Comprehensive immigration reform would be a giant step forward in raising the nation’s economic secular growth rate.
The nonpartisan Congressional Budget Office says immigration reform could raise the growth rate of the country and would be an important step in addressing the looming bankruptcy of the Social Security and Medicare trust funds. Immigration reform would increase the number of people working. More workers translates directly into higher long-term growth. Moreover, more workers means higher revenues for entitlement programs, including Social Security and Medicare. Immigration reform would improve the dependency ratio in the United States, with too few workers supporting an ever-larger retired population. Demographics are destiny.
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The Penn Wharton Budget Model of the University of Pennsylvania explains clearly that immigration reform is good policy. GDP increases. Immigrants work more in order “to save wealth for later consumption.” The model shows that an increase in labor supply lowers wage inflation. Capital returns would be higher. Savings would therefore be higher. Higher capital returns would also attract more foreign capital necessary for new investment and to fund the structural budget deficit. As capital investment increases, productivity rises, which over time will bring higher wages for everyone. Of course, stronger economic growth generated by more workers and higher productivity leads to higher tax revenues, particularly tax revenues to fund Social Security and Medicare. Immigrants work — they don’t retire. Importantly, immigrants do not access welfare programs disproportionately. Immigration reform leads to smaller deficits and extends the fiscal stability of entitlement programs.
In addition to raising the long-term economic growth rate, addressing the structural budget deficit, improving the balance sheets of the Social Security and Medicare trust funds, and lowering wage inflation, comprehensive immigration reform would help address the critical shortage of medical doctors and healthcare workers in rural geographies of the country. Hospitals are being closed in rural America because there are no doctors and nurses. In rural America, people die unnecessarily.
In order to maintain the U.S. comparative advantage in technology, especially advanced technology and in the manufacture of high-value-added industrial goods, immigration reform is urgently needed. Between 40% and 70% of workers in technology and advanced manufacturing are foreign-born. U.S. technology and manufacturing companies are clamoring for more visas for workers with advanced skills who want to migrate to the U.S. Canada understands that high technology skills are in short supply globally. Canada fast-tracks workers with science, technology, engineering, and math skills. The U.S. must do the same. High human capital is necessary for an advanced wealthy economy.
Comprehensive immigration reform would accelerate the positive process of dynamic destruction. In a vibrant economy, dynamic change is necessary. Dynamic change is seeded by new business, which is the real engine of growth in the U.S. New business, not small business, not big business, is the essential feature of a prosperous dynamic economy. Immigrants disproportionately establish new businesses, especially new businesses in emerging industries and technologies. Importantly, the data show that new businesses started by immigrants create more jobs. Immigrant businesses are “job creators, not job takers.”
Comprehensive immigration reform is good policy.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
