President Trump endorsed a steep cut in legal immigration on Wednesday. Economists say that's a “grave mistake.”
“Restricting immigration will only condemn us to chronically low rates of economic growth,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “It also increases the risk of a recession.”
During the campaign, Trump repeatedly told illegal immigrants to “get out.” Now he wants to cut back on legal immigration as well. On Wednesday, Trump stood side-by-side with Sens. Tom Cotton (R-Ark.) and David Perdue (R-Ga.) to endorse their bill, the RAISE Act. The bill does two things: It moves the United States toward a "skills-based immigration system" where people with special skills get top priority and it cuts legal immigration by 50 percent.
"This legislation demonstrates our compassion for struggling American families," Trump said Wednesday. He believes immigrants -- both legal and illegal -- take jobs from Americans, even though the jobless rate in the country is incredibly low.
Many economists and business leaders endorse the skills-based approach. Canada and Australia, among other countries, use this method. But there's heavy criticism for the RAISE Act's plan to slash the number of green cards from 1 million a year to 500,000 over the next decade. In the first year alone, the bill cuts the number of green cards by 41 percent.
“We need to modernize the immigration system, but cutting immigration in half is bad for the economy and bad policy,” says Jeremy Robbins, executive director of New American Economy, a coalition founded by former New York City mayor Michael Bloomberg to improve U.S. immigration policy.
Robbins points out that Canada and Australia — the supposed models for the Trump administration's reforms — both let in more than double the number of immigrants per capita than the United States does. There are also concerns that such a dramatic cut to legal immigration would cause illegal immigration to rise.
Cotton introduced the RAISE Act in February. It wasn't expected to go far given the crowded to-do list for Congress this year, but Trump's news conference Wednesday is giving it new life.
In April, over 1,400 economists from across the political spectrum sent a letter to Trump urging him not to cut immigration. The letter said there was “near universal agreement” on the “the broad economic benefit that immigrants to this country bring.” Thomas Simons, senior economist at Jefferies investment firm, said a 50 percent reduction would be “absolutely harmful to an economy with a population undergoing the demographic transformation.”
The bottom line is that the United States needs more workers. Growth happens when one of two things occurs: The economy gets more workers or the existing workers become more productive. At the moment, both of those factors are red flags. Productivity growth is sluggish, and, as Trump has pointed out many times, the percentage of American adults who actually work — the labor-force participation rate — is hovering at the lowest levels since the 1970s.
A big part of the problem is the baby boomers are starting to retire. The United States needs more people to replace them, but the U.S. birthrate just hit a historic low, according to the Centers for Disease Control and Prevention. That's why many economists, demographers and business owners keep calling for more immigration, not less.
“Limiting immigration to the U.S. is a grave mistake,” says Mark Zandi, chief economist at Moody’s Analytics. “The only way to meaningfully increase U.S. economic growth on a sustained basis anytime soon is to increase immigration.” During the campaign, Zandi predicted that Trump's protectionist stances on trade and immigration would lead to a “lengthy recession.”
Trump portrays immigrants as scooping up American jobs. But the data appears to tell a different story.
U.S. unemployment is at 4.4 percent. In May, unemployment hit the lowest level since 2001, a milestone Trump celebrated. That implies there aren't many people struggling to find work. At the same time, the United States has 5.7 million job openings, which is near a record high. It's been that way for a year now. Business leaders with big and small firms say they can't find enough workers. They are especially vocal about not being able to find enough people for really low-skilled, low-pay work and for really high-skilled jobs.
Trump is already heeding the calls for more lower-skilled workers. His administration recently bumped up visas for seasonal foreign workers by 15,000, a 45 percent increase from last year.
There is growing support for moving the United States to a more merit-based immigration system. The idea is to attract more of the immigrant workers that the country desperately needs. At the moment, only 15 percent of green cards are issued for employment reasons, according to Department of Homeland Security data.
“There is a case for adopting a Canada-style system of 'points' whereby preference is given to people with desired skills,” said Martin Barnes, chief economist at BCA Research in Montreal.
The vast majority of legal immigrants are entering the country because they are relatives of someone already in the United States. It's known as “chain immigration,” and the RAISE Act wants to limit that substantially so only spouses and children could come with a visa holder, not more-extended relatives.
From an economic standpoint, the key is to get more workers with the desired skills into the country. It's why the tech community is lobbying so hard for more H-1B visas. Immigrants also tend to start more businesses. While start-up founders in Silicon Valley are glorified, the reality is business formation in the United States is near a 40-year low. That worries Carl Tannenbaum, chief economist at Northern Trust.
“Countries that get collectively older are granted fewer patents, start fewer small businesses and take fewer risks with capital,” Tannenbaum said. All of that hurts economic growth.