Immigration Restrictions: A Double-Edged Sword for Economic Growth

As the political debate around immigration intensifies, it's crucial to consider the potential economic consequences of restrictive policies. While some argue that limiting immigration could boost wages and reduce competition for jobs, a closer look at the data reveals a more nuanced picture. In this article, we'll explore how immigration restrictions could 'everse' economic growth in the short and long term.



Short-term impacts: Modest effects on the job market

In the short term, the impact of immigration restrictions on the U.S. labor market is likely to be modest. According to Goldman Sachs Research, a slower pace of immigration would contribute 30-40 basis points less to potential US GDP growth than the 2023-2024 pace, but it would be just 5 basis points less than the pre-pandemic pace (Peng, Mericle, & Phillips, 2023). This means that in the short term, the impact on GDP growth would be limited. However, the crackdown on unauthorized immigrant workers could cause more of them to end up unemployed, which might not show up in official statistics (Peng, Mericle, & Phillips, 2023).



Long-term impacts: Disruptions in specific sectors and economic growth

In the long term, reduced immigration will have the largest impact on agriculture and construction, as immigrants other than visa and green card holders account for 4%-5% of the total US workforce, and they make up 15%-20% in some industries (Peng, Mericle, & Phillips, 2023). Abruptly losing a significant share of these workers could be very disruptive for many of these industries, leading to temporary production bottlenecks, shortages, and price increases.

Moreover, immigration boosts both supply and demand in countries' economies. For more than five decades, immigration has contributed to economic growth in wealthy countries, adding about three-tenths of a percent per year to the economic growth of high-income economies (Morgan Stanley, 2023). In the US, the influx of working-age migrants boosts potential economic growth, while their generally lower wages keep inflation in check. However, higher demand without the increased labor supply, for example from student immigration, can add to inflationary pressure (Morgan Stanley, 2023). Therefore, a significant reduction in immigration could have negative effects on economic growth, productivity, and inflation in the long term.

Addressing skepticism and the way forward

Some may argue that the benefits of immigration are overstated, or that the potential disruptions are manageable. However, the data presented here suggests that immigration restrictions could have significant, long-lasting impacts on the U.S. economy. To mitigate these effects, policymakers should focus on addressing the root causes of labor shortages and ensuring fair treatment of all workers. This could involve investing in education and training programs, improving working conditions, and implementing policies that encourage legal immigration and integration.

In conclusion, while immigration restrictions may have some short-term benefits, the long-term consequences for economic growth, productivity, and inflation could be significant. Policymakers should carefully consider the potential impacts of restrictive immigration policies and work to develop evidence-based solutions that support the success of immigrants and their host communities.

References:
Peng, E., Mericle, D., & Phillips, A. (2023). US Immigration and the Economy. Goldman Sachs Research.
Morgan Stanley. (2023). Immigration and the macroeconomy after 2024. Morgan Stanley Research.