Big immigration reform bill, big boost to US economy? Meh.
Analysis indicates that the Senate's big immigration reform bill, approved Thursday, would have more positive effects than negative – over time. But for the first few years, unemployment would rise and wages would fall, especially in low-skill jobs.
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Reform as outlined by the Senate would boost the supply of low-wage immigrant labor, primarily through more people getting visas that allow them to seek US jobs. That could be especially challenging for low-wage, less-educated native-born workers, in the first few years after reform. “You will feel this competition, significantly, in your job offers and your paycheck,” Mr. Bernstein predicted in a blog post earlier this year.Skip to next paragraph
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One force could work in the opposite direction: As the once-“undocumented” are able to compete more fully in the labor market, their bargaining power would rise and the incidence of exploitation would diminish. That would have a positive effect on pay for low-skill jobs.
The CBO analysis of Senate legislation, as it was emerging in mid-June, predicts that the unemployment rate would be higher for the first few years under reform – by about 0.1 percentage point – in part because of “temporary imbalances” between worker supply and employer demand in particular occupations.
“Average wages would be lower by about 0.1 percent in 2023 and higher by about 0.5 percent in 2033 than projected under current law,” the CBO predicts. That’s because of the initial hurdle of absorbing new workers, followed by later positive effects on productivity.
Investment and productivity. The CBO economists, citing empirical research, predict that “an influx of immigrants, particularly highly skilled immigrants, would lead to increased innovation and task specialization.”
Over time, that should make each unit of labor or investment capital a bit more productive, helping to boost each worker's output of goods or services. (And that increase in productivity opens the door to the just-mentioned rise in wages over the long term.)
But the impact may not be a large one. Gross domestic product (GDP) per capita would be 0.2 percent higher in 2033, compared with a no-reform scenario, the CBO estimates.
A rise in productivity would also push up the rate of return on business investment in things like office or factory equipment. In turn, that could push up interest rates a bit, as the government would face greater competition from the private sector when seeking to borrow from investors.
Federal budgets. Speaking of the government, the Senate bill has some significant budget implications. The reforms would add to direct spending as more people become eligible for federal benefit programs. Spending would also go up because of the law’s push to tighten border security, crack down on document fraud, and check the legal status of newly hired workers by expanding the program known as E-Verify.
But as spending goes up, the CBO predicts that federal tax revenue would go up even more. The net result for federal deficits, by its analysis, would be to “decrease federal budget deficits by $197 billion over the 2014-2023 period and by roughly $700 billion over the 2024-2033 period.”
That wouldn't eradicate budget deficits, but it would be more than small change.
Critics say the CBO may be taking a rosy view, and that such deficit reductions may not materialize if America’s future immigrants skew toward the low-skill rather than the high-skill end of the spectrum.
And some economists warn against viewing expanded immigration as a panacea for the financing challenges that face Medicare and Social Security as the ranks of older Americans grow. Yes, new legal immigrants will pay payroll-tax dollars into the system. But they will also be owed benefits down the road.
If immigration reform does reduce federal deficits, that would help restrain the worrisome growth of the national debt. As the government borrowed less, the economy would have more savings available for private-sector investment.
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