US immigration standoff highlights economic opportunity

US immigration standoff highlights economic opportunity
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As the immigration topic is once again debated in the U.S. House of Representatives, the populist branch of the Republican party should accept that economic integration will stimulate, not harm, state budgets.

In November 2014, President Obama announced that he would grant legal protection and temporary work permits to undocumented immigrants who have children who are legal U.S. residents or citizens.

This executive order is not Mr. Obama’s first attempt to reform the immigration system and aid undocumented immigrants residing in the United States. The Deferred Action for Childhood Arrivals (DACA) initiative provides a two-year renewable extension for qualified undocumented immigrants under the age of 31.

The recent executive order from November 2014 was monumental because it extends legal protection to undocumented adults. If successful, it would grant approximately 5 million people temporary legal status in the United States.

The series of unilateral executive orders has since come under fire not from the legislature, but from the courts. On February 16, a Texas federal judge stopped the government from issuing legal protection to undocumented immigrants because it would place an insurmountable burden on state budgets.

And so, Mr. Obama’s plan to place a temporary plug on America’s illegal immigration problem has been indefinitely postponed.

Congress had been relatively quiet on the issue until the judge’s order. Now, the newly formed conservative Freedom Caucus is leading the movement to add pressure within the legislature to push back on Mr. Obama’s executive orders.

However, the Freedom Caucus and other opposition legislators could view the immigration problem as one that impedes America’s economic capacity. Currently, there is a growing informal economy in the United States composed mainly of undocumented foreign nationals. Reform integrating undocumented workers into the formal economic system could increase competitiveness in the housing, service, construction, financial, and agricultural sectors.

Liberalizing immigration policy could subsequently (1) increase consumption in the housing and financial sectors; (2) satisfy a demand for legal labor in the agricultural and service sectors; and (3) substantially increase federal and state revenues:

  1. Immigration reform is economically beneficial because it would significantly increase consumption in local markets. Newly documented workers would now be able to invest earnings and savings in financial institutions and buy houses with financial instruments. With increased access to financial institutions, newly legalized immigrants would have an incentive to invest domestically in the United States instead of remitting money abroad.
  2. Failure to integrate undocumented immigrants would leave an immense labor gap in sectors that US born citizens generally do not seem to want to enter. In a political economy perspective, the United States is considered capital-rich and labor-scarce. Since the end of the 1970’s, it has transformed into a service-intensive capital economy. With this said, legalizing currently undocumented workers — under strict guidelines — is congruent with the labor-scarce 21st century American economic model. Disrupting the flow of labor into the agricultural and service sectors may cause a shock that could have systemic effects. With reform, employers in these sectors would also eliminate legal liabilities and decrease transaction costs related to employing illegal workers.
  3. Integration would also allow for newly legal workers to contribute both directly and indirectly to federal and state revenues. They would now pay progressive income tax as well as consumption taxes, such as sales tax and property tax. Since most of the illegal population is of working age, they are expected to be net contributors to the welfare state rather than dependents.

As more attention will be given to the immigration issue in the coming months, Congress could consider doubling down on Mr. Obama’s executive orders and attack the status quo. Integrating undocumented immigrants could increase the American consumption market and consequently, tax revenue. The budgets of austere and cash-strapped southern states in need of stimulus, including Texas, would surely benefit from the new tax payer market. Both Republican and Democratic constituencies have much to gain from immigration liberalization.

Categories: North America, Politics

About Author

Daniel Lemaitre

Daniel is a GRI Senior Analyst. He has worked in policy research centered on the political economy of the Andean region in the public, NGO, and private sectors. Daniel holds an MSc in Comparative Political Economy from the London School of Economics, concentrating on Latin American markets.