FILE PHOTO: A Homeland Security vehicle stands in front of the Fred D. Thompson Federal Building, housing the U.S. District Court for the Middle District of Tennessee. REUTERS/Seth Herald/File photo
According to the White House and congressional Republicans, the new budget law will spark economic growth of more than 3%.
Reaching that goal, however, will be made far more difficult by a provision they see as central to the law: the US$150bil-plus it adds to immigration enforcement.
The administration’s agenda of sharply lower immigration and mass deportations is bad for growth.
Unauthorised immigrants – persons who entered the country illegally or received a temporary, humanitarian status at entry – are the administration’s primary focus as it restricts entry into the United States, revokes humanitarian visas and deports those already in the country without authorisation.
To bolster those efforts, the new law includes US$70bil to increase border security and US$75bil for interior enforcement operations. It raises fees for applying for humanitarian visas and work authorisations and imposes a 1% excise tax on remittance transfers.
The result will be a smaller population and labour force, and the adverse effects on growth are likely to be substantial.
After a surge from 2021 to 2024, unauthorised immigration is expected to fall sharply this year
Researchers at the US Federal Reserve Bank of Dallas estimate that a near halt in unauthorised immigration would reduce gross domestic product (GDP) growth by 0.8 of a percentage point this year.
For context, average annual US GDP growth for the last decade is about 2.5%.
If the US administration is able to reach its goal of one million deportations a year, then the drag on growth would intensify – subtracting 1.5 percentage points from GDP growth in 2027.
This level of deportation had previously been viewed as unattainable, mostly because the enforcement agencies lacked the resources to carry it out.
This law could change that, making Immigration and Customs Enforcement the best-funded of all federal law-enforcement agencies.
The disruptions in the labour market from less immigration would be compounded by the fact that the US economy is currently close to full employment.
The unemployment rate among US-born workers was 4% in 2024, compared to 4.2% for foreign-born workers.
The White House argues that reducing immigration and increasing deportations would free up jobs for US-born workers, but the types of jobs that unauthorised immigrants most commonly hold are much less likely to be held by US-born workers.
Unauthorised immigrants are eight times more likely than US-born workers to be cleaners, for example, and more than twice as likely as authorised immigrants. The most common jobs for unauthorised immigrants also tend to offer lower pay and be more physically demanding.
The stark occupational differences make it less likely that deporting unauthorised immigrants will create job opportunities for US-born workers. In fact, mass deportations might even harm US-born workers.
Research has found that an immigration enforcement programme from 2008 to 2013 reduced the employment and wages of US-born workers.
While US-born and unauthorised immigrants may not be competing for the same job, their jobs can often be complementary.
For example, a reduction in the supply of construction labourers could lead to a decrease in the demand for construction-site managers.
Also, deportations would reduce the contributions of unauthorised immigrants to the local demand for goods and services, which could weigh on the local labour market.
And automation and artificial intelligence (AI) won’t be able to immediately fill the gap left by fewer unauthorised immigrants. As with US-born workers, there is an occupational mismatch.
For example, AI can currently replace tasks of data analysis in professional and clerical jobs, opposed to manual work that unauthorised immigrants often perform.
Advances in robotics could fill more of that gap – but at additional cost.
Mass deportations and tighter immigration controls could also have a chilling effect on authorised immigration, including workers and students in technical fields, which could slow the development of new technologies.
These immigrants tend to make their peak contributions to productivity several years after arrival.
Their absence could subtract from longer-term growth, according to the Congressional Budget Office. — Bloomberg
Claudia Sahm is chief economist at New Century Advisors and a former US Federal Reserve economist. The views expressed here are the writer’s own.
