A quick, simple way to see how restricting legal immigration is anti-growth


Originally published by The Washington Post

On Wednesday, President Trump endorsed the RAISE Act, designed to cut legal immigration by half over the next decade. While the bill’s sponsors claim it’s based on merit-based systems in Canada and Australia, The Washington Post points out that “those countries admit more than twice the number of immigrants to their countries as the United States does now when judged as a percentage of overall population levels.”

Moreover, as the following data show, this move is completely inconsistent with Trump’s aspiration to generate faster GDP growth, of which labor force growth is a key component.

(Source: CBO)

The data, from CBO, show potential growth rates of GDP and its additive components, labor force and productivity growth. “Potential” means growth rates when all our resources — capital, labor, energy, land, etc. — are fully utilized. In other words, think of these as the growth rates we would post at full employment. Such numbers are speculative at best, but in fact, the GDP growth rate in the second column is pretty much where we are right now.

The key point on why the RAISE Act is so misguided is the bold number of -1 percent in the last column. That’s how much labor force growth is expected to slow, and it explains the lion’s share — 70 percent — of the deceleration in GDP growth. Moreover, this is the part of the slowdown we can actually do something about, through welcoming immigration policy (and stronger demand-side policies to pull more people already here from the sidelines into the job market).

Economists do not have a great handle on why productivity ebbs and flows, and thus our policy solutions range from speculative — tight labor markets enforce more efficient production (my personal belief for which there is at least some evidence) — to … um … wrong (tax cuts for the rich!). But demographics and immigrant flows are well understood, with the latter responsive to policy changes.

Simply put, if Trump really aspires to faster growth, by endorsing the RAISE Act, he’s pushing the wrong way on one of the few reliable levers we have.

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