You can’t cure stupid.
Which means the irony inherent in paying billions of taxpayer dollars to Hispanic immigrants to build a wall designed to keep out Hispanic immigrants will likely be completely lost on Donald Trump and, more importantly, on his (dwindling) support base.
The fact that Hispanic construction firms – some owned by the descendants of immigrants from Central and South America – are bidding to build Trump’s wall is a microcosm of a point we’ve been making in these pages since the election. Namely, you can’t de-globalize the world. That ship sailed (literally) with the Niña, Pinta, and Santa Maria.
Attempts to institute a kind of neo-nationalist isolationism by closing borders and adopting an inward-looking philosophy will only produce more and more absurd outcomes (like Hispanics building walls to keep out Hispanics) and ridiculous unintended consequences. Unintended consequences like shooting oneself in the foot (Plaxico-style) by committing economic suicide-by-deportation. Recall the following from BofAML:
What would happen if there was a decline in the number of undocumented workers? From an economic perspective this is a “supply shock”–a reduction in the productive potential of the economy via a smaller labor force. Let’s consider three scenarios:
- Improved border security and more aggressive deportations that lower the number of undocumented workers by 200,000 per year. This could be achieved by increasing annual deportations from about 400,000 to 500,000 and stopping 100,000 more people per year at the border.
- Cut the number of undocumented workers in half over a four year period through tougher enforcement.
- Effectively eliminate all undocumented workers over a four year period
In the first scenario the economic impacts are likely to be very small. The economy has already adapted to the leveling off and slight dip in this part of the labor supply. All else equal a cut of 200,000 per year lowers the unemployment rate by 0.125 per year. This in turn means a slightly faster rise in wage and price inflation and a slightly faster Fed.
The story is very different under the second and third scenarios. Undocumented immigrants tend to specialize in certain kinds of jobs. Hence cutting the labor force in these areas could hurt the productivity of complementary workers causing indirect loses beyond the direct labor force reduction. Consider the impact on agriculture. According to U.S. Department of Agriculture “about half of the hired workers employed in U.S. crop agriculture were unauthorized.” It is hard to see how these workers would be replaced as these are very low paying jobs and there is already a shortage of such workers. A similar less dramatic story holds for construction, restaurants and other industries with high concentrations of undocumented workers.
With full deportation an outright recession seems plausible, as output would be disrupted and as the Fed may be unwilling to act because a labor shortage would mean a surge in wage and price inflation.
In case you didn’t catch the message there, it’s this: most of the rhetoric that suggests undocumented immigrants are responsible for the ebb and flow of the labor force and thus unemployment is bullsh*t. And further, deporting all the undocumented workers in the country would plunge the US economy into recession.
Well, on Thursday, WSJ is out with an interesting piece on this same subject. Consider the following:
President Trump approved the Keystone XL pipeline on Friday, and good for him, but will there be enough workers to build it? That’s a serious question. Many American employers, especially in construction and agriculture, are facing labor shortages that would be exacerbated by restrictionist immigration policies.
[…]
Construction is ground zero in the worker shortage. Many hard-hats who lost their jobs during the recession left the labor force. Some found high-paying work in fossil fuels during the fracking boom and then migrated to renewables when oil prices tumbled. While construction has rebounded, many employed in the industry a decade ago are no longer there.
[…]
The farm labor shortage is also growing, which has caused tens of millions of dollars worth of crops to rot in the fields. Farmers can’t get enough H-2A visas for foreign guest workers, some of whom have migrated to higher-paying occupations. Workers also often arrive late due to visa processing delays by the Labor Department. The undocumented workforce has shrunk as more Mexicans have left the country than have arrived in recent years.
Some restrictionists claim that cheap foreign labor is hurting low-skilled U.S. workers, but there’s little evidence for that. One Napa grower recently told the Los Angeles Times that paying even $20 an hour wasn’t enough to keep native workers on the farm.
A new paper for the National Bureau of Economic Research concludes that terminating the Bracero program, which admitted seasonal farm workers from Mexico during the 1940s and ’50s, did not raise wages of domestic workers. Meantime, a 2014 study found that Arizona’s E-Verify mandate on employers reduced “employment opportunities among some low-skilled legal workers.”
This isn’t surprising since producers have responded to the worker shortage by shifting to higher-value crops that require less labor. As a result, imports of some fruits and vegetables, especially processed and canned varieties, have increased. Tomato sauce imports increased by about a quarter in the last three years. Since the 1990s, imported frozen vegetables–particularly asparagus, broccoli and cauliflower that require high levels of labor to pick and cut–have more than tripled.
Dairies and slaughterhouses are also facing stiff competition from Canada and Mexico. And consumers are paying more for products that can’t be substituted by imports (often for seasonal reasons). So the worker shortage is hurting U.S. employers, low-skilled workers and consumers.
President Trump would compound the problem by reducing legal immigration or deporting unauthorized immigrants whose only crime is working without legal documentation.
Did you catch all of that? Read the bolded passages again.
Far from “making America great again” economically, Trump’s immigration policies are almost sure to make things worse – bigly.
And in the meantime, the balance of evidence suggests that not only will Trump’s policies not help the US workers whose fortunes the President claims are being (figuratively and literally) undermined by Mexicans, Mexicans are actually leaving at a faster pace than they’re coming in.
Immigration, open borders, and globalization in general are solutions looking for problems. And while Trump doesn’t have much in the way of the former as evidenced by last week’s healthcare debacle, he sure seems to have plenty of ideas when it comes to the latter.
