Growth requires immigrants

An economy’s longer-term capacity to grow can be divided into two factors: how many people are available to work, and how much each can produce. Since the U.S. economy hit bottom in 2009, neither has been increasing very quickly. The labor force has expanded at an annualized rate of just half a percent, and productivity at a bit less than one percent. Grand total: less than 1.5 percent in annual growth.

Without immigrants, the number would have been even smaller. As the American population ages and retires, the economy must increasingly depend on people from abroad to pick up the slack. Although they made up just 16 percent of the labor force in 2009, they accounted for 60 percent of the growth from 2009 to 2016. As a result, the foreign-born share of the total labor force has grown, too.

Much of Trump’s economic policy is predicated on the idea that keeping foreigners out will benefit native-born Americans. Initially, that may be true. Competition for a smaller pool of workers would probably cause wages to rise more quickly than they otherwise would. This, in turn, could help boost productivity, as more-expensive labor prompted companies to make capital investments.

Ultimately, though, the constrained supply of workers would limit the economy’s longer-term capacity to grow without causing an inflationary spiral of rising wages and prices. Even if the pace of productivity growth doubled to 2 percent, the labor force probably wouldn’t grow faster than 0.3 percent in the absence of immigrants. That wouldn’t add up to anything close to 4 percent.

Granted, sustained 4 percent growth is extremely unlikely no matter what Trump does. That said, if he wants to get closer to his target, he’ll need to make the U.S. a lot more attractive to foreigners.

This story was originally published March 8, 2017 at 4:25 PM with the headline "Growth requires immigrants."