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Are immigrants the secret to America's economic success?

·4 mins

When we accuse a politician of dehumanizing some ethnic group, we’re usually being metaphorical. The other day, however, a political figure said it straight out: Some migrants are “not people, in my opinion.” Well, in my opinion, they are people. I’d still say that even if the migrant crime wave this person and their allies harp on were real, and not a figment of their imagination (violent crime has in fact been plummeting in many cities). And I’d say it even if there weren’t growing evidence that immigration is helping the economy – indeed, that it may be a major reason for economic success. But as it happens, there is a lot of evidence to that effect.

Some background here: When COVID struck, there were widespread concerns that it might lead to long-term economic “scarring.” None of that happened. If we compare the current state of the economy with projections made just before the pandemic, we find that real gross domestic product has risen by about 1 percentage point more than expected, while employment exceeds its projected level by 2.9 million workers.

How did we do that? US workers and businesses turned out to be more resilient and adaptable than they were given credit for. Also, our policymakers didn’t make the mistakes that followed the 2008 financial crisis, when an underpowered fiscal stimulus was followed by a premature turn to austerity that delayed a full recovery for many years. Instead, the administration went big on spending, probably contributing to a temporary burst of inflation but also helping to ensure rapid recovery – and at this point the inflation has largely faded away while the recovery remains.

Beyond that, the very surge in immigration that has upset some has played a big role in increasing the economy’s potential. The budget office recently upgraded its medium-term economic projections, largely because it believes that increased immigration will add to the workforce. It estimates that the immigration surge will add about 2% to real GDP by 2034. But are immigrants taking jobs away from native-born Americans? No. A recent analysis shows no rise in native-born unemployment during the immigration surge. It does show a rise in foreign-born unemployment, which I’ll come back to.

Still, doesn’t immigration put downward pressure on wages? That sounds as if it could be true – in particular, you might think that immigrants with relatively little formal education compete with less educated native-born workers. But many (although not all) academic studies find that immigration has little effect on the wages of native-born workers, even when those workers have similar education levels. Instead of being substitutes for native-born workers, immigrants often seem to complement them, bringing different skills and concentrating in different occupations.

In some ways the current immigration surge, probably consisting mainly of less educated workers (especially among those without legal status), is a test case. Have wages for lower-wage workers declined? On the contrary, what we’ve seen recently is a surprising move toward wage equality, with big gains at the bottom.

Overall, then, immigration appears to have been a big plus for economic growth, among other things expanding our productive capacity in a way that reduced the inflationary impact of spending programs. It’s also important to realize that immigration, if it continues, will help pay for Social Security and Medicare. That means a substantial number of additional workers paying into the system without collecting retirement benefits for many years.

Finally, let me return to that analysis, which shows no rise in unemployment among the native-born but a significant rise among the foreign-born. Believe it or not, that’s probably good news. The rise in foreign-born unemployment reflects a long-standing tendency for recent immigrants to have relatively high unemployment, presumably because it takes some time for many of them to get settled into sustained employment; unemployment is much lower among immigrants who have been here three years or more. Why is this probably good news? The overall unemployment rate has crept up recently. Goldman argues, however, that this time is different. All of the rise in unemployment is among foreign-born workers – and this, they suggest, means that we aren’t seeing the kind of weakening in demand for labor that presages recessions. What we’re seeing instead, they argue, is an increase in labor supply, with many of the new workers taking some time to find their feet. If so, the Sahm rule, which has been successful as a recession indicator in the past, may currently be misleading.

The bottom line is that while the immigration system is dysfunctional and really needs more resources, the recent surge in immigration has actually been good for the economy so far, and gives us reason to be more optimistic about the future.