Legal Immigration: Short and Long Term Benefits

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Retrieved from https://sites.google.com/a/oroville.wednet.edu/politcal-science-125-global-issues-winter-2017/part-4-lesson-64-the-economics-of-immigration

The United States of America, the great melting pot. A nation built on the backs of foreign born people who came here first to avoid religious prosecution and then, overtime, to find better opportunity in life.

This does not mean that immigration hasn’t been a hot spot for debate throughout our time as a country. America has a long history of being restrictive towards newcomers. A law was passed in 1882 banning Chinese labor immigrants, for example, since they supposedly “polluted” our culture. Even the Irish were not spared back in the mid-19th century.

In today’s world, immigration remains a policy priority for many Americans. According to Pew Research, 71% of Republican voters and 64% of Democratic voters cited immigration as very important prior to the 2018 election.

Now, I am not here to put my two cents in about the ongoing political debate surrounding illegal immigration. However, I would like to provide some economic insight into why legal immigration is increasingly important for our economy and why providing legal pathways for current illegal residents and future migrants can help our country as a whole.

The Short Run

First, let’s look at the U.S. as of January, 2019. Although Chinese growth has hit its lowest point in decades and the IMF just lowered global growth forecasts, the U.S. economy is still running fairly strong. Most notably, the labor market continues to be a bright spot with unemployment at 3.9%. People who want to work are working.

There is a flip side to a strong labor market though: positions that go unfilled month to month. As of November 2018, nearly 6.9 million jobs remained unfilled, according to the Bureau of Labor Statistics. Two major contributors were health care assistance and food/accommodation services at 1.16 million and 911,000 openings, respectively.

These are both low skilled, low wage industries. The average food service worker earned $11.11 per hour and the average health care assistant earned $14.40 per hour, according to data from Indeed.com.

These are for the most part jobs that many Americans do not want. In such a tight labor market, lower-skilled people are quitting these professions for better paying opportunities in construction and manufacturing where unfilled positions also remain high.

This is where immigrants can play a key role. Roughly 41% of immigrants have a high school diploma or less and come to this country looking for low skilled work like food service. These jobs, even if a lower wage relative to other U.S. jobs, provide much higher pay as compared to many of the developing countries where the immigrants come from.

Filling many of the vacancies could have a wide affect on the U.S. economy. For example, the companies that need to the vacancies filled would have more room to expand. Local restaurant chains could open more stores as labor needs become satisfied, boosting local tax revenues. Health services may hold back on price increases as health care assistants grow in proportion to patients, lowering the burden on consumers.

They may also help increase the wages of other more skilled positions held by native workers, contrary to what many believe. Think about farming. If a California farm owner has an under supply of seasonal workers, they produce less of their crop and bring in a smaller profit. Now that owner is awarded two visas to provide to foreign labor. These two additional workers help them turn out 10% more product for the season, helping to grow their revenues. That farmer likely took home more income to their family as a result of those two foreign workers.

The Maryland crab industry provides a prime example of how legal immigration limits can hurt an entire area of the economy. Back in early 2018, the Trump Administration put stricter limits on the H-2B visa program that provides seasonal work permits for foreign workers. This put a lot of strain on labor needs for Maryland businesses that process crabs to access the meat. These businesses rely heavily on seasonal, foreign labor since many Americans refuse to take jobs that are not year round positions.

A labor shortage followed and supply chains became bottle necked since the crabs could not be processed fast enough. Businesses that processed the crab were not the only ones affected here. Fishermen had fewer places to sell their catch, creating supply gluts. Restaurants saw higher prices as processed crab supply fell. Shipping companies had less product to move and needed fewer drivers as a result. According to a University of Maryland report, this amounted to 2.5 jobs being lost in the state for every visa that a crab processing companies could not attain.

With a limited number of immigrants available to expand the labor pool, this could happen to other industries as well if the labor supply continues its path of tightening.

The Long Run

Realistically, increasing legal immigration to address these immediate labor issues is likely not feasible due to the chronic gridlock of Washington.

However, there are long term problems that may be more feasible to address overtime. A primary issue to look at is our slowly aging population. According to data from the Kaiser Foundation, the share of the U.S. population that is 65 or older has increased from 13% in 2008 to 16% in 2017. The Population Reference Bureau predicts that this share will increase to 24% by 2060.

This age shift is coming from two fronts. First, baby boomers, who make up a disproportionately large amount of our population, are getting old. Second, people are having fewer kids. Births fell 2% from 2016 to 2017, and birth rates are at 1,764.5 per 1,000 women, well below the replacement rate of 2,100 per, 1,000 women.

These demographic shifts pose numerous long run economic problems. For one, we have the growing burden of social security. The program is set up so that the current benefits are financed by the current work force. If more people are above the age of 65, when you can retired and receive full social security benefits, but relatively less people are working and supporting the program, the fund will be eroded over time.

The imbalance of workers to the retired has led the Social Security Administration to estimate that in 2035 the overall fund will become insolvent and benefits will have to be reduced to 75% of the current payout. This threatens the economic security of those who are retired and could cause drastic drops in consumption among the elderly. This would hurt an economy that is overall based largely on consumption.

How can the U.S. increase the pool of people contributing if birthrates are falling? By bringing in more foreign workers to boost the working age population. This would help displace the increase in retirees and provide more stability the social security program. It is also a better solution than simply increasing the tax on current workers. Where as that would reduce consumption among the working by reducing their income, more immigrants would increase disposable income rather than reduce it, providing a two-sided benefit.

Another issue that comes along with an aging population is a shrinking labor force that is near its lowest point since the 1970’s. With a smaller work force comes less overall output and productivity. Less productivity leads to stagnant wages and less income. Less income in the economy means less consumption overall. You get the picture.

Utah provides a great example of why a growing labor force is key for continuous economic growth. Their labor force has grown three times faster than the country’s as a whole. This has helped boost spending on things such as cars and education, driving a local economy that has grown at a 2.8% clip since the Great Recession, as compared to the 2.2% rate of the U.S. as a whole.

Utah’s trick is above average birth rates, largely because of their majority Mormon population’s high value on a large families. Since Mormons are only a small minority of the whole country, these high birth rates are an isolated trend.

By encouraging working age individuals to to immigrate, the U.S. could provide a needed boost to a labor force that is on a downward trend. More people working would put more disposable income into the economy that could be spent on goods and services, helping to increase consumption and overall economic growth. Without a boost from abroad, we will likely see the labor force continue its downward trend.

Final Remarks.

Not trying to propose any radical policies here. Immigration is a complex issue with many roads forward for future migrants and our current 11 million person undocumented population. There’s plenty of political debate to be had with how to move forward with immigration reform and what specific policies are best for our country.

People need to realize the importance of immigrants in our economy though. Whether we make millions of undocumented residents legal or make it easier for the foreign born to come and work within the country, bringing more legal immigrants into the U.S. should be a policy priority. They are a major key for our long run economic health.

 

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