Investing.com — BCA Research disputed the assumption that Trump’s immigration policies will tighten the labor market and boost inflation in a note to clients this week.
An analyst at the firm said that while lower labor supply is a likely outcome, it will also reduce labor demand.
“Immigrants’ contribution to aggregate demand exceeds their consumption of goods and services,” the company said.
“It also includes spending that takes place on their behalf. For example, although illegal immigrants are ineligible for most government welfare programs, they have access to Medicaid emergency services. They can also collect benefits on behalf of US-born children,” the BCA adds.
They explain that building multi-family housing to accommodate displaced persons can generate $40,000 to $80,000 in additional construction per immigrant.
They also believe that the speed of policy implementation will also be important.
The BCA admits that a rapid deportation campaign could indeed tighten the labor market, but they consider such an outcome unlikely.
“The infrastructure to deport millions of workers simply doesn’t exist,” and any slower reduction in immigration growth would likely reduce labor demand more than supply.
BCA also argues that the historical relationship between immigration and interest rates supports this view.
The US, with the highest immigration rates among the G3 economies, has historically maintained the highest interest rates, while Japan, with minimal immigration, has had the lowest rates.
They believe that a reduced rate of immigration could lead to a lower equilibrium interest rate in the US
The BCA concludes that the economic implications of Trump’s immigration policy are more complex than a simple tightening of the labor market, with broader effects on demand and interest rates shaping the results.
