'High wall with a big gate' 'High wall with a big gate' http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\people-walking-in-city-small.jpg June 28 2023 June 12 2023

'High wall with a big gate'

The current U.S. immigration system is an inadequate solution to population decline.

Published June 12 2023
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As investors are grappling with the prospect of a U.S. recession, we’re faced with an array of daunting statistics. But two key variables that help determine economic growth, worker productivity and general population, have been acute detractors, as well as long-term concerns. According to the Labor Department, productivity has declined in seven of the last eight quarters. From a demographic standpoint, the U.S. birth rate is less than half it was in 1957 and well below the population replacement rate.

Although polarizing, immigration could be the solution—if done in the right way. A combination of better border control and a revamped immigration system would regulate and promote broader legal entry of the immigrants we want and need. That could boost our population, productivity, and economic growth, and increase taxes paid.

Are demographics destiny? By 2030, an estimated 75 million Baby Boomers will have retired, resulting in less consumer spending, available labor and tax inflow. The silver tsunami will be incredibly expensive, with Medicare and Social Security funds projected to be depleted by 2031 and 2033, respectively. The U.S. needs to replace at least a healthy fraction of those workers to keep the economy growing, as well as increase the productivity of all the workforce. As in many advanced economies, the number of children born is not enough to counter that trend. There are many reasons for this, including the dearth of quality childcare, lack of affordable housing and the prohibitive cost of a college education. But the Pew Research Center cites the surging labor force participation rate of women, which has nearly doubled from 30% in 1950, as a driving force behind the declining birth rate, as they invest in their education and establish careers. 

Immigration is an effective solution Foreign-born workers accounted for a record 18.1% of the overall U.S. labor force last year, according to the Labor Department, and they accounted for more than half of the 3.1 million workers who took jobs. Immigrants initially tend to find more opportunities in difficult jobs, such as in construction, agriculture, manufacturing, hospitality, landscaping, housekeeping and child/elder care. But over the long term, immigrants are twice as likely to create a new business and file a patent than native-born Americans. Additionally, according to the Center on Budget and Policy Priorities, children of immigrants tend to attain more education, have higher earnings and work in higher-paying occupations than their parents. Three-quarters of the candidates for masters and doctoral degrees in STEM majors at U.S. universities are foreigners, with nearly half hailing from India and China. So it is good news for us that Pew forecasts 88% of annual U.S. population growth will be immigrants for decades. The question is what is the best and right way to facilitate this needed cohort? 

Floodgates are open Pew recently estimated that 10.5 million undocumented immigrants are living in America. U.S. Customs and Border Protection reported a record breaking 2.76 million undocumented border crossings in fiscal 2022, with a peak of about 11,000 daily. Most of these are made by emigrants from the “Northern Triangle” countries of El Salvador, Guatemala and Honduras, according to the Department of Homeland Security, but many hail from Mexico, India and China. 

Title 42 confusion President Trump instituted Title 42 in 2020, a pandemic-initiated emergency health restriction that allowed border officials to turn away most people with no chance of a hearing or declaration for asylum. Under previous border policy, it took an average of five years for an person illegally entering the country to be deported or accepted due to a backup in court hearings.

President Biden ended Title 42 on May 11, creating mayhem at the border. Not all migrants have a financial sponsor committed to receiving them, the regional centers where migrants can apply for refugee status have not yet been built and the mobile app for migrants to apply for an appointment to interview with an immigration officer is buggy, requires good internet connection and already has led to an immense backlog of appointments. Certain policies have reverted, such as the requirement that if migrants had to physically pass through another country to get to the border, they must first apply for and been denied asylum or immigration there, risking arrest and deportation.

Why do people attempt to cross illegally? Primarily because legal immigration seems impossible, and for good reason. The U.S. system has high qualifications and low quotas. Some nine million people are waiting for green cards, and agencies have massive backlogs in distributing all four visa categories: 

  • Diversity visa lottery Each year, an average of 20 million aliens apply for the lottery, but the U.S. typically grants only around 50,000 visas. Additionally, not all countries can participate, so applications from Mexico, Guatemala, Honduras and El Salvador are excluded. 
  • Refugee program This program accepts people who have a well-founded fear of persecution, but only 0.4% of applicants have been selected annually over the last decade. 
  • Employee sponsorship The federal government limits the distribution of green cards to a paltry 130,000, with a country limit of 7%. That has led to a backlog of 800,000 people. 
  • Family sponsorship This route is incredibly difficult, with the average wait potentially several years, depending on the family connection, i.e., spouse versus sibling. 

What about students? Even after studying at U.S. colleges and universities, it’s unlikely that foreign students will be allowed to stay. At the onset of the winter/spring semester in January 2023, 1.08 million international students were enrolled in post-secondary educational institutions, most paying full freight. In addition to their academic careers being profitable for the schools, an estimated 77% of them would like to stay after they graduate. But students are allowed only one year (three in STEM fields) to acquire an H-1B work visa. In March 2022, there were 308,613 applicants, but the U.S. Citizenship and Immigration Services selects only 85,000 a year. We need to do a better job of admitting these desirable, high-achieving candidates.

Bipartisan solution Syndicated columnist Thomas Friedman recently called for “a high wall with a big gate” as a possible solution for our polarizing immigration issue. Building a wall at the southern border with increased security would stem illegal immigration. A bigger “gate” would allow us to then reinvent the immigration system.

Our current system is ineffective, and the ultimate solution must come from Congress. Trump’s Title 42 was less than optimal, and Biden’s policies have turned the southern border into a dangerous sieve. With a divided Congress and country, immigration is one of our most contested issues. It’s well past time for our elected officials in Washington to step into the middle of this unpopular fray and craft the necessary compromise. 

Research assistance provided by Federated Hermes summer intern Audrey Margolies.

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Tags Markets/Economy . Equity .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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