contributions of undocumented immigrants on Texas government revenues.

Economic Impact

The Pew Hispanic Center estimates that between 1.4 million and 1.6 million undocumented immigrants resided in Texas in March 2005.[58] To achieve a conservative estimate, this analysis relies on the lower boundary of this range.

Using 2000 Census data for the number of foreign-born residents in Texas counties, it is possible to estimate how many undocumented immigrants reside in each of Texas’ 24 Council of Government regions, based on the assumption that immigrants are distributed in the same proportion as the foreign-born. Based on an age profile of foreign-born immigrants into the U.S. from Mexico, it is possible to further disaggregate the estimates into age and gender groups.[59]

These data then can be put into the Comptroller’s Regional Economic Model, Inc. (REMI) model to investigate the impact of undocumented immigrants on the Texas economy. This is accomplished by instructing REMI to act as if these immigrants were to suddenly vanish from Texas and then to examine the degree to which the underlying economic forecast for the state and for each region would be affected. The implicit assumption is 1.4 million undocumented immigrants have employment and spending patterns consistent with Hispanics in Texas with similar age and gender profiles.

To gauge the economic impact of undocumented immigrants, one additional change must be made in the REMI model. Because REMI is a general equilibrium model, it tries to compensate for changes in a variety of ways. In the case of workers eliminated from a region, the model assumes new workers will be recruited to make up for their loss.

While this is an expected “real-world” result, a true test of the effects of unauthorized immigrants would be seen only if the REMI model were prevented from importing additional workers into the state in compensation. The model eliminates the impact of all undocumented immigrants on the Texas economy. Some in-migration was allowed, but drawing in new Hispanic in-migrants in numbers disproportionate to their share of the indigenous population in the U.S. was prohibited. Effectively, this shut off return in-migration from Mexico and other Latin-American countries.

Model Results

Probably the easiest way to summarize the contribution of undocumented immigrants to the Texas economy is to consider the percentage changes that might occur in various economic indicators as a result of their removal. (As a yardstick, it should be noted that 1.4 million people account for slightly more than 6 percent of the total Texas population.)

Exhibit 14 and 15 summarize the changes in key economic indicators, and summarize the economic impact.

Without the undocumented immigrant population, Texas’ work force would decrease by 6.3 percent. This decline is actually somewhat lower than the percentage of the work force actually accounted for by undocumented immigrants, since REMI assumes some additional immigration would occur to replace the workers lost. The most significant economic impact of losing undocumented workers would be a noticeable tightening in labor markets.

EXHIBIT 14
Estimated Effects of the Loss of 1.4 Million Undocumented Immigrants from Texas in 2005
(Percent Change from Baseline Forecast)

2005 2010 2015 2020 2025
Total Employment -2.3% -2.1% -2.1% -2.0% -2.0%
Total Gross State Product -2.1% -1.8% -1.7% -1.6% -1.5%
Personal Income -2.6% -2.0% -2.0% -2.1% -2.2%
Real Disposable Personal Income -2.8% -2.2% -2.1% -2.1% -2.1%
Relative Cost of Production 0.2% 0.3% 0.1% 0.0% -0.1%
Relative Labor Intensity 0.0% -0.1% -0.2% -0.2% -0.2%
Exports to Rest of World -0.1% -0.3% -0.4% -0.2% -0.1%
Average Annual Compensation Rate 0.6% 1.0% 0.7% 0.4% 0.2%
Population -5.7% -4.2% -3.5% -3.1% -2.8%
Labor Force -6.3% -3.6% -2.7% -2.2% -2.1%

Source: Carole Keeton Strayhorn, Texas Comptroller of Public Accounts.

EXHIBIT 15
Estimated Effects of Removing 1.4 Million Unauthorized Immigrants from Texas in 2005

2005 2010 2015 2020 2025
Total Employment loss 298,000 287,100 293,800 296,300 302,700
Total Gross Regional Product loss (Billions of Fixed 2000$) $17.7 $18.7 $20.5 $21.4 $22.6
Personal Income loss (Billions, current dollars) $18.5 $19.0 $24.6 $32.6 $42.9
Loss in Exports to Rest of World (millions of Fixed 2000$) $66.5 $390.1 $548.0 $387.7 $123.9
Net Population loss from baseline 1,309,000 1,033,000 899,400 831,300 784,400
Labor Force Loss 714,100 434,000 340,500 281,200 281,600

Source: Carole Keeton Strayhorn, Texas Comptroller of Public Accounts.

This tightening would induce increases in wages, as indicated by a rise in average annual compensation rate. Wage rates would rise by 0.6 percent in the first year and stay above the forecast rate throughout the entire 20-year period.

While pay increases can be viewed as a positive social and economic development, when they rise due to labor shortages they affect economic competitiveness. In this case, it would be expressed as a modest decline in the value of Texas’ exports.

The remaining broad economic measures all point to an initial impact of undocumented immigrants of about 2.5 percent in terms of the value of production and wages in the Texas economy. Eliminating 1.4 million immigrants would have resulted in a 2.3 percent decline in employment, a 2.6 percent decline in personal income and a 2.8 percent decline in disposable personal income in 2005. This change also would generate a 2.1 percent decline in the gross state product (GSP), the broadest measure of the value of all goods and services produced in Texas.

While none of these changes are surprising, the one finding that may appear unusual is the persistence of the decline. If no in-migration were possible other than from natives or authorized immigrants, employment would remain 2 percent below the baseline forecast 20 years later. The impact lessens over time, but remains sizable throughout the 20-year forecast period.

The primary adjustment the model makes to compensate for the loss of these undocumented migrants is initially a rise in the wage rate, which would induce some new in-migration into Texas and some additional participation in the labor force from current residents. Moreover, with wages rising relative to capital, there would be some substitution of capital for employees so the need for additional workers is lessened through productivity increases. But the fact that the Texas economy cannot adjust completely to the loss of this labor through these changes and retain its competitiveness ultimately means that relative to the rest of the world the cost of production in Texas is higher, making our goods less competitive in the international marketplace and decreasing the size of the Texas economy.

Regional Distribution

Assuming that the current distribution of unauthorized immigrants is similar to the distribution of the foreign-born population in Texas from Central America and Mexico, as detailed in the 2000 Census, the economic impact of unauthorized immigrants varies substantially across Texas. As detailed in Exhibit 16, the loss of 1.4 million undocumented immigrants from the work force would produce work force declines ranging from 22.7 percent in the South Texas COG region (the Brownsville-McAllen area) to 1.7 percent in Southeast Texas (the Beaumont-Port Arthur area).

EXHIBIT 16
Estimated Regional Effects of the Loss of 1.4 Million Undocumented Immigrants from Texas in 2005

Percent Change from Baseline in 2005

Council of Government Region Labor Force Population Employment Gross Regional Product
South Texas -22.7% -16.4% -7.6% -7.4%
Rio Grande -20.7% -15.3% -6.9% -6.8%
Lower Rio Grande -20.6% -14.8% -7.9% -8.1%
Middle Rio Grande -17.9% -13.0% -5.2% -4.7%
Houston-Galveston -7.1% -6.7% -2.7% -2.4%
Permian Basin -6.0% -5.3% -1.9% -1.6%
North Central Texas -5.5% -5.3% -2.0% -1.8%
Alamo -5.0% -4.1% -1.9% -1.9%
Capital Area -4.3% -3.9% -2.0% -1.8%
Panhandle -4.3% -3.8% -1.2% -1.1%
Concho Valley -4.0% -3.3% -1.3% -1.2%
Heart of Texas -3.2% -2.8% -1.3% -1.3%
Golden Crescent -3.0% -2.4% -1.3% -1.3%
Coastal Bend -3.0% -2.4% -1.3% -1.2%
Brazos Valley -2.9% -2.7% -1.7% -1.7%
Deep East Texas -2.5% -2.3% -1.2% -1.1%
East Texas -2.5% -2.4% -1.1% -1.1%
South Plains -2.4% -2.1% -1.0% -1.0%
Central Texas -2.4% -1.6% -0.7% -0.7%
West Central Texas -2.1% -1.7% -0.8% -0.8%
Texoma -2.0% -1.9% -1.0% -0.9%
Ark-Tex -2.0% -2.0% -0.8% -0.8%
Nortex -1.8% -1.4% -0.6% -0.5%
South East Texas -1.7% -1.7% -1.0% -0.9%

Percent Change from Baseline in 2025

Council of Government Region Labor Force Population Employment Gross Regional Product
South Texas -7.3% -6.8% -6.4% -5.2%
Rio Grande -6.4% -6.0% -5.8% -4.7%
Lower Rio Grande -6.5% -6.2% -6.4% -5.7%
Middle Rio Grande -4.3% -4.2% -4.0% -2.8%
Houston-Galveston -2.6% -3.7% -2.5% -2.0%
Permian Basin -1.9% -2.8% -1.7% -1.3%
North Central Texas -1.7% -2.5% -1.7% -1.2%
Alamo -1.5% -1.6% -1.5% -1.3%
Capital Area -1.3% -1.5% -1.4% -1.0%
Panhandle -1.1% -1.8% -1.1% -0.8%
Concho Valley -1.0% -1.1% -1.0% -0.8%
Heart of Texas -1.1% -1.3% -1.1% -1.0%
Golden Crescent -1.2% -1.3% -1.1% -1.1%
Coastal Bend -1.2% -1.2% -1.1% -1.0%
Brazos Valley -1.6% -2.0% -1.6% -1.5%
Deep East Texas -1.2% -1.4% -1.1% -0.9%
East Texas -1.1% -1.5% -1.1% -0.9%
South Plains -0.9% -1.1% -0.9% -0.8%
Central Texas -1.2% -0.6% -0.6% -0.5%
West Central Texas -0.7% -0.9% -0.7% -0.6%
Texoma -1.0% -1.3% -0.9% -0.6%
Ark-Tex -0.8% -1.4% -0.8% -0.6%
Nortex -0.6% -0.6% -0.5% -0.4%
South East Texas -1.0% -1.4% -1.0% -0.8%

Source: Carole Keeton Strayhorn, Texas Comptroller of Public Accounts.

Generally, undocumented immigrants have the highest economic and demographic impact in the Border region, but they are a factor in the state’s more urbanized areas as well. In all but one case (the Middle Rio Grande COG), Border COGs would see work force declines in excess of 20 percent (the Rio Grande, Lower Rio Grande and South Texas COGs). Even in the Middle Rio Grande COG (including Laredo), the work force impact of undocumented immigration is more than double that in the Houston-Galveston COG.

Other measures of economic impact are distributed similarly. Estimated population, employment and GSP declines would be highest along the border but also high in large metropolitan areas elsewhere in the state. The least affected regions in Texas would be those along the Louisiana and Oklahoma borders.

By 2025, a good portion of the work force and population changes would lessen, but in all regions the employment and gross regional product declines would remain sizable, indicating that the economic impact of undocumented immigrants is unlikely to be replaced by other economic changes (Exhibit 16).

Revenues

Estimating state government revenue attributable to undocumented immigrants is a difficult undertaking because any calculations must be based both on limited data and a number of significant assumptions about spending behavior. A review of the literature found several studies on undocumented immigrant impacts, but none that could be used as a model for Texas. Primarily, these studies focused on the impact of all immigrants, regardless of legal status, and the analyses focused on federal or state income tax revenue. Since Texas has no income tax, any estimate of state tax revenue must be based on its mix of consumption and business taxes.

Texas state government receives revenue from a wide variety of sources, but these generally can be grouped as tax collections, federal funding, licenses and fees and all other sources of revenue. In fiscal 2005, $29.8 billion of the state’s total revenues of $65.8 billion came from tax collections. Federal revenue contributed $22.8 billion and licenses, fees, fines and penalties accounted for almost $6.2 billion. Other sources, such as interest income and lottery proceeds, generated the rest.

For the purposes of this analysis, major tax sources were analyzed to determine if a significant portion of collections could be attributed to consumer spending. Similarly, some major sources of revenue from fees and fines were identified as appropriate to the analysis. Sources of revenue excluded from the analysis include federal revenue and all other sources that could not be attributed directly to consumer behavior. While the state generates revenue from literally hundreds of taxes and fees, this estimate is based solely on revenue sources reflecting spending by undocumented immigrants.

State revenues included in the analysis can be grouped in five categories: consumption taxes and fees, lottery proceeds, utility taxes, court fees and all other revenue. In addition, local school property tax revenue is estimated. Consumption tax revenue totals are composed primarily of revenue from the sales tax, motor vehicle sales and use tax, gasoline tax, alcoholic beverage taxes, cigarette and tobacco taxes and the hotel tax.

Estimated revenue for each tax is calculated based on information from two sources. The Pew Hispanic Center produces data on average income and demographic characteristics of undocumented immigrants nationwide (again, no detailed demographic data are available at the state level). The estimate of annual average family income used in this analysis is $27,400. In addition, data from the Comptroller’s tax incidence model shows the tax impact for households at the estimated average income level.

State utility tax revenue mostly comprises the gas, electric, and water utility tax and this estimate uses the same basic data on average income along with the final incidence impact for this tax. Similarly, local school property tax revenue is based on the same data and the incidence specific to the school property tax.

Estimated lottery revenue is based on a Lottery Commission study of the percent of the population that plays lottery games and the average amount spent by each income level. Court costs and fees were calculated on a per capita basis since they are largely unrelated to income.

“All other revenue” consists of a number of smaller consumer taxes and fees that may well include some amounts paid by undocumented immigrants, but for which no data exist to base an estimate. The largest of these sources is higher education tuition; other sources include state park fees and the fireworks tax. This estimate assumes that undocumented immigrants contribute to the state through these revenues at the same rate as for the major consumption taxes and fees except for higher education tuition and fees. These contributions were calculated in proportion to higher education student enrollment.

As shown in Exhibit 17, estimated fiscal 2005 revenue to the state from undocumented immigrants in Texas is about $1.0 billion, or about 3.6 percent of the $28 billion in state revenue considered in this analysis. In addition, an estimated $582.1 million in school property tax revenue can be attributed to undocumented immigrants, or about 2.9 percent of the statewide total. Undocumented immigrants, thus, contributed nearly $1.6 billion in estimated revenue as taxpayers in fiscal 2005.

EXHIBIT 17
Estimated Revenue from Undocumented Immigrants
Fiscal 2005
(in millions)

Revenue Source Total Revenue for Selected Taxes and Fees Estimated Revenue from Undocumented Immigrants Percent of Total
Major Consumption Taxes and Fees $23,798.7 $866.7 3.6%
Lottery $1,584.1 $60.9 3.8%
Utilities-Related $664.0 $19.5 2.9%
Court Costs and Fees $337.9 $20.6 6.1%
All Other Revenue $1,640.5 $31.2 1.9%
State Revenue Subtotal $28,025.1 $999.0 3.6%
School Property Tax $20,194.9 $582.1 2.9%
Total Estimated Revenue $48,220.0 $1,581.1 3.3%

Note: Amounts may not add due to rounding.
Source: Carole Keeton Strayhorn, Texas Comptroller of Public Accounts.

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