Orlando's Outlook: Striking the right balance on immigration

02-24-2017

Bottom Line Two of the major issues on which Donald Trump successfully ran for president were strengthening economic growth and re-establishing a muscular defense to combat terrorism. But immigration, which has become a huge political hot potato during President Trump’s first month in office, sits at a crucial nexus between these two goals. None of these objectives, in our view, are mutually exclusive. We should be striving simultaneously to improve GDP growth from 2% to 3% and to better protect the U.S. from terrorism, without sacrificing healthy levels of safe immigration, which we believe is an important component in achieving trend-line or better economic growth. To meet our financial targets, then, we need to strike the right balance between compassion, national security and safety in vetting an immigrant population.

Rushed immigration ban During the election, President Trump made strengthening our defense against terrorism a winning issue, reminding voters about the tragic events in San Bernardino, Calif., and Orlando, Fla., as well as terrorist-related deaths overseas in France, Belgium, Turkey and Germany.

In late January, to fulfill his campaign promise less than a fortnight after his inauguration, Trump suspended the U.S. refugee program for 120 days—and permanently banned Syrian refugees—and also banned immigrants from Syria and six other predominantly Muslim countries (Iran, Iraq, Libya, Somalia, Sudan and Yemen) for 90 days, while implementing extreme vetting procedures for immigrants to keep the U.S. safe from terrorism. Why were those specific countries singled out? The State Department under President Obama had identified them as either state sponsors of terrorism or terrorist safe havens.

But the administration’s immigration initiative, which was rushed and not well coordinated, was subsequently overturned 3-0 by the 9th Circuit U.S. Court of Appeals in San Francisco. So we’re awaiting the next step from the administration on this extreme-vetting issue, which is likely to be a new executive order rather than an appeal to the Supreme Court of the initial one.

Trump’s lofty but achievable economic, employment and productivity goals Since the Great Recession ended in June 2009, U.S. GDP growth has approximated 2.1%, the slowest pace of economic growth in the post-war history. Moreover, economic growth slowed from that tepid pace last year, with only 1.6% growth in 2016. Trump’s fiscal-policy plans hope to boost the economy back to trend-line levels 3% or more by 2018.

To help achieve that, Trump’s employment goal is to add 25 million new jobs over a decade. While that sounds aggressive, it actually translates into average monthly nonfarm payroll gains of 208,000 over this period. By comparison, the U.S. economy added 227,000 jobs in January.

In addition, productivity growth has fallen sharply this millennium, from 3.5% at the turn of the century to a cycle low of about 1% now. We expect Trump’s fiscal-policy plans, which include lower tax rates, deregulation, repatriation and full expensing of capital investments, will help to restore annual productivity growth of perhaps 2.5-3.5% over the next decade.

A successful immigration policy, in our view, plays an important role in achieving these three critical economic goals.

Organic population growth slowing According to the U.S. Census Bureau, our population grew only 0.7% in 2016, the smallest annual expansion in 80 years. We added about 2.2 million people in the 12 months through July 2016, bringing the total population to 323 million. In sharp contrast, during the birth of the baby-boom generation in the 1950s, our population growth averaged a much stronger 1.8% each year. Moreover, according to the Wall Street Journal, when we consider the net population change with both births and deaths, the overall population growth is averaging only 0.4%, the slowest pace in U.S. history.

At the same time, according to the National Academies of Sciences, Engineering and Medicine, current legal and illegal immigration into the U.S., net of emigrants (those immigrants who leave the country), approximates one million people annually, which accounts for about 0.3% of the existing population. That’s down slightly from the 0.4% average since 1790.

So it appears that our organic population growth here in the U.S. is insufficient to support our country’s longer-term goals for job creation, economic growth and productivity gains. Unless we accelerate our levels of fertility, we cannot close the doors to safe immigration without impairing economic growth.

Skilled worker deficit There are currently some 500,000 high-paying, high-skilled technology and computer-science jobs that are unfilled in the U.S., because we don’t have enough qualified workers, according to oft-cited studies, such as that by GoDaddy, Inc.

At the same time, an estimated three-quarters of the candidates who attend master's- and Ph.D.-level programs at U.S. universities in STEM subjects (science, technology, engineering and math) are foreigners, with a combined 47% of them from China and India, according to the Institute of International Education. Yet, many leave after completing their higher education here to return home. A more productive approach, in our view, would be to staple a green card to each of their diplomas, and beg them to stay here in the U.S. to fill one of those half-million open tech jobs, or perhaps start a new business venture, which could become the next Apple.

All told, the number of international students in the U.S. has grown 70% over the past 10 years, to more than 1 million students, or about 5% of total enrollment. This would serve as an excellent base to offset our own organic population-growth deficit, with a well-educated, high-quality and safe influx of foreigners.

Expand the H-1B visa program This program grants 65,000 visas for highly skilled foreign workers annually, and another 20,000 visas for people with advanced degrees, to fill jobs when qualified Americans can’t be found. On the surface, it would appear that we could safely increase the size of this program several fold as a temporary solution to fill the 500,000 tech jobs that are currently sitting vacant. Goldman Sachs estimates that some 13% of all tech jobs in the U.S. are now held by nearly one million of these foreign-born H-1B visa holders.

Critics of this program warn of abuses, however, such as technology outplacement firms based in India who recruit and place job candidates in U.S. tech companies for much lower salaries than an American-born candidate might command on the open market. A simple fix to this problem would be to raise the mandatory minimum salary for these foreign-born H-1B visa candidates from $60,000 per year currently to perhaps $120,000 or more. That higher prospective salary might unearth some qualified, American-born candidates to fill those jobs.

Education remains an important key Better education and vocational training here, of course, are important longer-term solutions to engage the unemployed and the underemployed by helping to provide them with more marketable job skills. While the unemployment rate (U-3) is sitting at a relatively low, full-employment level of 4.8% in January, the labor-impairment rate (U-6) is at an elevated 9.4% and the participation rate at 62.9% remains marginally above a 38-year cycle low. So there are millions of Americans who could benefit from better training.

Low-skilled employees play an important role, too There are an estimated 11.1 million undocumented illegal immigrants in the U.S., with some 8 million of them gainfully employed in the labor force, working difficult jobs that many Americans don’t want, such as hospitality (restaurants and hotels), companion care (children and elderly), agriculture and home maintenance (cleaning, lawn care and construction). Many of these good people work hard, save their money and send it home to help support their families in their home countries, with some hoping to emigrate someday to the U.S.

More than 750,000 of these undocumented immigrants have been granted deportation protection by the federal government, under a program known as the Deferred Action for Childhood Arrivals (DACA). But that still leaves a small percentage who are not employed and who pose a threat to national security or who have criminal histories. This is the pool of candidates which appears to be at risk for deportation.