Future of Work Macroeconomics United States and Canada

Blog Post

July 27, 2021

The time for US immigration reform is now

By Jeff Goldstein

In the coming decades, the United States will face many challenges, such as addressing climate change, providing affordable and accessible health care for an aging population, and shrinking the inequality gap. The United States will be attempting to meet these challenges amidst a multi-decade long trend of declining population rates leading to fewer and fewer workers. The COVID-19 pandemic has exacerbated and reinforced this trend. To meet the challenges of the future, US policymakers must manage declining population growth – and one of the best arrows in their economic policy quiver is comprehensive immigration reform.

As the United States became richer in the 20th century, birth rates trended downward and have been falling nearly continuously since 2009. In 1960, the fertility rate in the United States was 3.6 births per woman. In 2020, it was 1.64, the lowest rate on record, and the number of babies born in the United States in 2020 was the lowest in over forty years. The current fertility rate is below the 2.1 “replacement fertility” rate needed for the population to stabilize.

Declining population growth has serious economic and societal implications due to major shifts in the population’s composition. Over time, fewer and fewer workers will be supporting more and more retirees, altering how society has been structured to date. Data shows that US working-age population (those 16-64) growth over the last ten years was its lowest in decades. The diminished supply of labor threatens the economy’s growth potential, productivity and investment capacity, and budget health (e.g., in declining revenues for Social Security). This dynamic is not unique to the United States; many other advanced and large economies are also grappling with declining population growth. The experiences of countries such as Japan, China, and others illustrate that it is not feasible to reverse population trends.

The pandemic has further accelerated this trend due to a “baby bust” of an estimated 300,000 fewer than expected births over the past year, as well as increased retirements from older workers.

There are some positive aspects of declining population growth. All else equal, fewer people mean fewer carbon emissions and resource usage, which is good news for climate change efforts given the steep road ahead. In addition, some US women express feeling heightened agency over motherhood decisions compared to past generations and have a desire to invest more in each child they do have.

If the United States is going to keep its commitments to older residents and make a green transition, it will need to maximize workers’ labor market participation and productivity through measures like active labor market policies, infrastructure improvements, and supportive working family policies like those in the American Families Plan. It will also need an improved immigration system. 

As a nation of immigrants, immigration has long played a crucial role in the US economy. Immigration is clearly a complex and multi-faceted topic, involving challenging political and ethical dynamics. However, from an economic and business dynamism perspective, the evidence is truly clear: immigration is a tremendous contributor to US productivity and growth.

Immigrants to the United States help the economy in a variety of ways: they expand the labor force with more workers; they disproportionately start and operate new businesses, which increases labor demand; and they are innovative, leading to gains in productivity growth. All these impacts lead to more growth and higher wages, as well as positive budgetary effects (on average, taxes paid by immigrants exceed the costs of services they use). The last time Congress seriously considered comprehensive immigration reform in 2013, the Congressional Budget Office (CBO) predicted that the proposed bill would add 0.3 percentage points to average annual GDP growth over a twenty-year period. (The CBO currently estimates potential real GDP growth is 2 percent.)

US Immigrants Disproportionately Own Businesses

Different types of immigrants bring different benefits to the economy; however, high-skill, low-skill, and undocumented immigrants across the country all help the economy. For example, agriculture and construction employers often rely on lower-skilled and undocumented immigrant workers due to US-born worker shortages. It is also true that the distributional impacts of immigration can create difficulties sometimes. However, while these effects are real and must be addressed, they are not indicative of immigration’s overall economic impact. For US-born workers, it is more likely immigration increases their wages than reduces them and evidence suggests “immigrants act more as job creators than job takers.”

The United States has many more immigrants than any country in the world. For much of its history, it has benefited from an ample supply of talented and hard-working foreigners. But in recent years, immigration has declined due to the Trump administration making the process more difficult, as well as concerns around pandemic safety and other countries’ increased efforts at attracting the world’s best. The Biden administration is attempting to expand the legal immigration system and make it smoother, and higher education institutions are a consistently large pull. Nonetheless, comprehensive reform that fixes a large backlog of people waiting to immigrate, increases the supply of visas for high-skill immigrants (for over twenty years, the demand for H-1B visas has greatly exceeded the supply), brings undocumented immigrants out of the shadows to further participate in the economy, and more is desperately needed.

For better or worse, domestic population growth in the United States is overwhelmingly likely to continue declining, putting increasing levels of burden on a shrinking working age population. As US policymakers debate strategic options about how to manage this dynamic, comprehensive immigration reform should be at the top of their to-do list.

Jeff Goldstein is a Contributor to the Atlantic Council’s GeoEconomics Center. During the Obama Administration he served as the Deputy Chief of Staff and Special Assistant to the Chairman of the White House Council of Economic Advisers. He also worked at the Peterson Institute for International Economics. Views and opinions expressed are strictly his own.

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