The Economics of Immigration

The Economics of Immigration

The Wharton School of Business at the University of Pennsylvania has conducted extensive studies on the effects of immigration on America’s economy. In light of heightened policy debates in the U.S., some of the most critical findings are:¹

• Increasing the number of legal immigrants with a college degree would have little impact on employment and slightly increase GDP.
• Legalizing undocumented workers currently residing in the U.S. would slightly reduce employment and have a negligible impact on GDP.
• Increasing deportations would substantially reduce both employment and GDP.
• Increasing the net flow of immigrants would have the largest positive impact on growing both employment and GDP.

There are a number of reasons economists consider immigrants critical to the future of America’s economy. For one thing, our population is aging and immigrants tend to be young adults. About half the immigrants who come from Latin America are between the ages of 18 and 35. Since the birthrate among Americans is historically low, immigrants help contribute to the future population and workforce.²

As such, many undocumented immigrants may spend the bulk of their careers contributing payroll taxes to Medicare and Social Security, even though they are not eligible for benefits. The net advantage, however, helps bolster pending deficits and sustain those programs.³

If America continues on its path of reducing the number of legal immigrants into the country, it could produce a massive labor shortage — particularly in industries reliant on large numbers of human capital. Therefore, investors considering the long-term implications of such a policy may want to give thought to market sectors that would be less impacted. For example, this may mean considering finance and technology over health care, construction and manufacturing. If you’d like to discuss portfolio strategies, please give us a call.

Since 2011, immigrants have accounted for two-thirds of America’s economic growth. This demographic is responsible for establishing nearly a third of U.S. firms, including more than half of startups valued at over $1 billion.⁴

Research shows a pattern of how migrant groups tend to cluster in a particular area. Once there is a substantial community present, companies from their home countries will often make capital investments in that area with factories, retail stores and research centers. For every 1% of immigrant population growth in a state, there’s a 50% greater chance that a foreign company will choose to expand its operations there.⁵

The data shows that large pockets of immigrants throughout the country have been instrumental in increasing jobs, tax revenues and revitalizing the local infrastructure in these clustered areas.

In addition to creating new companies and jobs, immigrants also are consumers. Recent studies of mass deportation impacts concluded that continuing these policies would result in a $1.6 trillion GDP loss.⁶

Researchers say there’s little data to support the position that immigrants are taking jobs away from U.S.-born citizens. This is because immigrants tend to accept low-paying jobs that Americans often don’t want, such as agriculture and building and grounds maintenance. In fact, the biggest competition comes from other low-wage immigrants, which actually serves to improve quality and productivity in those industries.⁷

In the growing home health aide and long-term care industry, immigrants hold 27.5 percent of positions as direct care workers and 30 percent of nursing home housekeeping and maintenance jobs. This is an industry that is expected to need 3.5 million additional health care workers throughout the next decade, so it’s worth noting that immigrants are helping to fill this gap. In fact, immigrant health care workers tend to be more educated than U.S.-born health industry workers; often working at lower professional levels because they lack U.S. certification or licensure. They are helping supplement shortages in rural areas, and they tend to work nontraditional shifts (nights and weekends) that are hard to fill.⁸

While the current debate about immigration policy tends to focus on jobs and wages, some economists are urging policy leaders to consider the broader economic picture. The reality is that immigration may be a necessary ingredient to drive long-term economic growth and financial sustainability of the nation’s entitlement programs.

Content prepared by Kara Stefan Communications.

¹ Knowledge@Wharton. Sept. 10, 2019. “Could Increased Immigration Improve the U.S. Economy?” https://knowledge.wharton.upenn.edu/article/us-immigration-policy/. Accessed Sep. 30, 2019.

² Daniel Kurt. Investopedia. July 30, 2019. “The Pros & Cons of Immigration Reform.” https://www.investopedia.com/articles/investing/043015/pros-cons-immigration-reform.asp. Accessed Sept. 30, 2019.

³ Kimberly Amadeo. The Balance. June 25, 2019. “Immigration’s Effect on the Economy and You.” https://www.thebalance.com/how-immigration-impacts-the-economy-4125413. Accessed Sept. 30, 2019.

⁴ Ibid.

⁵ Knowledge@Wharton. Aug. 21, 2018. “Where Immigrants Go, Economic Growth Follows.” https://knowledge.wharton.upenn.edu/article/economic-debate-immigration-reform/. Accessed Sept. 30, 2019.

⁶ Daniel Kurt. Investopedia. July 30, 2019. “The Pros & Cons of Immigration Reform.” https://www.investopedia.com/articles/investing/043015/pros-cons-immigration-reform.asp. Accessed Sept. 30, 2019.

⁷ Knowledge@Wharton. Aug. 21, 2018. “Where Immigrants Go, Economic Growth Follows.” https://knowledge.wharton.upenn.edu/article/economic-debate-immigration-reform/. Accessed Sept. 30, 2019.

⁸ Leah Zallman, Karen E. Finnegan, David U. Himmelstein, Sharon Touw and Steffie Woolhandler. Health Affairs. June 2019. “Care For America’s Elderly And Disabled People Relies On Immigrant Labor.” https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018.05514. Accessed Sept. 30, 2019.

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