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March 9, 2017

A cost to the economy


March 9, 2017

Pew Research estimates that there were around eight million undocumented workers in the US in 2014. That’s roughly 5 percent of the workforce. “Deporting 5 percent of the workforce would disrupt business activity,” said Yelena Shulyatyeva senior US economist at Bloomberg Intelligence.

She also pointed out that the six states with the highest concentration of undocumented workers account for 40 percent of all the goods and services produced in the country.

“Undocumented workers often fill low-wage jobs such as maintenance and farm work,” she said. “Labour shortages could lead to an inflation spike due to severe upward wage pressures.”

While American workers could undoubtedly use a raise, a sudden and dramatic wage “spike” can have a destructive ripple effect.

Take the example of your weekly grocery bill. If Trump’s crackdown on undocumented immigrants leads to a shortage of farm workers, employers will probably have to raise pay to attract new ones.

That cost can be passed on to consumers in the form of higher food prices. And struggling Americans do not need to pay more for a litre of milk or a head of lettuce.

Of course, grocery stores could choose to substitute expensive homegrown fruit, vegetables and dairy for less expensive imports, but while that would spare consumers’ budgets, it could drive US farmers out of business, which would destroy jobs. That’s the economic ecosystem.

There is also the broader economy to consider when gauging the potential impact of dramatically escalated deportations.

Growth is good for an economy. The more it grows, the more jobs are created and the more workers can demand a decent wage and job security.

Some economists argue that undocumented workers are a significant source of economic growth. A recent paper by economists Ryan Edwards and Francesc Ortega estimated that undocumented workers contribute 3 percent of all goods and services produced by the private sector in the US. That amounts to about $5 trillion over 10 years.

Eliminating that growth by deporting millions of undocumented workers would be a huge blow to the US economy and cost jobs. How many? Edwards and Ortega estimate        that deporting seven million undocumented workers could slash employment “by an amount similar to that experienced during the Great Recession”.

The future of the labour market hinges on innovation, which is crucial for keeping the US economy competitive in a globalised world. In his address to Congress this week, President Trump called for a “merit-based” immigration system. Whether the aim is to allow more high-skilled, highly educated workers into the US, or simply to keep out low-skilled ones is unclear.

Either way, between the well-publicised turmoil and courtroom drama surrounding Trump’s ban on immigrants from seven predominantly Muslim nations, reports of revoked visas and over-zealous border control agents threatening, harassing and detaining travellers including green card holders, and the racially motivated, fatal shooting of an Indian engineer in a Kansas bar - which Trump denounced nearly a week after the event - the president’s opening days in office have arguably fostered an inhospitable climate for current and aspiring documented immigrants.

That could damage the US economy if it dissuades foreign-born students from seeking degrees in the country. A 2011 study  by the American Enterprise Institute, a conservative think-tank, found that an additional 100 foreign-born workers in science, technology, engineering and mathematics fields with advanced degrees from US universities created 262 jobs for citizens born in the US.

If students feel unwelcome or unsafe studying on US shores, there are other countries where they can earn degrees, and settle down to become job creators.

Immigrants are also at the forefront of many cutting edge tech companies. A recent study by the National Foundation for American Policy found that more than half of US start-up companies worth at least $1bn had one or more immigrant founders; a list that includes the likes of Elon Musk’s Space X, which employs around 5,000 people.

There are those in the economic ecosystem who stand to benefit from Trump’s immigration policies. Firms that build and operate prisons could profit handsomely from the executive order instructing Immigration and Customs Enforcement officials to immediately build and operate new detention facilities.

While we wait for the data to roll in, Americans may want to consider what will make the economy stronger in the future: another detention prison or another Elon Musk?


This article has been excerpted from: ‘How Trump’s immigration policies could cost the economy.’



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