Blog post #3, Magistro and Wittstock on the Economic Effects of Immigration

ZERO-SUM THINKING ON IMMIGRATION WILL MAKE AMERICA POORER

    Beatrice  Magistro                   Nicolas Wittstock        

                                                  

 

On June 23rd 2020, President Donald Trump imposed restrictions on several categories of visas for foreign workers until the end of the year. The proclamation his administration issued explaining this decision suspended the issuance of H-1B visas for high-skilled labor; H-2B visas for workers not critical to America’s food supply chain; J-1 visas issued for purposes of cultural exchange and other short-term workers; and L-visas used by multinational companies to transfer employees to the U.S. The order will not affect current visa holders.

This policy constitutes an extension of the April 22nd Executive Order that President Trump described as an “immigration ban”. According to White House estimates, immigration and visa restrictions will keep more than half a million workers out of the United States for the rest of 2020.

Is there an economic justification for this policy? It may be reasonable to restrict visas temporarily, especially as travel restrictions remain in place due to the pandemic. Yet, President Trump has not justified this policy on such grounds. Rather, according to the official proclamation, the restrictions are intended to help American workers regain employment amidst a worsening recession. In the same document, the White House seems to concede that under normal circumstances immigration restrictions could be counterproductive to American economic welfare.

Curiously enough, the facts, logic, and evidence are consistent with that impulse, which is essentially buried in the proclamation’s footnotes, not the restrictionist one. While the Trump Administration claims its latest immigration strictures are intended to put American workers back to work, it will most likely have the opposite effect. This policy will ultimately reduce access to a pool of willing and able people who would have produced highly valued goods and services, opened businesses, spent money, provided investment capital, and brought with them new ideas that could help make the economy grow, solve problems, and put millions back to work.

The White House’s proclamation rests on one key assumption: Zero-sum thinking. The misconception is that there is a fixed amount of work — a lump of labor. According to this view, jobs are a scarce resource to be distributed among a pool of workers who would otherwise compete for those jobs. Also, more laborers always equal less pay. If those assumptions held true, increasing the supply of available workers would indeed lead to a rise in unemployment among native-born workers and foreign migrants would take jobs from the native-born population.

The idea that immigrants will steal jobs from American workers assumes they compete for the same scarce pool of jobs. Studies show this is often not the case. In many instances, positions that native born workers are not willing to fill create opportunities for migrants. Furthermore, immigrants are not only workers, but they are also consumers. Ultimately, the amount of jobs available depends in large part on the level of demand for goods and services, which is in turn affected by the total number of people contributing to the economy. Immigrants also become employers themselves, at rates higher than the native-born population. As such, they help put upward pressure on American wages and overall employment. Immigrants also tend to fill jobs that are complements to those held by native-born workers, making the latter more productive. And despite immigrants only making up 16% of inventors, they are responsible for 30% of aggregate US innovation since 1976, with their indirect spillover effects accounting for more than twice their direct productivity contribution. In short, immigration creates more economic opportunities for everyone: a win-win scenario.

This zero-sum mentality echoes the fallacious belief that an earlier retirement age leads to a reduction in unemployment as young people replace older workers who exit the labor force. The evidence actually suggests that countries with higher percentages of elderly workers also have lower youth unemployment.

A similar argument was also put forth by those voices who sought to discourage women from joining the labor market in larger numbers during the 1960s and 70s. Yet the huge bulge in female employment during this time and after is strongly associated with the creation of millions upon millions of new jobs due to much of the same logic we outlined above in the case of immigrants.

Moreover, the move to restrict visas is incompatible with other policy goals of the Trump administration. American high technology companies will be especially hurt by the restrictions imposed on H-1B visas, as these visas are routinely used to employ highly-skilled foreign workers in companies like IBM, Intel, or Cisco Systems. Thus, if one shared the Trump administration’s concerns over growing Chinese capabilities in the technology sector –- embodied by companies such as Huawei –- then ensuring all competitive advantages to American companies should be a priority. Yet, restrictions like the ones just passed will turn many skilled workers away or make it virtually impossible for companies to hire foreign workers on short or long-term bases. This will make these companies less innovative, less flexible, and ultimately less competitive. This will ultimately lead to lower overall employment.

So what then explains this wrongheaded policy? There are several possible theories.

President Trump believes that pandering to nationalist sentiments will improve his re-election chances, perhaps by bolstering turnout among his base. Anti-immigration sentiment has been part of President Trump’s campaign from the start and has recently had a remarkably successful political track record in a variety of countries, including several industrialized democracies such as the United States. Indeed, this decision has the look and feel of an attempt by the Trump Administration to use the ongoing public health crisis associated with Covid-19 as an opportunity to limit legal immigration to the U.S. for blatantly political purposes.

Or perhaps Americans underestimate the positive economic impacts made by immigrants, making it easier for any administration to fumble the ball on this issue. Alternatively, some folks may simply not care, the economy be damned. Or all these things could be true simultaneously. Only systematic studies can provide an answer.

In the meantime, consider the damage that has already been done. We ourselves are two foreign-born PhD students currently teaching at a U.S. university (UW) and hoping to gain employment at U.S. higher learning institutions in the future. Our research seeks to inform U.S. public policy in ways that can improve the welfare of American citizens. One of us actually came to the US on a J-1 visa years ago and later returned to study, teach college students, and engage in this research.

At the time of writing, it appears that under the current executive order professors and similar academics will be exempt from the restrictions imposed on J-1 visas. Yet, even so, it is likely that continued efforts by the Trump administration to decrease immigration to the U.S. and worsen conditions for foreign-born workers will increasingly turn those who are not explicitly targeted away. Indeed, this directive makes a lot of us immigrants wonder if we are still welcome here. It makes us question whether the U.S. is still a “land of opportunity” and whether we should perhaps take our work, ideas, and the taxes we pay elsewhere.

Given America’s reliance on both high and low-skilled immigrants in many sectors of its economy, the measures taken on Monday will have negative effects on the United States’ prosperity for years to come. It also affects us personally.