As Congress and the Trump administration debate immigration reforms with important legal and social implications, they must not lose sight of an overarching truth: Robust immigration levels are vital to growing the American economy.
Legislators of both parties, policy makers and families all want faster economic growth because it produces more resources to fund national priorities and raise living standards. But growth since the end of the Great Recession has been frustratingly slow, averaging only 2.2% net of inflation, down from 3.6% on average from 1960 to 2000.
Republicans hope the new tax cuts will lead the economy to grow faster. But while stimulus plans can indeed produce growth at least temporarily, they usually do so by increasing the deficit. Can’t policy makers achieve faster growth without further ballooning our national debt? Yes—and increasing immigration levels is the most reliable way to do so.
Long-term economic growth comes from two sources: productivity growth and population growth. Productivity growth means the same number of workers are able to produce more goods and services. Increased productivity comes from better education (equipping workers with better skills) and technology development (giving workers more sophisticated tools). Productivity growth has been very low during this recovery, averaging only 1.1% per year, down from 2.1% from 1960 to 2000.
We can’t predict whether productivity growth is going to return to prior levels on its own. Congress could decide to spend more on education or basic research to boost productivity, but it takes years for such investments to translate into a more productive economy. That doesn’t mean they aren’t worth making, but the payoffs are highly uncertain.
Population growth drives economic growth because a larger population means more workers to produce things and more consumers to buy things. But as is true in most other advanced economies, Americans are having fewer children. The U.S. working-age population has stagnated over the past decade.
Using public policy to increase the nation’s fertility rate is not easy. Congress could try to create economic incentives for families to have more children by offering tax credits and free child care, but both would be expensive and take years to move the needle on population growth. The surest way to increase the working-age population is through immigration.
Immigration has boosted U.S. economic growth throughout history and can continue to do so if the country remains committed to openness and opportunity. Some immigration opponents fear immigrants will compete with native-born Americans for jobs, but the bulk of economic research shows immigration has led to faster overall growth and a better standard of living for everyone.
There is a global competition for talent among countries to lure workers, including highly skilled workers to develop new technologies and lower-skilled workers to support agriculture. This is a competition America has won resoundingly decade after decade. My parents, who immigrated from India, and my wife, who immigrated from the Philippines, are examples. They came to finish their education but stayed because of America’s welcoming culture and strong job prospects. Given the choice of immigrating here or to virtually any other country, the majority of immigrants would choose the U.S.
Immigrant inflows to the U.S. are relatively low by postwar standards. If Congress and the administration can deliver reforms that boost legal immigration by one million people a year and tailor the policy to prioritize workers who meet the needs of our economy, the Minneapolis Fed estimates growth would increase by at least 0.5 percentage point a year under the most conservative assumptions, with no corresponding increase in the deficit. This would close almost half of the growth gap between our postrecession recovery and the late-20th-century norm. And if some of those immigrants or their children turned out to be the next Steve Jobs or Elon Musk, we might solve our productivity woes, too.
Immigration is as close to a free lunch as there is for America. Our welcoming culture provides us an unfair competitive advantage most countries would love to have. Let’s use that advantage to win the immigration competition and accelerate growth. We’d be crazy not to.
Mr. Kashkari is the president and CEO of the Federal Reserve Bank of Minneapolis and participant in the Federal Open Market Committee.
See Neel Kashkari's Op-Ed in the Wall Street Journal.