Immigrants Can Help Save the U.S. Economy
America is no longer the unstoppable economic powerhouse of the 20th century. China is likely to surpass the United States in terms of GDP within the next fifteen years, according to estimates from PricewaterhouseCooper. Nostalgia for American hegemony certainly contributed to President Trump’s 2016 election victory. However, the solution to some of America’s current economic problems and possible future threats is one that the Trump administration would overlook: sharply increasing both skilled and unskilled immigration. We need immigrants today to raise tax revenue, create new jobs, and boost wages.
Increasing immigration will help solve a looming fiscal problem: the aging American population. An aging population is an economic problem; when Americans leave the workforce, the Federal Government loses income tax revenue and must pay Social Security benefits to the new retirees. This problem has become substantially worse. In the last century, we have made tremendous advances in medicine while the retirement age population has grown faster than the age of young people. Experts predict that trend will continue; the Population Reference Bureau warns that the 65-and-over population will jump to 24% of the total population in 2060 from 15% in 2016. With costs rising and revenue declining, the US government needs to act before this problem becomes a crisis, and increasing immigration can be a solution. Immigrants tend to be younger people, median age 35.9, who can physically and emotionally endure the process of picking up and moving to a foreign country. By accepting more immigrants, we dilute the burden the 65-and-older population is putting on America. More young workers means more income tax revenue for the Federal Government.
When liberal lawmakers propose allowing more immigration, conservatives typically complain that immigrants “steal jobs” from native-born Americans. Many argue there are a fixed number of jobs in the economy and immigrants, who are willing to work for less than natives, outcompete natives for those jobs. The empirical reality is that immigrants improve the job market by creating jobs and raising wages. To explain why this happens, we need to look at the jobs done by both highly-skilled immigrants and lower-skilled immigrants. First, highly-skilled immigrants are exceedingly entrepreneurial; they constitute 25% of entrepreneurs but only 15% of the workforce. Entrepreneurship creates new companies that need new employees and thus more jobs. Further, when new firms enter the market, they compete with existing ones for employees and customers. Competition like this drives prices for customers down and wages to employees up. More jobs, higher wages, and lower prices all benefit native-born workers. The creation of new firms is important now more than ever as large companies can distort prices and wages given the lack of competition for them. In 2016, the Council of Economic Advisors issued a brief regarding the current upward trend in firm consolidation and the downward trend in geographic mobility. In other words, jobs are concentrated in too few firms and workers are not moving around far enough to find the best jobs, so firms do not feel obligated to offer the highest wage possible. They know that their job offer will be good enough to attract local workers because there is not enough competition in town. Economic theory lauds entrepreneurs, but right now lawmakers should value them even more because of the depressed labor markets.
Lower-skilled immigrants also raise wages for native born workers due to their impact cultural diversity and filling labor gaps in certain industries. According to a study done by British and American researchers, diversity attracts highly skilled workers to cities, and in return, highly skilled workers make their colleagues more productive. Diverse metropolitan areas are vibrant and exciting places to live, so it’s no wonder why higher skilled workers choose to live there. Most lower-skilled immigrants are from Latin American, so accepting more of them would increase diversity in the majority-white United States. Furthermore, immigrants raise native born wages by working in complementary fields to native born workers. Often, immigrants work in fields like farming, construction, food preparation and other labor-intensive industries because language barriers prevent them from working in the service sector. The data show that native born workers do not compete with immigrants for these jobs, and in these industries, immigrants raise the wages of farmers, contractors, and craftsman who depend on manual laborers to be productive. Both low and high skilled immigrants positively impact the US economy, and the federal government could, were it politically feasible, do even more by legalizing the undocumented immigrants within our borders right now.
Currently, there are more than 11 million undocumented immigrants living in the US, and legal barriers restrict this population from helping the economy reach its full potential. First, undocumented immigrants are not allowed to file patents or start their own business. Patents prevent big companies from stealing inventions and driving inventors out of business, and immigration law prohibits anyone from employing an undocumented immigrant, so it is especially dangerous for the very visible business owner to be undocumented. Therefore, they are precluded from inventing or entrepreneurship. Scholarship on potential entrepreneurs or inventors in the undocumented immigrant population is scarce, but there is no reason to believe that undocumented immigrants could not innovate like the native population. By precluding undocumented immigrants from inventing and entrepreneurship, we lose out on the potential for new firms and inventions. Second, legalizing undocumented immigrants would allow them to apply for FAFSA. In the status quo, undocumented immigrants cannot apply for federal financial aid as non-citizens. This is extremely repressive for undocumented students considering that two thirds of college attendees use federal financial aid and the current state of college affordability. Once legalized, college will become a feasible option for a few million more Americans, and a college education can transform students into highly skilled workers. Legalizing the undocumented population would benefit the US economy in similar ways to increasing immigration inflows.
President Trump, consistent with his right-wing populism, likes to scapegoat immigrants for the decline of American hegemony. In reality, that was caused by deep-seeded economic and political reasons. An unlikely but smart economic move for the Trump administration to take would be to sharply increase immigration to the United States and legalize the undocumented immigrants living within our borders. Although these issues are incredibly complex, it would certainly benefit the United States economically when we are losing ground to foreign powers.
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