The intricate relationship between illegal immigration and inflation has stirred significant debate among economists and policymakers alike. With the backdrop of the upcoming 2024 presidential election, where immigration policy is a hot-button issue, the implications of illegal immigration on the U.S. economy are more pertinent than ever.
Treasury Secretary Janet Yellen recently highlighted the potential economic fallout of mass deportation. Speaking at The Atlantic Festival on September 19, she emphasized that removing millions of undocumented immigrants could have “devastating” unintended consequences. Estimates of the illegal immigrant population in the United States vary widely, from around 11 million to as high as 30 million, making any policy decision complex and impactful. Yellen argued that the influx of workers has been instrumental in alleviating inflation, stating, “The influx of workers into the labor market is something that’s helped to bring down inflation and create a lot of jobs.” This assertion aligns with recent trends; after peaking at 9.1% in June 2022, the annual inflation rate has declined to 2.5%, the lowest level since February 2021.
The importance of immigrants in the labor market cannot be overstated. As a senior administration official noted, the presence of these workers has countered a concerning trend of people exiting the workforce, particularly in a post-pandemic recovery context. Yellen’s viewpoint is echoed by a Wall Street Journal survey conducted in July, which revealed that 56% of economists believe that the economic policies of former President Donald Trump, particularly concerning tariffs and strict immigration controls, would likely exacerbate inflation. Trump, for his part, has dismissed concerns about inflation during a potential second term, pledging to restore price stability through measures such as revitalizing the domestic energy sector and curbing “wasteful spending.”
Public sentiment appears to be divided on this issue. A recent Scripps News-Ipsos survey indicated that over half of the respondents—54%—support the mass deportation of undocumented immigrants, including one-quarter of self-identified Democrats. This reflects a complex perspective on immigration, where economic considerations collide with social and political concerns.
Diving deeper into the dynamics of illegal immigration, a study by the Federal Reserve Bank of Dallas suggests that the influx of undocumented workers may contribute to inflationary pressures due to increased demand for goods and services. Conversely, David Mericle, chief U.S. economist at Goldman Sachs, argues that growth in the labor force, bolstered by immigration, has enabled businesses to fill job vacancies, thus alleviating inflationary pressures. “Elevated immigration is boosting labor force growth,” he noted, suggesting that strong demand growth is unlikely to exacerbate supply-demand imbalances.
However, it’s crucial to recognize that the benefits of illegal immigration are not uniformly distributed across the labor market. Research from Steven A. Camarota, director of research at the Center for Immigration Studies, indicates that any disinflationary impact from illegal immigration might be minimal, as many employment gains are concentrated in low-wage sectors. He pointed out that “these jobs account for only a small share of overall wages and salaries paid to workers in the U.S. economy.”
Data from the Bureau of Labor Statistics underscores a significant shift in the labor market. From August 2023 to August 2024, the number of employed foreign-born workers surged by nearly 1.3 million, while U.S.-born workers saw a decline of over 1.3 million. The labor force participation rate among foreign-born workers increased by 0.2%, contrasting with a similar decline for their U.S.-born counterparts. This suggests that the demographic makeup of the workforce is evolving, influenced significantly by immigration trends.
Fed Chair Jerome Powell recently remarked that the uptick in the unemployment rate, which has risen above 4%, can be attributed, in part, to this influx of migrants. “If you’re having millions of people come into the labor force, and you’re creating 100,000 jobs, you’re going to see unemployment go up,” he explained. While some economists argue that the immigration wave has contributed positively to GDP growth, critics emphasize that the costs to government services may outweigh these benefits. Camarota has argued that the low average education levels and earnings of illegal immigrants result in a net fiscal drain, stating that “the tax payments of illegal immigrants do not come close to covering the cost they create.”
Indeed, a study by the Federation for American Immigration Reform estimated that illegal immigration costs taxpayers approximately $150 billion annually. Nevertheless, experts like Michael Ettlinger of the Institute on Taxation and Economic Policy warn that a mass deportation initiative could severely disrupt critical sectors such as agriculture, construction, child care services, and transportation, where illegal immigrant workers represent a substantial portion of the workforce.
In conclusion, the intersection of illegal immigration and inflation is a multifaceted issue that requires careful consideration of economic data, public sentiment, and the potential consequences of policy decisions. As the political landscape evolves, so too will the discourse surrounding immigration and its implications for the U.S. economy. Whether the benefits of a diverse labor force can outweigh the challenges remains a question that demands ongoing exploration and dialogue.
