Higher Immigration or Higher Interest Rates for America?
The persistence of restrictions on migrant workers and asylum seekers under President Joe Biden’s administration has exacerbated US labor shortages. The US must choose between a dynamic economy with lower interest rates and more foreigners, or a stagnant economy with high interest rates and fewer migrants.
LONDON – The US economy is demanding too many workers. There are about twice as many job vacancies across the United States as people looking for jobs. The unemployment rate remains at a historic low, and the labor force participation rate is on the rise.
Having many more job openings than workers has led to record-high quit rates and wage increases exceeding productivity growth, contributing to broad-based inflation and causing the US Federal Reserve to raise interest rates sharply in an effort to cool off the economy’s insatiable appetite for labor.
The Biden administration’s immigration policy has exacerbated these labor shortages, forcing the Fed to raise interest rates more aggressively than it otherwise would. By restricting the number of workers, the administration is limiting the economy’s potential output and reducing the level of spending that is compatible with it. Higher immigration, on the other hand, could lead to lower interest rates, increased output, and greater demand.
In fact, higher immigration and lower interest rates are pretty much in everybody’s interest. Domestically, it would facilitate the growth of startups, help small and medium-size firms find workers, boost stock and bond prices, and weaken the super-strong dollar, thereby improving the economy’s competitiveness and boosting exports. And lower US interest rates and higher demand would facilitate global growth, enable emerging and developing countries to lower their own interest rates, bolster capital flows and remittances, and increase American imports.
But if the potential gains are so great, why is the US not welcoming more immigrants? Part of the problem is America’s inadequate and outdated 1986 immigration law, which has left little space for skilled worker visas and even less for necessary so-called unskilled workers. Without sufficient legal pathways, it is no surprise that the US now has about 13 million undocumented immigrants living within its borders; one can only imagine how much smaller the US economy would be without them.
The Biden administration has taken some steps in the right direction by doubling the cap for H2-B visas for non-agricultural, low-skilled temporary workers to about 130,000. But this is minuscule relative to the economy’s needs. While there have been more than 300,000 applications for H1-B visas for high-skilled workers over the past year, the H1-B program has had an annual limit of 85,000 approvals since 2006. Despite controlling both houses of Congress, Democrats have done little over the past two years to advance legislation adjusting the cap to current demand.
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But even if Congress increased the legally mandated caps, the US lacks the capacity to process these visa applications. The US issued 1.2 million fewer work visas from March 2020 to July 2021 than it did from March 2018 to July 2019. While new green cards have recently rebounded to pre-pandemic levels, temporary visas are still well below where they were in 2019.
In addition, the backlog of pending visa petitions has increased by more than 50%, from 5.7 million to 8.8 million, under the Biden administration. Waiting times have also increased significantly for many types of visas. For example, while half of all green-card visas for immigrant workers were processed within 4.5 months in 2012, by 2022, processing 80% of those visas took more than 30 months.
This logjam is partly the result of the persistence of the Trump-era anti-immigration bias among US policymakers. The treatment of refugees is a case in point. While the Biden administration raised the annual ceiling of the US Refugee Admissions Program back to the pre-Trump level of 125,000 people, actual refugee admissions have averaged fewer than 25,000 per year under Biden, barely a third of those admitted during Barack Obama’s presidency.
Recent history illustrates the stakes of the ongoing immigration crisis. More than 7.8 million Ukrainians have fled their country following Russia’s invasion, yet the Biden administration has placed a pitiful cap of 100,000 Ukrainian refugees as part of a new program that also requires Ukrainian asylum seekers to find private sponsors. More than seven million people have fled Venezuela since 2015, but those who sought refuge in the US have faced similar limitations and a meager cap of just 24,000.
What would happen if many more migrants and refugees were allowed into the country? To answer that, we need only to examine previous migration waves. As several studies have shown, the 1980 Mariel boatlift that brought 125,000 Cuban refugees to Miami did not negatively affect locals’ job prospects, even though the US economy was weak at the time. Massive refugee inflows have benefited other countries as well. The mass immigration of Russian Jews to Israel in the early 1990s, for example, led to an economic boom that helped cement the country’s “startup nation” brand.
Similarly, the flow of two million Venezuelan refugees to Colombia since 2015 had essentially no effect on domestic unemployment or wages, but did help the country have one of the fastest post-COVID recoveries in Latin America and beyond. Crucially, Colombia granted Venezuelan émigrés full access to the job market, health-care system, and education. A recent study has shown that granting legal status to Venezuelans has increased immigrant entrepreneurship in Colombia by a factor of ten.
To put things in perspective, the US population is six times that of Colombia, and its GDP is 26 times larger. The US certainly has the capacity to absorb more refugees and immigrants if it wanted to. But it seems that American voters want a dynamic economy with fewer immigrants and low interest rates. That item, however, does not seem to be on the menu. Instead, the US must decide between a dynamic economy with lower interest rates and more foreigners, or a stagnant economy with high interest rates and fewer migrants. Americans need to know that xenophobia is an expensive choice.