June 3, 2011
A Description of the Immigrant Population: An Update
June 2, 2011
This document is the latest in CBO's series on immigration. It updates A Description of the Immigrant Population (November 2004), providing an overview of the nation's foreign-born population, with a particular focus on the years 2000 to 2009. It discusses changes in the numbers and countries of origin foreign-born people and their U.S. residency and citizenship status, and it compares demographic and labor market characteristics of foreign-born and native-born people in the United States.
Migrants' Remittances and Related Economic Flows
February 24, 2011
Migrants' remittances—payments sent by foreign-born workers back to their home country—have become a significant source of monetary inflows for many countries. In 2009, such remittances from the United States to other countries totaled more than $48 billion, nearly 30 percent more in inflation-adjusted terms than they were in 2000. People in Mexico receive more of the remittances sent from the United States than do residents of any other country.
This document updates and expands upon the Congressional Budget Office's (CBO's) May 2005 publication Remittances: International Payments by Migrants. That paper included data through 2003; this document includes data through 2009. The existing data on global remittances are not of very high quality, however, and the comparisons and trends reported here should be viewed only as approximations.
Migrants to the United States often send money to people in their home country or take it with them when they return home. Those transfers can involve sending money through banks or other institutions to family members or others in the home country, making financial investments in the home country, or returning to the home country while retaining bank accounts or claims on other financial assets in the United States. All three types of actions are similar in their economic effects, even though only transfers of money through banks and other financial institutions to foreign individuals are commonly thought of as migrants' remittances.
As one of the most important destinations of global migration, the United States is the largest national source of remittances. The opportunity to send or bring remittances home is one of the important motivations for migration, and policies that affect migration to the United States could affect outflows of remittances. In turn, the flow of remittances can affect economic growth, labor markets, poverty rates, and future migration rates in the United States as well as in recipient countries.
This document updates and expands upon the Congressional Budget Office's previous analysis of remittances—Remittances: International Payments by Migrants (May 2005)—and presents data through 2009. The new presentation provides a better view of people's total transfers of money between the United States and other countries but, because of changes in the way the data are collected and reported, does not provide as much information as was previously available on the portion of those transfers that is attributable to migrants. (See "Notes and Definitions" at the beginning of the full document for a summary of terminology and the appendix for a discussion of recent changes in the classification of remittances.) The existing data on global remittances and related economic flows are not of very high quality, and the comparisons and trends reported here should be viewed only as approximations.
Remittances from the United States (Exhibits 1 to 4)
The Bureau of Economic Analysis (BEA) estimates that migrants' remittances totaled about $48 billion in 2009—nearly 70 percent more than official development assistance provided by the U.S. government. Nearly $38 billion of that amount was personal transfers by foreign-born residents in the United States to households abroad. The rest, about $11 billion, reflected the compensation of employees who were in the United States for less than a year; some of that compensation, however, was spent in the United States. No breakdown of the regional destination of the money sent home is available for 2009, but in 2003, by BEA's estimate, about two-thirds of personal transfers went to countries in the Western Hemisphere, one-quarter went to countries in Asia and the Pacific, and the rest went to countries in Europe and Africa. BEA also reports that, in 2009, migrants' capital transfers (that is, individuals' transfers for themselves, as opposed to transfers to others) amounted to nearly $3 billion on net.
BEA estimates outflows of personal transfers on the basis of four characteristics: the size of the foreign-born population (differentiated by duration of stay in the United States, family type, country of origin, and sex), the percentage of the foreign-born population that remits, the income of the foreign-born population, and the percentage of income that the foreign-born population remits.
No information is publicly available on flows of migrants' remittances from the United States to specific regions or countries. Such details are available only for a category that BEA calls "net private remittances and other transfers," which measures outflows minus inflows (rather than outflows only) and includes institutional remittances by U.S. nonprofit organizations as well as a variety of other minor transactions. For 2009, BEA reports net private remittances and other transfers of $74 billion and net compensation of nonresident employees of nearly $8 billion, for a total of $82 billion in net outflows. That figure represented about 0.6 percent of total U.S. gross domestic product (GDP) in 2009. About 40 percent, or $33 billion, went to other countries in the Western Hemisphere. Another $17 billion was sent to countries in Asia and the Pacific, $9 billion flowed to countries in Europe, and $5 billion was transferred to countries in Africa.
Effects in Recipient Countries (Exhibits 5 and 6)
Remittances can have both positive and negative effects on the economies of recipient countries. The transfers provide a country's economy with foreign currency, help finance imports, improve the balance of payments in its international accounts, and increase national income. However, the migration that generates remittances also reduces the labor force of the country of origin, and remittances may reduce the remaining family members' incentive to work. The available evidence suggests that recipients with income below a threshold level tend to use remittances primarily for consumption, including, for instance, purchases of food, consumer goods, and health care. In surveys of people in the United States who remitted money to Mexico, for example, 70 percent reported that consumption was the only purpose, 3 percent reported that asset accumulation was the only purpose, and 26 percent said that both consumption and asset accumulation were reasons for remitting. Nevertheless, evidence from some developing countries suggests that households in those countries tend to save a larger portion of income from remittances than from other sources of income, providing a source of capital for investment.
Concurrent with the overall increase in global remittances has been a decline in the fees charged by financial institutions to make those transfers. Between 2001 and 2009, the fees charged to transfer $200 to six countries in Latin America declined by an average of at least 3 percent per year (for Haiti) to 10 percent per year (for Colombia), possibly because of lower transaction costs resulting from technological progress and more awareness among migrants about alternative ways to remit.
Remittances to Mexico (Exhibits 7 to 9)
Mexico is the destination of the largest amount of remittances from the United States. According to BEA's estimates, of the $33 billion (net) transferred from the United States to people in other countries in the Western Hemisphere in 2009 or earned as compensation by short-term migrants, about $20 billion was identified in the international economic accounts as going to Mexico; by BEA's estimates, such flows from the United States to Mexico (adjusted for inflation) rose by an average of 2 percent per year between 2000 and 2009. The Banco de Mxico estimates that all gross inflows of funds from abroad—not only from the United States—were about $22 billion in 2009. (The bank does not estimate outflows.) Estimates from the Banco de Mxico indicate that all gross inflows (adjusted for inflation) rose by an average of 11 percent per year during the past decade.
The difference between BEA's and the Banco de Mxico's estimates could stem not only from differences in definitions but also from differences in methodology and source data. Beginning in 2003, all Mexican banks and money transfer companies were required to register with the Banco de Mxico and to report monthly remittances by state. (Prior to that rule change, the Banco de Mxico inferred remittances from a 1990 census of different Mexican financial institutions.) In addition, around that time, the "matricula consular"—an identification card issued by the Mexican government to Mexican nationals living outside of the country—began to be accepted for opening bank accounts in the United States; that change may have helped facilitate money transfers to Mexico in a way that allowed the Banco de Mxico to better record them. Finally, the Banco de Mxico also conducts a border survey that asks returning migrants about cash and goods that they are bringing to relatives in Mexico. With the apparent increased use of more formal channels to transfer money between the United States and Mexico and those border surveys, the official Mexican statistics are recording cash transfers not captured in the past.
Global Flows of Remittances (Exhibits 10 to 13)
According to the International Monetary Fund, total inflows of remittances globallythe sum of personal transfers, compensation of employees, and migrants' capital transferswere about $407 billion in 2008 (in nominal dollars), up from about $150 billion in 2002, an average increase of 18 percent per year. About two-thirds of global inflows was sent as personal transfers, about 30 percent was recorded as compensation of employees, and about 5 percent stemmed from migrants' capital transfers. Although total inflows and outflows of global remittances should be equal, total recorded outflows—about $289 billion in 2008—are generally much lower than total recorded inflows. The discrepancy between total inflows and total outflows underscores the deficiencies of remittance data, which are collected or estimated in different ways in different countries. Even when remittance data are collected directly, discrepancies arise because of the use of informal channels for transfers of funds as well as the misclassification of remittances as tourism receipts, trade receivables, or deposits.
Total inflows of remittances constitute a small fraction of global economic activity, amounting to about 1 percent of total gross domestic product in 2008. For a number of countries, however, such funds constitute a substantial source of income: For at least six countries in Latin America and the Caribbean, total inflows amounted to more than 10 percent of GDP. Further, for a number of countries, total inflows were more than double total foreign direct investment in 2008.
Changes in the Distribution of Workers' Hourly Wages Between 1979 and 2009
February 16, 2011
This Congressional Budget Office (CBO) study, which was prepared at the request of the chairman and former ranking member of the Senate Committee on Finance, documents changes in the level and distribution of hourly wages received by workers in the United States between 1979 and 2009. It also reviews the leading explanations for changes in the supply of, and demand for, workers with different sets of skills as well as the role of labor market institutions in affecting wages. In keeping with CBO's mandate to provide objective, impartial analysis, this study does not make any recommendations. A related CBO study published in October 2009 analyzed trends in the distribution of annual earnings (Changes in the Distribution of Workers' Annual Earnings Between 1979 and 2007); a forthcoming CBO study will examine trends in the distribution of household income between 1979 and 2007.
Wages are a key component of the overall economic well-being of individuals and families. Hourly wages and hours worked determine an individual's earnings, and for most nonelderly adults, earnings constitute the bulk of their family's income. This Congressional Budget Office (CBO) study documents changes in the level and distribution of hourly wages in the United States between 1979 and 2009. It also reviews the research literature on important factors that most likely underlie the observed trends in wages.
The wage rate (the wage per hour of work) received by workers in the middle of the wage distribution (the 50th percentile) increased by about 20 percent over the 1979–2009 period after adjusting for inflation, reaching about $17 per hour in 2009. The dispersion of wages—the gap between wages at the top and bottom of the distribution—also increased over that period, but the pattern of changes at the top and bottom differed. For men and women alike, the gap between the wage rates received by high-wage (90th percentile) and middle-wage workers expanded throughout the 30-year period; the wage rates of high-wage women grew especially rapidly. In contrast, the gap between the wage rates received by low-wage (10th percentile) and middle-wage workers widened for both men and women early in the 1980s but has remained stable for the past 20 years.
Wages are affected by market forces (the level and distribution of skills supplied by workers and employers' demand for those skills) and institutional factors (such as minimum-wage laws and changes in the share of the workforce represented by unions). Given the complex pattern of changes in the wage distribution during the past 30 years, it is not surprising that no single explanation can account for the entire pattern.
In the category of market forces, innovations in information and computing technology in the 1990s and 2000s generated growing demand for skilled labor, particularly for highly educated workers, that outpaced growth in the supply of highly skilled, highly educated workers; that differential probably played a large role in the observed changes in the wage distribution. Shifts in international trade might also have contributed to increasing relative demand for skilled labor, as imports from low-wage countries substituted for some domestic production and employment; however, research on the significance of that effect is inconclusive. In addition, a rising number of foreign-born people in the workforce affected the relative supply of workers with different amounts of education, but that shift appears to have had only a modest effect on the distribution of wages.
Turning to institutional factors, the decreasing real (inflation-adjusted) value of the federal minimum wage probably increased wage dispersion in the bottom half of the wage distribution in the 1980s. Moreover, declining unionization rates contributed to increasing dispersion in the upper half of the wage distribution for men over that same decade. Neither of those factors is a plausible explanation for the changes in the wage distribution in the 1990s and 2000s, however.
Although this study focuses on hourly wages, changes in the level and distribution of hourly compensation, which includes both wages and fringe benefits, are also important. Unfortunately, data on hourly compensation are more limited than data on hourly wages. Based on the data that are available, the dispersion in hourly compensation in the upper half of the distribution was similar to the dispersion of wages, on average, between 1987 and 2007. In the lower half of the distribution, the dispersion of hourly compensation was somewhat greater than that for wages, on average, during the same period. Nevertheless, for both the upper and the lower halves of the distribution of compensation, the changes in dispersion over those two decades were similar to the changes in the dispersion of wages.
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Budget and Economic Outlook: Fiscal Years 2011 to 2021
January 26, 2011
The United States faces daunting economic and budgetary challenges. The economy has struggled to recover from the recent recession, which was triggered by a large decline in house prices and a financial crisis—events unlike anything this country has seen since the Great Depression. During the recovery, the pace of growth in the nation's output has been anemic compared with that during most other recoveries since World War II, and the unemployment rate has remained quite high.
For the federal government, the sharply lower revenues and elevated spending deriving from the financial turmoil and severe drop in economic activity—combined with the costs of various policies implemented in response to those conditions and an imbalance between revenues and spending that predated the recession—have caused budget deficits to surge in the past two years. The deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product (GDP), the largest since 1945—representing 10.0 percent and 8.9 percent of the nation's output, respectively.
For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP. The deficits in CBO's baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021. Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law.
The Economic Outlook
Although recent actions by U.S. policymakers should help support further gains in real (inflation-adjusted) GDP in 2011, production and employment are likely to stay well below the economy's potential for a number of years. CBO expects that economic growth will remain moderate this year and next. As measured by the change from the fourth quarter of the previous year, real GDP is projected to increase by 3.1 percent this year and by 2.8 percent next year. That forecast reflects CBO's expectation of continued strong growth in business investment, improvements in both residential investment and net exports, and modest increases in consumer spending. It also includes the impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (referred to in this report as the 2010 tax act), enacted in December, which provides a short-term boost to the economy by reducing some taxes, extending unemployment benefits, and delaying an increase in taxes that would otherwise have occurred in 2011. CBO projects that inflation will remain very low in 2011 and 2012, reflecting the large amount of unused resources in the economy, and will average no more than 2.0 percent a year between 2013 and 2016.
The recovery in employment has been slowed not only by the moderate growth in output in the past year and a half but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers, that have hindered the reemployment of workers who have lost their job. Payroll employment, which declined by 7.3 million during the recent recession, gained a mere 70,000 jobs (or 0.06 percent), on net, between June 2009 and December 2010. (By contrast, in the first 18 months of past recoveries, employment rose by an average of 4.4 percent.) Consequently, the rate of unemployment has fallen by only a small amount: After climbing to 10.1 percent of the labor force during 2009, the unemployment rate declined only to 9.4 percent by December 2010. Other measures of labor market conditions suggest even more slack than does the unemployment rate. For example, almost 9 million workers who have wanted full-time work in the past two years have been employed only part time.
As the recovery continues, the economy will add roughly 2.5 million jobs per year over the 2011–2016 period, CBO estimates. However, even with significant increases in the number of jobs, a substantial reduction in the unemployment rate will take some time. CBO projects that the unemployment rate will gradually fall in the near term, to 9.2 percent in the fourth quarter of 2011, 8.2 percent in the fourth quarter of 2012, and 7.4 percent at the end of 2013. Only by 2016, in CBO's forecast, does it reach 5.3 percent, close to the agency's estimate of the natural rate of unemployment (the rate of unemployment arising from all sources except fluctuations in aggregate demand, which CBO now estimates to be 5.2 percent).
For the period beyond 2016, CBO's economic projections are based on trends in the factors that underlie potential output, including the labor force, capital accumulation, and productivity. The projections therefore do not explicitly incorporate fluctuations resulting from the business cycle. In CBO's projections, growth of real GDP averages 2.4 percent annually from 2017 to 2021, a pace that matches the growth of potential GDP over those years. The unemployment rate averages 5.2 percent in that same period.
The Budget Outlook
The recovery now under way might be expected to lessen the budget imbalance in 2011 by increasing tax revenues and decreasing spending for certain income-support programs, such as unemployment compensation. However, revenue growth will be restrained by the slow and tentative pace of the recovery and by the 2010 tax act.
Moreover, outlays for many programs are projected to continue to grow and more than offset the decreases in spending (for unemployment compensation, for example) yielded by improving economic conditions.
The resulting federal budget deficit of nearly $1.5 trillion projected for this year will equal 9.8 percent of GDP, a share that is nearly 1 percentage point higher than the shortfall recorded last year and almost equal to the deficit posted in 2009, which at 10.0 percent of GDP was the highest in nearly 65 years.
By CBO's estimates, federal revenues in 2011 will be $123 billion (or 6 percent) more than the total revenues recorded two years ago, in 2009. The continued slow improvement in economic conditions is anticipated to boost revenues from individual income taxes, corporate taxes, and other sources by nearly $200 billion between those two years; however, revenues from social insurance taxes are projected to decline by more than $70 billion relative to their level two years ago, mostly as a result of a one-year reduction in payroll taxes included in the 2010 tax act.
Spending, for the most part, has been growing faster than revenues. Programs related to the federal government's response to the problems in the housing and financial markets are an exception; outlays recorded for the Troubled Asset Relief Program (TARP), for example, will decrease by $176 billion from 2009 to 2011, CBO projects. But if current laws remain unchanged, federal outlays other than those for the TARP are projected to be $366 billion (or 11 percent) higher in 2011 than they were in 2009.
According to CBO's projections, mandatory spending excluding outlays for the TARP will increase by $191 billion (or 10 percent) between 2009 and 2011. Significant growth in many areas—in particular, for Social Security, Medicare, and Medicaid—is expected to be offset only partially by reductions in outlays for other programs, primarily for Fannie Mae, Freddie Mac, and deposit insurance. Discretionary spending will increase by an estimated $137 billion over the two-year period; about one-third of that increase stems from funding provided by the American Recovery and Reinvestment Act of 2009 (ARRA). In addition, outlays for net interest will rise by an estimated $38 billion from 2009 to 2011, mostly because of substantial increases in borrowing.
Under current law, CBO projects, budget deficits will drop markedly over the next few years—to $1.1 trillion in 2012, $704 billion in 2013, and $533 billion in 2014. Relative to the size of the economy, those deficits represent 7.0 percent of GDP in 2012, 4.3 percent in 2013, and 3.1 percent in 2014. From 2015 through 2021, the deficits in the baseline projections range from 2.9 percent to 3.4 percent of GDP.
The deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP. With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket over the next decade. CBO projects that the government's annual spending on net interest will more than double between 2011 and 2021 as a share of GDP, increasing from 1.5 percent to 3.3 percent.
CBO's baseline projections are not intended to be a forecast of future budgetary outcomes; rather, they serve as a neutral benchmark that legislators and others can use to assess the potential effects of policy decisions. Consequently, they incorporate the assumption that current laws governing taxes and spending will remain unchanged. In particular, the baseline projections in this report are based on the following assumptions:
- Sharp reductions in Medicare's payment rates for physicians' services take effect as scheduled at the end of 2011;
- Extensions of unemployment compensation, the one-year reduction in the payroll tax, and the two-year extension of provisions designed to limit the reach of the alternative minimum tax all expire as scheduled at the end of 2011;
- Other provisions of the 2010 tax act, including extensions of lower tax rates and expanded credits and deductions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and ARRA, expire as scheduled at the end of 2012; and
- Funding for discretionary spending increases with inflation rather than at the considerably faster pace seen over the dozen years leading up to the recent recession.
The projected deficits over the latter part of the coming decade are much smaller relative to GDP than is the current deficit, mostly because, under those assumptions and with a continuing economic expansion, revenues as a share of GDP are projected to rise steadily—from about 15 percent of GDP in 2011 to 21 percent by 2021.
As a result, the baseline projections understate the budget deficits that would arise if many policies currently in place were extended, rather than allowed to expire as scheduled under current law. For example, if most of the provisions in the 2010 tax act that were originally enacted in 2001, 2003, and 2009 or that modified estate and gift taxation were extended (rather than allowed to expire on December 31, 2012), and the alternative minimum tax was indexed for inflation, annual revenues would average about 18 percent of GDP through 2021 (which is equal to their 40-year average), rather than the 19.9 percent shown in CBO's baseline projections. If Medicare's payment rates for physicians' services were held constant as well, then deficits from 2012 through 2021 would average about 6 percent of GDP, compared with 3.6 percent in the baseline. By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.
Beyond the 10-year projection period, further increases in federal debt relative to the nation's output almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending as a percentage of GDP well above that in recent decades. Specifically, spending on the government's major mandatory health care programs—Medicare, Medicaid, the Children's Health Insurance Program, and health insurance subsidies to be provided through insurance exchanges—along with Social Security will increase from roughly 10 percent of GDP in 2011 to about 16 percent over the next 25 years. If revenues stay close to their average share of GDP for the past 40 years, that rise in spending will lead to rapidly growing budget deficits and surging federal debt. To prevent debt from becoming unsupportable, policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.