Trump Wants 3% GDP Growth & Immigration Reform. Can He Have Both?

Trump Wants 3% GDP Growth & Immigration Reform. Can He Have Both?

March 2, 2017 Newsletter Uncategorized 0

Immigration has been a major focus of the Trump administration throughout the campaign and into the early days of his Presidential term.  To that end, we’ve seen a contentious, possibly unconstitutional, travel ban in the name of national security, increased pressure on sanctuary cities and an escalation of ICE deportation raids.  Though the President has softened his stance in recent days—introducing “path to citizenship” language—it’s clear that this administration would prefer a halt to the import of workers while there are unemployed and underemployed Americans.

This potentially conflicts with another one of President Trump’s campaign goals, that of a 3% to 4% annual growth in the GDP, otherwise known as the Gross Domestic Product.  Analysts aren’t even sure that a 3% growth rate is feasible, with most taking a conservative stance that we’ll likely hover at 2% annual growth, like we have been since 2009 and on average over the past 100 years.  A notable exception, Edward Lazear, the former head of the Council of Economic Advisers, has posited that we could hit 3% if we can meet three conditions.  Those conditions are to 1) get productivity growth up, 2) offset the slowing of labor growth from our aging population and 3) reform the tax code to encourage investment.  It’s that second point—offsetting a labor shortage—that is the possible wrench in President Trump’s immigration gear works.
 
As you probably know from past articles that I’ve written and from your own observations, we have traditionally used immigrant workforces in two types of jobs: low paying jobs that Americans don’t want to do and skilled labor that employers can’t find American workers trained to do.  But as immigrants continue to come over and continue to take on more and more roles within the workforce, the arrangement has shifted somewhat.  Many economists now believe that immigrant population is needed to fill the void created from an aging population retiring without a large enough group of young people entering the workforce in their stead.  

The Wall Street Journal recently reported on this (read here) and lays their argument out in clear detail.  The largest generation this country has ever seen, the Baby Boomers, is aging out of the workforce and beginning to claim their social benefits, which will burden the economy.  Meanwhile, the generations after them—Generation X and the Millenials—are smaller, putting fewer workers in charge of supporting an ever-increasing elderly population.  And because we continue to live longer lives past retirement age and families continue to have fewer children, this burden will only increase.  Unless we supplement with immigrants who take the jobs, earn the income and pay taxes on that income to “fill” the gap and ease the burden.
 
The cautionary tale, the case study we’re all trying to avoid, is Japan.  In the late ‘80s, Japan’s economy experienced a housing bubble, an aging workforce, tight immigration policies and excessive market speculation.  When it crashed, its equivalent to the Dow—the Nikkei 225—crested 40,000 before crashing down to 15,000 by 1992.  As I write this on Wednesday morning, the Nikkei 225 is opening at 19,226.  Some 25 years later, and it’s not worth half of what it was.  And their population continues to age out without native replacements in place and the moat around the island is still keeping out immigrants.
 
A recent article in the New York Times (read here) details Japan’s current economic situation and its own problems with immigrants.  Japan’s tight immigration policies are still there, having achieved what President Trump is promising.  The country has little illegal immigration and no legal immigration policies for blue-collar work.  The result is that the country’s industries are struggling to fill the menial jobs, forcing (or allowing, depending on your viewpoint) them to bring in a small cadre of foreign laborers under a series of loopholes, low wages and fraud.  These policies not only create numerous human rights issues, they have led to a decrease in service levels and quality of work – there are numerous communication gaps and little motivation to improve, as the workers are often mistreated, their pay is routinely not delivered or held and they often have no recourse due to their shaky legal standing in the country.
 
While Japan’s situation is extremely problematic, the one we face is likely more complex.  Here in the U.S., we have an aging workforce and an increasing tax burden, one that data suggests we can offset somewhat with immigration.  Which suggests we should have a more open immigration policy.  But, unlike Japan, we also have a segment of our population that is out of work, wants to work, wants to work more hours and feels threatened by increased immigration.  The myriad of issues surrounding bringing this segment of the population back to work—differing skill sets, gaps in expected compensation, deprecated industrial specializations, differences in geography, and so on and so on—ensures that this won’t be something we can easily fix.  And we can argue about this in a circle… we have for years!
 
U.S. employers have a long history of choosing the least expensive labor option—through automation, offshoring and bringing in cheaper skilled labor through H1-B visas—over the costs of training or maintaining a skilled domestic workforce.  How American industries respond to President Trump’s demands and policies could shape our economic policy, and possibly the foundations of our government and social support network, for the forseeable future.  Will we be able to achieve the 3% GDP growth the President wants to see?  Can we limit immigration at the same time?  We shall see…