The Economic Realities of Illegal Immigration

By Tim Pierotti

The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications, a new working paper from The Dallas Fed answers an economic question that has become a highly political one. Has the significant rise in unauthorized immigration exacerbated inflation? The answer, according to a team of economists led by Anton Cheremukhin, is no, nor has it been disinflationary. In summary, they conclude, “Contrary to the popular view, we find little effect on inflation, as the increase in supply was largely offset by an increase in demand.”

For the twenty years prior to the pandemic and the immigration limiting policies of the Trump Presidency, immigrants consistently added roughly .5% to the total US population annually. Also, the majority of immigration over this two-decade period was “authorized”. Since the end of the pandemic however, the rate of immigration has been both far higher, adding 1.2% annually to the US population, and far more likely to be “unauthorized”. Also unique to recent years is that, on average, recent immigrants are poorer and less skilled and more likely to come from countries in turmoil like Venezuela and Haiti.

The authors conclude, “They [recent immigrants] tend to be hand-to-mouth consumers and low-skilled workers that complement the existing workforce.” These workers have filled jobs in agriculture and construction, where employers have and continue to be short on labor availability.

The point of highlighting this study is that economic facts rarely fit nicely into political narratives. We are all subject to cognitive bias. We find data and anecdotes that fit our preconceptions and tend to omit information that betrays those feelings.

To be clear, I am not making an argument for open borders or unlimited immigration, but I am saying that sometimes the data belies common assumptions. The authors of the study found that recent illegal immigrants, as a cohort, are no less likely to work than authorized immigrants and are more likely to spend their earnings domestically as opposed to remitting those earnings back to their countries of origin, thereby boosting demand here. The labor participation rate of these immigrants is meaningfully higher than that of native-born citizens and importantly, they fill jobs that native-born Americans loathe to do.

The United States needs robust and effective immigration policies that allow our country to continue to grow our GDP and living standards. The fact that people want to come here from all over the world has always been one of our country’s great blessings and that has not changed. US native born demographics demand that we grow via immigration. Since the end of the pandemic, the native-born workforce has shrunk as more people over fifty leave the workforce than young people enter. That trend will only get worse. If the US is going to continue to outpace our developed world counterparts, it will be because people all over the world still believe in a Shining City Upon a Hill. As Ronald Reagan said in his farewell address:

After 200 years, two centuries, she still stands strong and true on the granite ridge, and her glow has held steady no matter what storm. And, she’s still a beacon, still a magnet for all those who must have freedom, for all the pilgrims from all the lost places who are hurtling through darkness, toward home.

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