$7 trillion boost to the US economy has downsides too

Elisabeth Buchwald, CNN | 3/20/2024, 1:51 p.m.
The US economy defied forecast after forecast predicting an imminent recession over the past two years. Instead, it grew beyond …

The US economy defied forecast after forecast predicting an imminent recession over the past two years. Instead, it grew beyond belief.

A boom in immigration was part of the recipe, Federal Reserve Chair Jerome Powell said in a “60 Minutes” interview on CBS last month.

But stricter measures could be coming to curb immigration after the Supreme Court announced Tuesday it is temporarily allowing Texas to enforce a controversial law that allows state officials to arrest and detain people they suspect of entering the country illegally. (A federal appeals court late Tuesday night put Texas’ controversial law back on hold.)

Congress is also resuming its fight on immigration this week against the backdrop of a looming partial government shutdown.

Republican lawmakers want more funds for securing the border. Democrats, meanwhile, want to give many migrants a faster path to citizenship.

Often absent from their bickering is the economic impact of immigration. At a time when a record number of migrants have crossed into the country, the economic implications carry even more weight. By and large, it’s difficult to make the case that higher rates of immigration are completely a win-win. But it’s equally difficult to make the case that it’s a lose-lose situation.

A $7 trillion boost to the economy

On the surface, the math is pretty simple.

“More workers means more output, and that in turn leads to additional tax revenue,” Phillip Swagel, director of the Congressional Budget Office, told reporters last month after the agency released a new report on the economic outlook. The report included a special section on immigration and its impact on the economy.

While not all migrants, such as children or the infirm, will or even can find jobs, a large portion of recent and future expected migrants are believed to be between 25 and 54 years old, the CBO report said. People in that age range are considered part of the prime-age working population.

Federal authorities encountered more than 2.5 million migrants crossing the US-Mexico border last year, according to Department of Homeland Security estimates. That contributed to net immigration of 3.3 million people into the US in 2023, well above the 900,000 annual average from 2010 to 2019, according to the CBO. The agency’s estimates consider both people with and without prior authorization to enter the US.

Because of immigration trends, the US is on pace to have 1.7 million more people in its pool of workers this year compared with what the CBO estimated last year. By 2033, the CBO now estimates that the pool will have 5.2 million workers more than it estimated last year.

As a result, the nation’s gross domestic product — a measure of an economy’s size — will grow by an additional $7 trillion over the next decade, the nonpartisan agency projects. Inflation-adjusted GDP is set to add 0.2 percentage points on average every year because of greater immigration.

The federal government will benefit from that growth, which will lift tax revenue collections by $1 trillion, according to the CBO.

A strain on state and local governments’ resources

Non-US citizens typically do not qualify for social welfare programs like Social Security and unemployment insurance. At the same time, migrants who are legally authorized to work in the US make contributions to the programs via payroll deductions.

But when it comes to programs like public education, where beneficiaries do not need to be citizens, the surge in immigration can have negative impacts at the state and local level.

That helps explain why refugees, asylum-seekers and their immediate families contributed an estimated net $37.5 billion to the federal government between 2005 and 2019, according to a report released last month by the Department of Health and Human Services. However, they cost state and local governments an estimated net of $21.4 billion, according to the report.

State and local governments incur higher costs because they fund the majority of public schools across the country, the report said.

Additionally, 21% of refugees and asylees received food assistance at some point during the 15-year period, compared with 15% of the overall US population, according to the report. Housing assistance rates had a similarly large difference between the migrant group and the overall US population.

An answer to labor shortages

The number of US job openings exceeds the number of unemployed people looking for work by more than 2 million, according to Bureau of Labor Statistics data.

When the economy was reopening after the pandemic shut down businesses, the number of job openings per unemployed person was much higher than it is currently. That drove employers to increase wages but, as a result, contributed to higher inflation.

Immigrants have been playing a crucial role in easing those shortages, Tara Watson, director of the Center for Economic Security and Opportunity at the Brookings Institution, told CNN.

Immigrants are poised to become even more necessary in the US labor market as more baby boomers enter retirement and fertility rates decline, said Watson, who co-authored the book “The Border Within: The Economics of Immigration in an Age of Fear.”

Depressed wage growth

The CBO’s report said the increase in the population from immigration “will put downward pressure on average real wages in the near term.” Real wages are what people earn after accounting for inflation.

Part of the reason is immigrants tend to work in sectors that pay lower wages to begin with, which puts downward pressure on wages overall, the CBO notes.

After 2027, the agency predicts the trend will “partially reverse” as migrant workers acquire more advanced skills. But, on average, real wages will be lower by 2034 than they otherwise would have been if not for current immigration trends, the report projected.