Thursday, July 13, 2017

Halving immigration?

Politico reports the Trump Administration is crafting a bill to halve the rate of legal immigration by 2027. My recent work with Francesc Ortega focuses on unauthorized immigrants and a very different thought experiment: removing all 11 million, of whom about 7 million are workers.

The thought experiment in the draft legislation supposes a less drastic change: halving the rate of legal immigration by 2027.

Any macroeconomist would agree that such a change would probably reduce GDP growth in the long run, but it might also raise GDP per person and wages.

A quick back of the envelope calculation suggests that halving the rate of immigration today would reduce the population growth rate by a perhaps 0.2 percentage point, or about a quarter of what it currently is.  (This is also a pretty good estimate of the result that pops out of looking at U.S. Census Bureau population forecasts and simulating a halving policy.)

If immigrants were to have the same skills as natives, then GDP growth would also ultimately slow by about 0.2 percentage point.  Compared to a central forecast for real GDP growth around 2 percent, this is a relatively small reduction (ten percent) but far from tiny.  Also, a change in the growth rate of GDP is compounding; in our work, we found that removing the stock of unauthorized workers would instead reduce the level of GDP.

Although U.S. GDP would be smaller if population growth were to fall, GDP per person and wages in the U.S. would probably be larger.  This viewpoint is reported in the Politico article.  The big unknown is whether reducing immigration would lead to reductions in the rate of technological change and productivity growth.  If the unlucky targets of the administration’s policy were low-skill immigrants, as seems to be the case based on the quotes in the article, it seems somewhat less likely that U.S. productivity growth would suffer.