Summary
In the most recent White House economic report, President Trump’s advisory team emphasized the essence of increasing labor force participation to enhance economic growth and generate revenues. Specifically, the report recommends a series of policies, aiming to add 1.7 million more workers to the economy, and raise economic growth by one-tenth percentage point per year. Readers noted, however that the importance of immigration on economic growth has being intentionally left out of the report. Analysts noted that U.S. Labor force participation has dropped substantially in recent years, and thus adding workers is critical to energize the economy. Even though the report states that “Policies that increase the labor force participation rate of all workers would have a material impact on long-run economic growth,” it tends to ignore immigration, the biggest source of increased labor supply.
A study by the National Academy of Sciences reveals that immigrant workers accounted $2 trillion of America’s $18 trillion economy. In addition, based on a research by the Pew Research Center, existing immigrants and those newly admitted, will account for all the increase in working-age population by 2035.
Nevertheless, the Trump administration is actively attempting to reduce the number of working immigrants while pressuring the congress to green light more measures to ignite economic growth. GOP senator Jeff Flake of Arizona told the author that it is not possible to be pro-growth and anti-immigration at the same time. Jason Furman, former chair of council of economic advisors to President Obama, criticize the direction the administration is taking. He believes that cutting legal immigration in half, which was proposed by a bill backed by the President, would shrink the economic growth substantially. the U.S. would be turning into Japan,” he added.
Trump’s economic vision ignores immigrants, but it will need their labor
In a new White House economic report, President Trump’s advisers cite the importance of an expanding labor force to raising growth and incomes.
So the Economic Report of the President suggests an array of policies to add workers, including baby boomers whose retirements have diminished the supply of labor and younger people who have abandoned the job market. A combination of policy changes and favorable conditions, the report notes, could lure 1.7 million more workers and boost growth by one-tenth percentage point annually over the next 10 years.
But one policy the report doesn’t discuss at all is immigration — and for good reason. The immigration proposal favored by Trump would have the opposite effect, shrinking the labor supply and the economy’s long-term growth potential.
U.S. labor force participation has declined in recent years partly from simple demography. In 2008, the first members of the massive baby boom generation began turning 62, the age workers can begin to retire and accept Social Security benefits.
For reasons that are less clear, growing numbers of “prime-age” Americans between 25 and 54 have also stopped working. Among other factors, economists blame displacement caused by technology and foreign trade, and increased reliance on disability payments by those with health problems.
With American productivity-per-worker in a long-term slump, adding workers is vital to boosting economic output.
“Policies that increase the labor force participation rate of all workers would have a material impact on long-run economic growth,” said the White House report, prepared by the Council of Economic Advisers chaired by Kevin Hassett.
The report lists a number of options. They include allowing Social Security recipients to work without paying Social Security taxes, augmenting retraining for displaced workers and curbing the opioid crisis.
But at the moment, the biggest source of increased labor supply is immigration, legal and illegal.
In 2016, the National Academy of Sciences estimated, immigrant workers accounted for $2 trillion of America’s $18 trillion economy. Through 2035, the combination of new immigrants and those already here will account for all the growth in the working-age population, according to Pew Research Center estimates.
“You can be pro-growth and anti-immigration,” GOP Sen. Jeff Flake of Arizona told me last week, “you just can’t be both.”
Yet Trump is now pressing Congress for legislation curb that labor force growth. While pushing for tougher enforcement against illegal immigration, he has backed a Senate proposal that would cut current levels of legal immigration — about 1 million people per year.
That would mean roughly 500,000 fewer legal immigrants per year. Since immigrants are disproportionately of working age, the effects would dwarf the 170,000 per-year increase the report projects from policies to boost labor force participation.
Jason Furman, who held Hassett’s job under President Barack Obama, said cutting legal immigration in half would shrink economic growth by more than the recent tax cuts will increase it. If not for immigrants offsetting the decline in the labor force, he added, “the U.S. would be turning into Japan.”
“I’m sure Jason’s as wrong about that as he’s been wrong about everything else the last few months,” Hassett shot back at his predecessor, a vocal opponent of the tax cut. Trump’s support for increasing the proportion of higher-skilled immigrants, he explained, could offset negative economic efforts from shrinking the number of additional immigrants overall.
Of course, that’s what Hassett says now that he works for an “America First” president who promises to build a wall along the Mexican border. A few years ago, he touted a different economic prescription.
“With lackluster GDP growth threatening to become our new normal, allowing more immigrants to enter for the sake of employment is one of the few policies that might restore our old normal,” Hassett wrote in Nation Review. That 2013 article carried the headline “America Needs Workers.”
It concluded with Hassett’s assessment of how to increase U.S. economic growth by a half-percentage point per year: giving more priority to new workers while admitting twice as many immigrants.
Source: CNBC, John Harwood, Feb 22, 2018. Photo credit to CNBC.