Feedback
Business

Slash Immigration, and GDP Is the Victim, Research Finds

The GOP’s plan to cut the number of immigrants and increase the percentage of highly educated workers within that pool would decrease GDP by 2 percent over the long term and cost 4.6 million jobs, a new study finds.

The RAISE Act, introduced by Senators Tom Cotton (R-Arkansas) and David Perdue (R-Georgia) and endorsed by President Donald Trump earlier this month, would use a “merit-based” system for evaluating applicants, prioritizing those with college degrees, English-language skills, and employment prospects, among other criteria — an approach favored by politicians in both parties.

Here's a Breakdown of Trump's New Immigration Proposal 1:40

But by combining this with measures that would cut the approximately 800,000 legal immigrants that come to the United States every year in half, the net economic result would be negative, according to an analysis conducted by Wharton School at the University of Pennsylvania.

“What we show is that, in the long run, if you reduce the level of immigration in combination with increasing the proportion of immigrants that are highly skilled, GDP is still going to drop,” said Kimberly Burham, an economist and managing director of the Penn Wharton Budget Model, a nonpartisan research think tank at the university.

The Budget Model found that GDP would fall by 0.7 percent over the next decade, and by 2 percent by 2040. By 2040, per-capita GDP will also fall, after ticking up by two-hundredths of a percent in the first decade.

There are myriad reasons why economists say immigration accelerates, rather than slows, economic growth.

Simple Math: More Immigrants Buy More Things

“It’s a combination of more people buying and increasing size of the market,” Burham said. “It’s also a matter of more people creating a larger pool of savings and investments that can create economic growth in the long run,” on both a personal and entrepreneurial level.

Fewer people in the United States means less consumption of goods and services. With consumer spending responsible for an estimated two-thirds of the nation’s economy, immigrants provide an infusion of demand for everything from cars to cable TV.

“More immigrants are going to be buying more,” said Mark Zandi, chief economist at Moody’s Analytics.

Related: Our Financial Success Owes a Lot to Immigrants

“They are already big players… almost all of the increase in home ownership since it started rising is among Hispanic households. It’s already obvious that the immigrant population is key to consumer spending,” he said. “It drives a lot of activity.”

A near full-employment labor market combined with waves of Baby Boomers leaving the labor force already creates a challenge for companies that need to fill jobs, one that will be greater if there are fewer people available to take those jobs.

“One of the ongoing challenges for the United States economy is the aging workforce,” said Mark Hamrick, senior economic analyst at Bankrate.com.

“We know that some positions are already having a difficult time finding attractive candidates and it’s believed that some of that is because of the current crackdown on immigrants in the United States,” he said, pointing to reports that agricultural producers have been struggling to find people willing to harvest crops.

Farms Hit By Migrant Labor Crunch 2:35

The Wharton analysis found that increasing the ratio of highly skilled immigrants would be economically beneficial, but not when coupled with plans to slash overall immigration. The greater economic contributions of scientists, computer programmers and the like wouldn’t be enough to make up for the shortfall in the population, and in the workforce, overall.

“I think there’s very little doubt they add to the economic growth of the United States by the skills they bring and the high wages they earn,” said Gary Burtless, an economist at Brookings Institution.

In addition to contributing to consumer spending and tax receipts, well-educated immigrants also enrich the American economy by providing value in the form of intellectual property — patents filed, programs written — and the boost that delivers to corporate earnings.

“They often bring capital income earnings,” Burtless said. “Even if there may not be huge spillover effects on U.S. resident earners, there are spillover effects on the stock market.”

The impact on the prospects of lower-educated, less-skilled Americans is more nuanced, said Harry Holzer, a professor of public policy at Georgetown University.

“The controversial piece of this is if there’s anyone who gets hurt by this, it’s less educated workers who have to compete,” he said. “It might bring down their wages a couple of percentage points.”

But that’s not the end of the story, Holzer added: Low-skill American workers also benefit from immigrant labor in that it holds down the cost of goods and services and increases the amount of tax revenue the IRS, states and municipalities earn.

Immigrants vs. Automation

And while jobs that can’t be outsourced — say, home construction and repair, or unskilled nursing home aides — could have to pay more to lure and retain workers, economists say there’s no guarantee that other jobs held by less-educated immigrants would pay more, or even stay in the United States.

Companies could decide to instead invest in technology to automate or otherwise improve productivity with fewer workers, or simply outsource — as producers of everything from steel to shoes have over the past generation.

Related: Our Biggest Worry Isn't Immigration — It's Irrelevance

“It’s not always obvious that we’ll produce the things we produce in the absence of immigrant labor willing to do the job,” Burtless said.

“If industries can’t find workers, they’re going to have a hard time taking contracts and it would probably disrupt production in those sectors,” Holzer said. “At the end of the day, I think it’s more important to have those workers to add to the workforce.”