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Trump’s new immigration plan would make Americans poorer

A Penn Wharton study concludes the Raise Act will lower per capita GDP.

A new Trump-embraced proposal by Sens. Tom Cotton (R-AK) and David Perdue (R-GA) to restrict legal immigration while making the overall immigration system more “merit-based” would leave the American economy with fewer jobs and less economic growth — even on a per capita basis.

That’s according to a new analysis by the team behind the University of Pennsylvania’s workhorse Penn Wharton budget model. It’s an important analysis because unlike the various online quizzes out there asking people how they would fare under the new “merit-based” system (I don’t make the cut, but would have four months ago before I turned 36), it’s not highly dependent on the fine-grained details of their proposal.

Instead, the problems fall out of the broad contours of the Trump approach — immigration is, on the whole, good for the American economy, so cutting it drastically is bad for the economy. Cutting it as drastically as the Trump/Cotton/Perdue Raise Act proposes is so bad for economic growth that improving the skill mix of the immigrants who remain simply can’t make up for it. To craft an immigration policy that’s beneficial to Americans’ economic welfare, you have to give up on the goal of drastically curtailing immigration levels.

How the Raise Act works

The Raise Act is complicated in its details but relatively simple in its broad strokes:

  • First, it would cap legal immigration to the United States at about half its current rate.
  • Second, it would close existing pathways to immigration and replace them with one where you qualify for admission via a formula that emphasizes educational credentials, English-language skills, and salary offer.

The Penn Wharton team thinks this would shift the skill mix of the immigration population from the current situation, where 45 percent of immigrants have college degrees, to one where 75 percent of immigrants have college degrees.

Note that despite the rhetoric, the current inflows of legal immigrants are already better-educated than the native population. This means there are reasonably sharp limits to what can be achieved by improving the immigrant skill mix.

At the intersection of these two changes, the Raise Act would create a country that has somewhat fewer immigrant college graduates and substantially fewer non-college immigrants.

The Raise Act would make America poorer

The upshot of that, according to their model, is a country that by 2027 would have a GDP that is about 0.7 percent lower than under current law. By 2040, the impact of slower economic growth would compound, and America’s GDP would be about 2 percent lower.

That is, of course, an aggregate economic measure. China has a higher GDP than the Netherlands even though Dutch people are richer than Chinese people simply because there are so many more Chinese people. But the Raise Act turns out to make America poorer on a per-person basis over the long term as well.

Their model says that in the short term, the Raise Act (or really any immigration restriction) would raise per capita GDP because it would spread the existing stock of capital goods (buildings, machines, and business equipment) over a smaller number of people. But “over the long run, immigrants work and contribute to savings,” so by 2040, the economy is smaller on a per-person basis by a modest 0.3 percent.

Immigration for national greatness

A policy that inflicts a lot of suffering on potential immigrants in order to inflict a small harm on the native-born population does not have enormous appeal as an economic policy measure.

But when considering immigration policy, Americans should also pay some attention to the aggregate GDP figures in which immigration restrictions are shown to be very harmful. Per capita issues, of course, matter a lot for policymaking. The fact that the average Dutch person is considerably richer than the average Chinese person is an important success of Dutch public policy. That said, the fact that the Chinese economy is so much bigger than the Dutch economy in the aggregate also matters. That’s why China is a great power with vast geopolitical influence, while the Netherlands is a pleasant little country with some neat-looking canals.

The United States is, presently, both a rich country on a per capita basis and also the mightiest economy in the world on an aggregate basis. Immigration reforms that reduce aggregate GDP tend to diminish American national power in a way that an administration that’s putatively concerned with how “great” America is should probably care about.

You could get skills without cutting immigration

All of these impacts, obviously, are driven by the fact that the Raise Act’s cap on the total number of immigrants entering the United States is so severe.

But there’s no logical connection between the prong of the Raise Act that makes education and language skills key criteria for immigration and the prong of the Raise Act that severely curtails immigration. Indeed, the stated inspiration for the Raise Act is the immigration systems of Australia and Canada, both of which admit slightly more immigrants relative to their population than the United States, rather than drastically fewer as under the Trump/Cotton/Perdue proposal.

To the extent that immigration politics is really driven by economic concerns, imitating the actual Canadian and Australian approaches to immigration would be a fairly natural approach. But to the extent that critics of the status quo are simply driven by a kind of cultural and racial panic that drives them to want to severely curtail immigration, there’s no avoiding a significant amount of economic pain for the country.