Friday, August 28, 2015

Trump's immigration proposal would not cause a 6% loss in GDP as claimed.

Note:  This is the first of two articles I intend to write on immigration.  The second article will focus on the EU refugee crisis, with a focus on the unethical aspects of current EU policy towards the humanitarian crisis in the Middle East.

A lot has been made about the costs involved in Donald Trump's proposal to deport all illegal immigrants and keep them out.  The big headline number of almost a trillion dollars has been cited by many news outlets as well as politicians.  I personally think that it is a very inflated number, but it is not the detail I want to take issue with.  It is the assumed cost to US GDP of as much as 6% which I find to be exaggerated and outright disingenuous.

The argument is based on the simple calculation that illegal immigrants make up over 6% of the total workforce, therefore their absence would cause a resulting loss in economic activity proportional to the loss in the workforce, thus the drop in GDP.

The calculation neglects to adjust for the resulting rise in wages and increase in worker participation, right where it is needed the most, among the working poor.  Incomes among the bottom 40% of households have in fact stagnated in past years, even when not adjusting to inflation.

 Data source:  US Census Bureau.

When adjusting for inflation, real household income for the lowest 20% of earners are down by about 13% compared with the year 2000.  I am certain that a resulting rise in wages due to a shortage of foreign illegal workers would encourage more discouraged workers to re-join the workforce.  The higher wages would also allow many more households to consume more, which would also resolve one of the biggest drags on the economy today, namely a lack of demand, which makes up over 2/3 of the economy.  Some tax contributions would also result from more legal workers in the workforce, therefore, it would also benefit the government budget.  Not to mention the reduced costs of assistance programs as a result of people on the lower-end of the income scale earning more, thus needing less help.

Now, we have to be honest here and admit to the fact that even a resulting rise in the lower-end of wages will not fill all the vacant positions that would be left behind by the removal of over 6% of the current total US workforce.  There are certain jobs that would not be attractive to the average American, even if it would offer more money than it currently offers to an illegal worker.  But there is a solution to that, called a temporary work visa program.  It should be a visa for non-qualified work, and it should be made easy to obtain, needing nothing more than proof on the part of the employers that they made a reasonable effort to fill the position with a legal US resident, but there were no takers, as well as a criminal record check on behalf of the would-be foreign employee.  This would allow employers to fill any voids in labor needs, as well as for the government to take a rightful share in income taxes.  This plan would have the added benefit of providing some labor elasticity in the economy, filling the void with temporary workers when there is high demand, while allowing those visas to expire when labor demand is slack.

I don't believe that even many of the illegal immigrants who currently reside in the US would find the concept of a work visa unappealing.  Sure, it would mean having to perhaps pay some income tax. At the same time, they would enjoy the benefit of being legal, thus subject to current labor protection laws.  Not to mention the fact that they would no longer have to constantly worry about being apprehended and deported at any moment.  It would also give the US authorities the opportunity to weed out criminal elements attempting to reside in the US, because the few bad apples would no longer have the opportunity to hide among the masses of people simply looking to exchange their sweat and toil for some wages that they can use to support themselves and their families.  The reason I think many illegal immigrants would like this aspect is because it would lessen the stigma attached to coming to the US to work, because it would remove suspicions of wrong doing and give people fewer excuses to stereotype and associate them with the drug smugglers and other unwanted elements.

Donald Trump's proposal on immigration, as it seems to be the case with most other subjects he touches on, lacks on details, therefore there is to my knowledge no comprehensive proposal, which would include my idea of the work visa for instance.  But he does claim to be a good manager, and as such, I am sure that if he were to ever get into the position of being responsible for making decisions on immigration policy, he would see the need to expand on his idea and not just do what his campaign suggests and nothing more.  Bottom line; there are ways to deal with the illegal immigration issue.  And it does not have to result in economic and fiscal Armageddon as much of the mainstream media tried to portray it.