The economic impact of the US immigration surge: a double-edged sword

Introduction

The recent surge in unauthorised US immigration has not only sparked political debate, but has also had profound economic consequences. As the nation grapples with the consequences, the Congressional Budget Office (CBO) sheds light on the complicated dance between immigration, labor force growth, and economic growth.

Economic Boom Revealed

 The CBO’s latest long-term projection, released Feb. 7, paints a picture of a larger labor force, estimating an additional 1.7 million workers in 2024 and a remarkable 5.2 million in 2033. This increase, which equates to about 3% growth, will boost gross domestic product (GDP) by 2.1%.
This isn’t the end of the economic cascade: as additional workers pay taxes and boost economic activity, the federal deficit is likely to fall from 7.3% of GDP in the previous year to 6.4% in 2033.

CBO Director Phillip Swagel summarises the connection: “More workers mean more production, and that in turn leads to additional tax revenue.

The catch

 Changing faces of migration: While the economic outlook appears promising, the composition of the recent migrant influx brings complex problems. In 2023, more than 2.5 million migrants crossed the southwestern border, resulting in a net immigration of 3.3 million people – a significant increase from the annual average of 919,000 in the 2010s.

However, this increase differs from previous waves. Recent immigrants, particularly from Latin America, face challenges that could exert downward pressure on wages and productivity. Unlike their predecessors, a smaller percentage of recent immigrants have legal work authorization in the U.S., potentially pushing them into low-wage occupations.

Impact on wages and productivity

The CBO predicts a modest downward pressure on average wages due to the influx, lowering its forecast for the Employment Cost Index by 1.7% in 2033. In addition, without a proportional increase in capital, the inflow of labor leads to a decline in average worker productivity. This could lead to a decline in GDP per capita of 0.8% in ten years.

Despite these short-term challenges, the CBO expects productivity to increase if new machinery is introduced, infrastructure is expanded and immigrants find jobs that match their skills.

Unanswered questions and future prospects

Some questions remain unanswered, such as the potential impact on resident workers’ wages from increased competition. The lack of data on the latest cohort complicates estimates. However, economists note that the recent upswing in immigration has helped to alleviate labor market pressures and inflation.

Conclusion

 Immigration growth in the U.S. in 2023 is proving to be a double-edged sword, boosting economic growth on the one hand and challenging wages and productivity on the other. As the nation navigates this complicated terrain, it is critical to find a balance that harnesses the economic benefits while addressing the concerns associated with the changing face of migration.

It’s a complex issue, and the article emphasises the need for a holistic understanding. Here is the article link on this topic

Disclaimer

This blog post contains insights and commentary on the article “Immigration Wave Delivers Economic Windfall” authored and published on WSG.(The Wall Street Journal) The purpose of this post is to provide analysis, discussion, and additional perspectives on the subject matter.

This content is shared under the principles of fair use for the purpose of commentary, criticism, and education. No commercial gain is intended through the use of this content.

https://www.wsj.com/economy/jobs/immigration-wave-delivers-economic-windfall-but-theres-a-catch-51085c4f?st=fo548vuhu4j3puf&reflink=article_gmail_share

Priya Gupal
Priya Gupal
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