Biden should pivot to a pro-growth strategy on immigration reform

One year into the Biden presidency, a disappointing lack of progress on immigration reform has been a factor in Biden’s slipping approval ratings. 

On the day of Biden’s inauguration, the White House sent a bill to Congress – The U.S. Citizenship Act of 2021 – as part of its commitment to modernize the U.S. immigration system. But key components of that bill are now languishing inside the stalled Build Back Better plan.

What should be evident is how much of an uphill battle Biden faces. As the Brookings Institution notes, the failed attempts by George W. Bush and Barack Obama to gain bipartisan support for immigration reform suggest history is not on his side. During the Trump administration, it became even harder.

Two months into his presidency, Biden had to contend with a wave of illegal migrants crossing the southern border that widened the gulf between Republicans and progressive Democrats. The Economist argued that Biden needed a clearer message and a firmer hand to tackle the crisis. It noted that a sustainable immigration policy must involve ways for immigrants to enter America legally and observed: “The asylum system has become a backdoor substitute for a proper immigration scheme.”

Amid this, what, if anything, can be done to marshal support for immigration reform? 

If Biden is to garner bipartisan support, the focus should be on making a pro-growth case for increasing the number of legal immigrants. The reason: Until Trump’s presidency, Republicans traditionally were the party that favored strong growth along with free trade and open immigration policies. And the case is even more compelling today.

Consider what has happened to U.S. economic growth in the post-war era. During the second half of the 20th century, annualized economic growth averaged close to 3.5 percent, but it has slowed to 1.8 percent in the past two decades. Part of the reason relates to U.S. demographics, as baby boomers retired and the U.S. birth rate slowed over time. At the same time, the growth of immigrants slowed to 0.4 percent per year in the past decade, or roughly one half the trend rate.

The combined effect has been a significant slowing in the growth of the working-age population (16-64 years) to 0.4 percent annualized from 1.2 percent previously. Looking ahead, the prognosis is even less favorable. According to the Census Bureau, the growth of the working-age population this decade is likely to be only 0.2 percent annually.

Moreover, research by the Pew Research Center suggests that the native-born U.S. population will begin to decline soon. In 2017, it forecast that the working-age population between 2015 and 2035 would increase by only 10 million people – the lowest in any single decade – and that it would come entirely from new immigrants and offspring from existing immigrants.

Meanwhile, a Trump administration plan in 2018 called for cutting the number of legal immigrants by up to 44 percent, or half a million people annually, the largest policy-driven cut in legal migration since the 1920s. As of mid-2021, Stuart Anderson, executive director of the National Foundation for American Policy, notes that the pool of new legal immigrants had fallen by nearly 50 percent both as a result of Trump’s policies and the impact of the coronavirus pandemic. 

The bottom line is that the pace of future U.S. economic growth will increasingly depend on the pool of immigrants coming into the country. If that pool stagnates, the U.S. growth potential could look more like Japan’s, where real GDP growth has averaged about 1 percent per year.

In addition to these long-term considerations, the case for expanding the pool of immigrants has been enhanced by the tightening of U.S. labor market conditions this past year. Owing to a massive fiscal and monetary policy response to the coronavirus pandemic, the U.S. economy is nearing its productive capacity. The unemployment rate is down to 3.9 percent, wage increases are the strongest in years and inflation is the highest in four decades. 

Normally, opposition to increased immigration would be strongest among labor unions and unskilled workers who worry that it could result in job losses and lower wages. But in the wake of the “Great Resignation,” quit rates have risen to record levels. As a result, there are now critical shortages in areas such as health care and technology, where employees experienced increased workloads and burnout. These are also areas where Hispanics (health care) and Asians (technology) could help fill the void. 

President Biden should seize on this as an opportunity to create bipartisan support for expanding legal immigration. 

Rather than get caught up in the wrangling over illegal immigrants, the case for expanded immigration is straightforward: It provides a means to ensure long-term economic growth while tackling labor market shortages and high inflation. Over time, as more immigrants are allowed into the country, illegal immigration and the asylum system that it fosters should begin to lessen and hopefully pave the way for a constructive solution to the problem.

Nicholas Sargen, Ph.D. is an economic consultant and has affiliations with Fort Washington Investment Advisors in Cincinnati and the University of Virginia’s Darden School of Business. He has authored three books including, “Investing in the Trump Era.”