Simulated income distributional impacts of immigration : a case study of Hawaii

Abstract

A previously estimated regional econometric model of Hawaii was modified in order to simulate the economic impacts of population and labor force change due to immigration. Estimates of the foreign immigrant component of population growth in the study period (1961-1968) were generated from INS and Census data and were used as the change in simulation. Census data also provided the source for determining the functional makeup of the different income classes. After a satisfactory model with a stable solution was created, the values of the population variables were reduced by the estimated immigration and the model was solved again. The difference between the control solution and the solution after reducing the population values was the simulated change. In general, the results were consistent with conventional expectations derived from basic microeconomics. The model showed immigration to increase total income somewhat while decreasing per capita income. Returns to labor were reduced, but property, entrepreneurial and transfer income are increased. Unexpectedly, the model showed that consumption could decrease if the effect of income distribution change offsets the increase in disposable income. When simulated functional income changes were applied to the estimated distribution for Hawaii, the middle income groups were shown to bear the largest proportion of the costs of immigration while the highest income group gained. The general applicability of these results is qualified by several factors. An econometric model is limited in its completeness of causal specification and interaction. The constant parameters imply that no structural change accompanies the policy change. Numerous immigrant characteristics that differ from the resident population could neither be tested for significance nor included in the simulation. These and other problems are limitations of the technique, but is has shown itself to be a good framework for the empirical analysis and a foundation for insight into the problem.