A factual approach to the immigration debate

As the 2020 elections approach, it is important to remember that beyond the political spin, immigration represents an important driver of employment, income and economic output. Without immigration, the U.S. labor force would be shrinking and growth prospects would be dimmer.

According to the Census Bureau, the U.S. foreign-born population totals 45 million, representing about 14 percent of America’s total population. Roughly half of this group, 21 million, are naturalized citizens, while a quarter, 12 million, are lawful permanent residents and another quarter, 11 million, are unauthorized migrants.

By 2065, the U.S. foreign-born population is expected to nearly double to 80 million, representing 18 percent of the total population, according to Pew Research.

Absent immigration, the U.S. workforce would be shrinking. While Baby Boomers drove most of the growth in the working-age population in the 1970s and 1980s, their contribution has gradually faded, and subsequent generations have been unable to stem the slowdown. Fortunately, this slowdown has been partially buffered by a rising contribution from immigrants.

Forty years ago, the labor force was growing at a 2.1 percent annual clip, almost entirely driven by individuals born to U.S. parents. By the mid-1990s, that pace had slowed to 1.6 percent, with first- and second-generation immigrants contributing about half of the growth in the U.S. labor force. Over the coming decade, however, the labor force is expected to advance only by 0.3 percent, with the working age population born to U.S.-born parents dragging growth down by 0.2 percentage point and immigration contributing 0.5 point.

The direct contribution to growth from legal immigration is substantial. Since immigrants usually gradually enter the labor force in areas where there are labor shortages (given their increased mobility), they generally increase an economy’s productive capacity and boost national income and output. This “immigration surplus” benefits all, including the native-born population.

While for low-skilled native workers the influx of immigrants generally represents a substitute that puts downward pressure on wages, it generally represents a complement to native high-skilled workers, which can boost overall wages and output.

According to the latest Bureau of Labor Statistics data on labor force characteristics, foreign-born persons represent 17 percent of the U.S. labor force. Since roughly three quarters of these are legal immigrants, we deduce that they represent about 12 percent of the total U.S. labor force. As such, a 5 percent reduction in the number of legal immigrants, equivalent to one million individuals, would reduce GDP by 0.2 percent.

Foreign-born individuals also contribute to the economy via education. According to NAFSA, a professional organization for international educators, foreign-born students in the U.S. contribute directly to the U.S. economy at a rate of $40 billion per year, or about 0.2 percent of GDP, supporting over 450,000 direct and indirect jobs from their payment of tuition fees and living expenses. Importantly, about three quarters of this contribution is financed by non-U.S. sources, such as family savings and foreign governments.

New enrollment of international students has declined for three consecutive years after average growth of around 8 percent from 2006 to 2014. The Institute of International Education (IIE) notes a decline of nearly 7 percent in new enrollment for the 2017-18 school year, and preliminary data point to a 1.5 percent fall in 2018-2019.

Several factors could explain this decline, including the higher cost of U.S. universities, competition from abroad, delayed or denied visas and an uncertain political climate. While the direct impact on growth from even a 5 percent decline in new enrollments would be negligible (less than 0.1 percentage point), the longer-term consequences of an ongoing “brain drain” could be more significant.

Immigration also boosts the travel and tourism sectors. Direct spending on accommodation, transportation and entertainment from foreign visitors adds close to $120 billion to GDP per year, according to Tourism Economics. In 2017, Tourism Economics began noting weakness in inbound tourism activity—a trend similar to the recent drop in new international student enrollment. With overnight arrivals from abroad growing only modestly in 2018, we believe that further weakness represents a risk. A 5 percent decline in annual inbound travel would lower real GDP growth by 0.03 percentage points, but combining the indirect effects, the shock could reach 0.1 percentage point. 

Deportation of illegal aliens could weigh on growth. According to the Pew Research Center, there are currently just over 10.5 million unauthorized immigrants in the U.S., representing about 3.2 percent of the U.S. population, and roughly 8 million are in the civilian labor force (about 5 percent of the total labor force).

If the administration were to follow through on President Trump’s stated objective to deport “millions of illegal aliens” by doubling deportations (from roughly 290,000 in Fiscal Year 2018 to 500,000 deportees), we calculate, using the Oxford Economics Global Economic Model, that a smaller labor force would reduce real GDP growth by 0.1 percentage point in the first year.

Reduced employment and income would strain consumer outlays and housing activity while labor shortages in some industries (agriculture, construction or leisure and hospitality in particular) would create supply-chain bottlenecks leading to increased price pressures.

If the administration ramped up the rate to one million deportations per year, real GDP growth would be reduced by 0.3 percentage points. The impact would be disproportionately larger in the six states –  California, Texas, Florida, New York, New Jersey and Illinois — where about 60 percent of unauthorized immigrants live.

In order to address an issue as complex and sensitive as immigration, we should avoid falling into preconceptions and ideological beliefs. Instead, we should adopt a factual approach illustrating the benefits and costs of immigration.

Gregory Daco is the chief U.S. economist at Oxford Economics.