Mulvaney: US desperate for immigrants

by


The Washington Post reports that, at a private event in England on Wednesday night, acting White House Chief of Staff Mick Mulvaney said the U.S. economy needs more immigrants to keep growing. He told the crowd that the United States is "desperate — desperate — for more people. We are running out of people to fuel the economic growth that we've had in our nation over the last four years. We need more immigrants." He stressed that they must come in a "legal fashion."

Let's put some numbers around these claims.

GDP growth is a function of growth of the labor force and the growth of labor productivity. We can grow the economy by either adding more workers or by each worker producing more per year. Labor productivity growth has averaged 1.1% per year since 2015, 1.4% per year during the Trump administration and over the last fifteen years overall. The CBO uses 1.4% in its projections to 2030 as well. Notwithstanding, labor productivity in Japan , which is ahead of us on the demographic curve, is essentially unchanged in the last seven years. Consequently, US labor productivity growth may fall short of expectations. Productivity growth of 1.4% is about as much as we can reasonably anticipate, with the risk to the downside.

To productivity can be added the growth in the labor supply. Since 2011, the US has added approximately 2.4 million jobs annually. In 2019, this pace fell to just over 2.0 million incremental jobs, in part because the potential labor pool is largely exhausted.

Looking forward, the CBO expects the potential labor pool to expand on average by only 680,000 annually to 2030, and only 580,000 per year after 2025, contributing a mere 0.4% to GDP growth. This may prove pessimistic as labor reserves could be larger. The core 25-64 working age group is increasing by only 350,000 / year on average in the 2020s, so the CBO and Census Bureau are already assuming 300,000 of the gains in the potential workforce are coming from increased labor force participation either within or without the core working age group. For example, labor force participation in the 65+ age group is rising steadily. Japan has managed to stave off a decline in its workforce through such adaptations, most notably increased workforce participation by women. Thus, US domestic reserves of labor may be modestly -- but not vastly -- greater than the CBO expects.

Caveats notwithstanding, the productivity and population trends above lead the CBO to project GDP growth of only 1.7% on average in the 2020s, not the 2.9% presented in the February 2020 report of the Council of Economic Advisors (p. 299).
Immigration can increase the pace of economic growth. The Bureau of Labor Statistics reports approximately 160 million persons employed in the United States. Increasing the GDP growth rate by 0.1% would therefore require an additional 160,000 workers. To average 2.5% GDP growth, immigration would have to rise by 1.3 million additional migrant workers annually, plus their dependents, perhaps 1.8 million persons / year in total in today's visa regime (but only 1.5 million or so in an MBV program).

The current GDP forecasts of both the CBO and CEA already assume 1.0 million net international migration into the US. Thus, those hoping to maintain a 2.5% GDP growth rate have to reckon with increasing the pace of immigration by 180% or so.

Meanwhile, demand should be robust. Nearly 20 million Americans will turn 65 in the coming decade, and studies suggest that their consumption falls by only 15% at retirement. Consequently, there will be plenty of demand for labor even as our worker shortage continues to unfold.

And this brings us full circle to Mick Mulvaney's speech at the Oxford Union. The Federal budget deficit is wildly out of control , even as the retirement of the Baby Boomers portends further rises in government spending. Historically, we have grown our way out of deficits, but if GDP growth is only 1.7%, then this avenue is all but blocked. And Mulvaney knows that. Hence his desperation for more immigrants, necessary to both keep the economy growing and provide services for an aging US population.

The numbers make it clear: The calls for increased immigration are only getting started.

Reprinted with permission.


About The Author

Steven Kopits For most of his career, Mr. Kopits served as a strategic management consultant and investment banker in Hungary and the United States. His work has focused primarily on the private sector, with some sector consulting for the governments of Hungary, Norway, the United Kingdom and the United States. He developed expertise in the management of black market issues working in Hungary after the fall of communism there. While in Hungary, Mr. Kopits served, among others, as a Director of Financial Advisory Services at Deloitte & Touche, and later as Managing Director of T-Venture Hungary, Deutsche Telekom's corporate venture arm. He also served on the boards of several companies, both public and private. In the US, Mr. Kopits served as an investment banker at Dahlman Rose & Co., and then as Managing Director for Douglas Westwood Ltd., a UK-based consultancy specializing in the energy sector. He holds an undergraduate degree from Haverford College, an MBA in Finance and Accounting, and a Masters specializing in International Economics from the School of International and Public Affairs at Columbia University. He writes frequently on policy topics for a variety of publications, including Foreign Policy and The National Interest, and is a regular contributor to CNBC and The Hill, for whom he writes principally on topics related to illegal immigration.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.