A big financial mistake: The economic implications of repealing DACA

A big financial mistake: The economic implications of repealing DACA

Donald Trump has moved toward repealing the Deferred Action for Childhood Arrivals (DACA) law in order to fulfill a promise to the base that elected him in 2016. However, the economic ramifications will adversely affect the American economy in the long and short-term to the point where there will be sizeable shrinkage.

On September 5th, 2017, Donald Trump, through his Attorney General Jeff Sessions, announced his administration’s intent to end the program started by former President Barack Obama protecting young undocumented immigrants from deportation. Trump and Sessions put forth the argument paraded by anti-immigration activists that individuals in the United States are breaking federal law, hurting natural born Americans by taking away their jobs, and reducing wages in the labor markets. However, economists have just the opposite view since they regard immigration as a vital aspect of a nation’s economic growth. Without immigrants in the American workforce, there will be a severe shortage of workers, a lack of tax revenue on the federal, state, and local levels, and long and short-term contraction of the macro-economy, which will be extremely difficult to repair. The inescapable conclusion is that the repeal of DACA will create economic damage Trump and Sessions never considered when putting forth their agenda.

DACA defined

DACA was signed as an executive order by President Obama in 2012, when Congress failed on several occasions to pass legislation protecting undocumented immigrants from deportation who were brought to the United States as children by their parents and family. DACA permits two-year stays for those undocumented immigrants entering the United States prior to their sixteenth birthday who attended school, have continuously resided in this country since 2007, or joined the armed services and did not commit a serious crime. Immigrants under DACA must come forward, pass a background check, and apply for temporary but renewable protection from deportation and work authorization.

DACA also allows immigrants to further or complete their education, get a driver’s license and Social Security number, obtain work, open a bank account, and build personal credit history. These individuals are also known as “Dreamers” since they are very often younger than 30 years old and arrived in the United States as young children. DACA covers nearly 800,000 young people, and according to a report by the Center for American Progress (CAP), in the past five years, 91 percent of DACA recipients have obtained gainful employment while working for numerous firms in the United States.

DACA does not permit recipients to vote, nor is it a path to citizenship. DACA was a move by the Obama Administration to help undocumented immigrants as a clear response to decades of Congressional inaction. The Pew Research Center estimates that up to 1.7 million people may be eligible for DACA. The United States Citizenship and Immigration Services (USCIS) has received 844,931 initial applicants for DACA status as of June 2016, in which 741,546, or 88 percent, received approval while only 7 percent, or 60,269, were denied, and 5 percent, or 43,121 applications, were pending. The aim and purpose is to help those individuals who simply want a chance to work or go to school in order to have a better future for themselves and their families.

Economic implications of repealing DACA

If DACA were repealed and there were mass deportations of immigrants who were working and attending school in the United States, the economic ramifications could be extremely serious. First, there would be severe job losses by immigrants upon DACA’s repeal. CAP has reported that the law’s repeal would result in job losses averaging 30,000 per month by DACA recipients. The report also states that for every business day in which DACA renewals are placed in a holding pattern, an average of more than 1,400 individuals could be dismissed from their jobs. This would be felt nationwide, since DACA recipients are in all 50 states and the District of Columbia. CAP also reports that it is possible that during the third quarter of 2018, a DACA recipient could be dismissed from their place of employment every 13 seconds.

Economist Ray Perryman of the Perryman Group in Waco, Texas, stated that repealing DACA would worsen labor shortages for many employers. He feels that those states hit worst would be California, Texas, New York, and Florida since they have high immigrant populations. These states have significant numbers of immigrants working in industries such as hospitality, health care, agriculture, and construction, and these areas cannot afford to lose workers. The long-term economic ramification without enough workers in these industries would mean prices of produce going up, building projects taking longer to complete, and shortages of workers in nursing homes for a growing elderly population.

Oddly enough, immigrant workers are quite beneficial to their fellow American-born workers. According to a 2010 report from the Economic Policy Institute (EPI), it is estimated that from 1994 to 2007, immigration increased the wage scales of native-born workers by 0.4 percent, even though the amount of wage gains varied slightly by the worker’s education level.

Immigrants who work also infuse a substantial amount of money into the American economy. They spend their wages to purchase food, clothing, appliances, and automobiles, to name a few products. It has been estimated that approximately 55 percent of DACA recipients have purchased vehicles, while more than 10 percent have bought their first home. According to CAP, if DACA recipients were removed from the American workforce, the nation’s GDP would decrease by $460.3 billion over the span of a decade. Individual states would also suffer great financial losses. For example, Texas would lose approximately $6.2 billion annually from their state GDP, while California would be hit the hardest of all the states: an annual loss of $11.6 billion from its GDP. The Institute on Taxation and Economic Policy reported in April 2017 that the 1.3 million young undocumented immigrants enrolled or immediately eligible for DACA contribute an estimated $2 billion per year in state and local taxes, which includes personal income, property, and sales and excise taxes. Furthermore, employers would need to spend an additional $3.4 billion in unnecessary turnover costs such as training new hires, while Medicare and Social Security would lose $24.6 billion in contributions over a decade.

A big mistake in repealing DACA

Donald Trump has placed himself in a corner by wanting to repeal DACA. Executives of major American corporations such as Tim Cook of Apple, Mark Zuckerberg of Facebook, Satya Nadella of Microsoft, and Jeff Bezos of Amazon.com have all come out in favor of keeping DACA since they realize that a repeal would hurt their respective companies in many ways. But Trump is not only fulfilling his presidential campaign promise; he needed to make a decision by September 5th or face a lawsuit by ten attorney generals who wanted to repeal DACA. They are led by Texas Attorney General Ken Paxton, who threatened to sue unless DACA was repealed. Ironically, Texas stands to lose billions of dollars of economic growth and worker tax dollars to the state if DACA is not saved. As the old saying goes: be careful what you wish for.

Categories: Economics, North America

About Author

Arthur Guarino

Arthur Guarino is an assistant professor in the Finance and Economics Department at Rutgers University Business School teaching courses in financial institutions and markets, corporate finance, and financial statement analysis. The first half of his career was spent in the financial services industry. He has written articles dealing with finance, economics, and public policy.