The border crisis might be a boon for the economy

The daily march of migrants across the Southern border has been a political curse for President Joe Biden. But for the economy, it may have turned out to be a blessing.

By adding millions of new workers to the labor market, the immigration surge has lifted payrolls and growth, and potentially helped keep a lid on consumer prices, according to recent research. Capitol Hill’s budgeteers also think it stands to reduce the deficit in the coming years.

In an analysis published earlier this week, Ernie Tedeschi, a former Biden White House economist, found that the post-pandemic pickup in immigration accounted for at least one-fifth of the increase in U.S. gross domestic product since the end of 2019. Though it wasn’t the only factor, the boost from migrants helped explain why the American economy has bounced back much more strongly than those of other developed countries, he argued.

Immigration may also be a key to understanding how inflation slowed down last year, even as job growth remained unusually strong, according to a March report by the Hamilton Project at Brookings. That development surprised many economists, who believed hiring needed to slow down to take pressure off wages and prices. But according to the report, the large new pool of immigrant workers roughly doubled how many people employers could hire each month without accelerating inflation.

“Understanding the surge in immigration has radically changed my interpretation of last year’s and this year’s labor market,” Hamilton Project Director Wendy Edelberg said.

Economists usually discuss the benefits of immigration in terms of their long-term impact on issues like productivity and population growth, but the latest research is a reminder that new workers can also offer short-term oxygen to an economy that might otherwise run out of breath.

These findings are only emerging now thanks to new immigration numbers released in February by the Congressional Budget Office, which found that other government agencies had likely been undercounting the population growth driven by migrants over the past couple years as border crossings exploded.

The CBO estimated, for instance, that immigration added 3.3 million people to the U.S. population on net in 2023, 1.7 million higher than the Census Bureau’s latest figures. Most of the uptick was due to the category that includes asylum seekers from Latin America, many of whom have been allowed to find work in the country while their claims are pending.

Looking ahead, the CBO projected that thanks to higher immigration, the U.S. would have 5.2 million more workers over the coming decade than it had previously thought, juicing growth by $7 trillion and adding an extra $1 trillion in tax revenues to Washington’s coffers.

Since the reports started trickling out over the past few months, I’ve been joking that it’s a bit like Biden ran an accidental experiment to test the economic impact of open borders — and it turned out better than anyone could have hoped.

Unfortunately for the administration, that’s probably not a message most voters are going to eat up. The problems at the Southern border have become a millstone for the White House, and led worried Democrats to make a hawkish pivot on immigration issues. The president himself has said he would “shut down” the border, given the power.

If Biden were to successfully cut down on the flow of migrants, however, these latest studies suggest it would deal a blow to hiring and growth. The politics and the economics are in tension.

To Tedeschi, it all “punctuates the need for us to solve the chaos at the border” so that it doesn’t undermine support for legal immigration more broadly.

“We can clearly handle immigration very well,” he said. “It does well for our economy. We just need to have an immigration system that works well, treats foreign and native born workers fairly, and is widely seen as sustainable.”

Not everyone agrees with the CBO’s finding that migration has led to a sudden population boom, which hinges in part on highly technical debates about how the Census Bureau weights its annual demographic estimates. Economists at the Federal Reserve Bank of Chicago are convinced that the Census may have overcounted the foreign-born population. If that’s true, then the mass arrival of migrants wouldn’t explain much at all about U.S. growth.