The economic impact of US immigration policies in the Age of Trump

Anna Maria Mayda, Giovanni Peri 14 June 2017

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Editor's note: This column first appeared as a chapter in the Vox eBook, Economics and policy in the Age of Trump, available to download here.​

During his first hundred days in office, President Trump signed several immigration-related Executive Orders (EOs). These could imply substantive changes to US immigration policies. The stance of these executive actions is in line with the aggressively anti-immigrant positions expressed during the electoral campaign. Two EOs have restricted travel from some Muslim-majority countries – but they have been challenged in the judicial court system and eventually blocked. One has revamped the system for deportation of illegal immigrants and another has pushed forward with plans to extend the wall along the US-Mexico border. Still another EO promotes the ‘Buy American and Hire American’ principle and promises to overhaul the H-1B visa programme, making it harder for US companies to hire foreign temporary workers.

Without real legislative action, which would take significant time and effort due to the need for Congressional approval, the power of these executive measures is limited. However, they all point in the direction of implementing a much more restrictive immigration policy relative to previous – both Democrat and Republican – administrations. This column documents the critical aspects of these policy changes, in order to assess their likely economic impact. Given that these policy changes may have large adverse effects, we will conclude by discussing the political-economy drivers of these policy changes and make educated guesses as to how the current administration might move forward.

Content of Executive Orders

The two ‘travel related’ EOs ban travellers and immigrants from six Muslim-majority countries (Syria, Iran, Yemen, Sudan, Somalia, Libya, as well as Iraq in the first executive order) for a temporary period (90 days).1 However, while the first EO targeted anyone from these countries who is foreign-born, independently from their visa status, the second EO excluded from the ban the following groups: those holding green cards, those with already- issued visas, and refugees who have already been granted refugee status by the time of the EO. Both EOs also block refugees from any country for 120 days; the first included a ban on Syrian refugees for an indefinite period, though it did permit exceptions for refugees from religious minorities. Finally, the EOs set the quota for refugees per year to 50,000, reducing the quota of 110,000 planned by the Obama administration for FY 2017. These EOs were suspended as of April 2017.

In EO 13768 (White House, January 25, 2017), the Trump administration also directed US Immigration and Custom Enforcement (ICE) to accelerate the illegal immigrant deportation process by prioritising aliens involved with any criminal activity, and not just those facing serious charges, a change from the Obama administration. Trump’s proposed budget has also included funding increases for border agents to allow ICE to process deportation at a higher rate and intensity.

Trump’s executive actions on deportation of illegal immigrants have met with some political resistance and opposition. A number of ‘sanctuary cities’have emerged that attempt to shield undocumented migrants, although the Trump administration has responded with threats of cutting off federal aid. This issue is currently in the courts and, as of April 2017, a Federal judge had ruled Trump’s executive actions on sanctuary cities unconstitutional.

The Trump administration also issued EO  13767  (White  House,  January  25,  2017) with plans to build a wall, which would cover 1000 miles of the 1,900 miles of the US-Mexico border.2 The White House estimates for costs of construction range from $10- 12 billion, though independent analysts suggest it could be perhaps as much as $25 billion (Lee and Kessler 2017).

Finally, EO 13789 (White House, April 18, 2017) includes provisions to review and tighten the H-1B visa programme with the goal of increasing the number of hurdles that companies would have to clear to hire a foreign-born worker.

Predicted economic effects

These policies have economic consequences, both for the changes they imply and for the fact that they signal the intention of making it even harder, in the future, for US companies, universities, laboratories and research centres to hire foreigners. While   the administration has communicated that it intends to reform the immigration system toward one that is ‘merit based’, its actions and announcements suggest that the overall number of foreign workers – temporary visas and possibly permanent immigration permits – will be reduced.

The executive orders banning travel from the Muslim majority countries have affected mainly students, scholars, and highly educated professionals. The majority of temporary visa holders from those countries work as professionals and many are in professions involving Science, Technology, Engineering and Math (STEM). The ban has created costly delays, complicated legal issues and uncertainty for anyone seeking to hire those immigrants. It has also discouraged highly educated potential immigrants from those and other Muslim countries from choosing the United States as a destination, to the detriment of the US academic and scientific community.

Research reveals considerable evidence that foreign scientists and engineers contribute substantially to US innovation (Kerr and Lincoln 2010), that foreign college-educated workers are more likely to innovate (Hunt, 2010) and that productivity at the local level benefits significantly from their presence (Peri et al. 2015). Additional evidence shows that foreign high-skilled STEM workers complement native-born workers, especially young ones, in US companies (Kerr et al. 2015), and that they make considerable contributions to US productivity growth (Bound et al. 2017).

Overall, these studies suggest that a reduction in high-skilled immigrants is likely to reduce – rather than to increase – opportunities, productivity and wages of the native- born American workforce, especially for the college educated.

The executive order intensifying the efforts for deportation of undocumented immigrants not only threatens the day-to-day life of several million people, it also undermines the economic viability of entire sectors of the US economy. An estimated eight million undocumented aliens currently work in manual jobs in the agriculture, construction, hospitality, food and personal-services industries. Many take on the low paid, physically demanding jobs that American-born workers – who are typically better educated, but also aging – do not want any longer.

Nevertheless, undocumented workers also provide important services to sectors that employ large numbers of Americans workers in different type of jobs, for example    as supervisors, managers, accountants, salespersons, and IT specialists. Less-educated workers tend to complement and extend the work of middle to highly educated Americans (Peri 2012, Ottaviano and Peri 2012). Without the undocumented migrant workers, a number of sectors of the US economy are expected to slow their growth and terminate the jobs currently held by American-born workers as well. Another consequence of the higher US costs could be that American companies have further need to offshore more jobs and import more foreign-produced goods in order to remain competitive (Ottaviano et al. 2015).

US domestic production of several agricultural products could dramatically shrink or even disappear, their imports will increase and their prices become higher. The prices of services in the hospitality, food and personal-services industries may also increase (Cortes 2008), and those sectors will slow their growth. Certain urban economies, such as Los Angeles, Las Vegas and Phoenix, attribute much of their growth to reliance on jobs of less-skilled immigrant workers; these cities may experience bottlenecks and shortages that could result in sectoral decline that would multiply through the local economy (see Moretti 2014).

There is the potential that a few of the manual, low-skilled jobs will be taken-up by Americans, leading to marginal improvements in wages for some local workers. However, the negative impact on job creation of complementary jobs could be more significant (see Ottaviano and Peri 2012, Peri and Sparber 2009, Chassamboulli and Peri 2015) as US workers benefit much more from growth in the intermediate-skill jobs than from manual-intensive, low-skilled employment opportunities.

It is also important to emphasise that the very expensive project of building a wall with Mexico will have economic consequence, in that it will divert government resources that could be used more profitably elsewhere. The core rationale for such a wall is questionable, as immigration from Mexico has been declining steadily for more than   a decade, and the number of undocumented workers has not changed since 2006 (Krogstad et al. 2017). Immigration in the last decade has grown largely because of the sizeable inflow of highly educated young Asians – mainly from India and China – rather than of less-educated Mexicans. In ignoring this fact, public resources will be used to target a problem that no longer exists. Mexico has undergone an economic and demographic transition, so that the number of its low-educated young people (who are those more likely to emigrate) is now much smaller than in the 1990s. The border fence already prevents most of the attempted border crossings and existing projections of economists (e.g. Hanson and McIntosh 2016) show a steady decline in the inflow from that country.

Finally, the main long-run cost of these executive orders could be that they create a climate of perceived hostility to new immigration and decreased openness to foreign workers, including the highly educated ones, and especially those from certain countries. This could divert the highly and internationally mobile scientists, engineers and professionals towards countries such as Canada, Australia and China, eroding the US excellence in their areas, which is a pillar of US economic leadership. While the impact of the executive orders is, as yet, small enough not to be of long-run concern,  a significant decrease in highly skilled immigrants could have more sizeable and permanent effects on growth.

Political economy drivers and implications

It is not surprising that candidate Donald Trump embraced demands for populist measures on immigration, during the Presidential campaign. Public opinion is opposed to immigration in most destination countries, including the United States (Scheve and Slaughter 2001, Mayda 2006). In addition, while the dominant narrative in US political circles is that immigration is a ‘problem’ for Republicans, the opposite turns out to be the case in some counties and states, including those that may be crucial for electoral outcomes. What Trump has understood and exploited is that there is a political pay-off for Republicans in these localities if they ‘act tough’ on immigration during electoral campaigns.

Systematic evidence from a recent analysis of immigration and electoral outcomes between 1990 and 2010 finds that, in US counties where less skilled workers are         a majority, the economy is not urban and local public spending is large, US voters responded to large recent waves of immigration by rewarding the Republican party and its anti-immigrant platform (Mayda et al. 2017). This can be explained in an economic perspective: while immigrants produce aggregate benefits for the economy and employment/wage gains for most Americans, these are mostly for workers that complement immigrants, i.e., the typical example is a highly skilled worker in an urban area. The perception of less skilled non-urban workers, often relying on public assistance programmes, is that they are penalised by immigration. This drives some voters’ demands for populist measures on migration, which Trump has used to his political advantage.

Overall, it is very concerning that the current administration has moved forward, in practice, with these significant changes in immigration policy. It is hard to believe that a businessperson who has employed immigrants himself does not understand the likely economic costs of these policy proposals, especially those affecting skilled migration. One hope is that the administration ultimately chooses to leave behind these clumsy populist attempts at changing US immigration policy. The US economy needs immigration policy reform, but not of this sort. What is really needed is improved efficiency, flexibility and allowing more freedom to individuals and markets, including the labour market – not the imposition of more restrictions and constraints.

References

Bound, J., G. Khanna and N. Morales (2017), “Understanding the Economic Impact of the H-1B Program on the U.S.”, NBER Working Papers 23153.

Chassamboulli, A. and G. Peri (2015), “The Labor Market Effects of Reducing the Number of Illegal Immigrants”, The Review of Economic Dynamics 18(4): 792–821.

Cortes, P. (2008), “The effect of low-skilled immigration on US prices: evidence from CPI data”, Journal of Political Economy 116(3): 381-422.

Hanson, G. and C. McIntosh (2016), “Is the Mediterranean the New Rio Grande? US and EU Immigration Pressures in the Long Run”, Journal of Economic Perspectives 30(4): 57-82.

Hunt, J. (2010), “How Much Does Immigration Boost Innovation?”, American Economic Journal: Macroeconomics 2(2): 31-56.

Kerr, W. and W. Lincoln (2010), “The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention”, Journal of Labor Economics 28(3): 473-508.

Kerr, S. Pekkala, W.R. Kerr and W.F. Lincoln (2015), “Skilled Immigration and the Employment Structures of US Firms”, Journal of Labor Economics, 33(S1): 147-186

Krogstad, J.M., J. Passel and V. Cohn (2017), “Five Facts about illegal immigration in the US”, PEW Research Center.

Lee, M Y H and G Kessler (2017), “Fact-checking President Trump’s Pinocchio-laden Associated Press interview,” The Washington Post, 25 April.

Mayda, A. M. (2006), “Who is against immigration? A cross-country investigation of individual attitudes toward immigrants”, Review of Economics and Statistics 88(3): 510-530.

Mayda, A. M., G. Peri and W. Steingress (2017), “Immigration to the U.S.: A Problem for the Republicans or the Democrats?”, Georgetown University Manuscript.

Moretti, E. and P. Kline (2014), “Local Economic Development, Agglomeration Economies and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority”, Quarterly Journal of Economics 129(1): 275-331.

Ottaviano, G.I.P. and G. Peri (2012), “Rethinking The Effect Of Immigration On Wages”, Journal of the European Economic Association 10(1): 152-197.

Peri, G. (2012), “The Effect Of Immigration On Productivity: Evidence From U.S. States”, The Review of Economics and Statistics, 94(1): 348-358.

Peri,  G.  and  C.  Sparber  (2009),  “Task  Specialization, Immigration, and Wages”, American Economic Journal: Applied Economics 1(3): 135-169.

Peri, G., K. Shih and C. Sparber (2015), “STEM Workers, H-1B Visas, and Productivity in US Cities”, Journal of Labor Economics 33: 225-255.

Scheve, K. and M. Slaughter (2001), “Labor Market Competition and Individual Preferences over Immigration Policy”, Review of Economics and Statistics 83: 133– 145.

White House (2017), “Presidential Executive Order 13767: Border Security and Immigration Enforcement Improvements”, 25 January. 

White House (2017), “Presidential Executive Order 13768: Enhancing Public Safety in the Interior of the United States”, 25 January. 

White House (2017), “Presidential Executive Order 13769: Protecting the Nation from Foreign Terrorist Entry into the United States”, 27 January.

White House (2017), “Presidential Executive Order 13780: Protecting The Nation From Foreign Terrorist Entry Into The United States”, 6 March.

White House (2017), “Presidential Executive Order 13789: Buy American and Hire American”, 18 April.

Endnotes

[1] The two ‘travel-related’ EOs are EO 13769 (White House, January 27, 2017) and EO 13780 (White House, March 6, 2017).

[2] There are currently 650 miles of fencing along the border.

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Associate Professor of Economics, Georgetown University; Research Affiliate, CEPR

Professor and Chair of the Department of Economics, University of California, Davis

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