Orlando's Outlook: Immigration reform important to economic growth

06-23-2017

Bottom line As we discussed last week, in the hyper-partisan political age in which we now live, it is uncommon to find something on which both Republicans and Democrats can agree. Thankfully, the importance of a strong labor market and rising economic growth are at the top of their list. During the 2016 presidential election, then-candidate Trump spoke about adding 25 million new jobs here over the next decade. Now the Trump administration advocates immigration restrictions to enhance security and to provide the American people with job protection. But given the declining fertility rate here in the U.S., data shows we need a robust, comprehensive immigration policy to help meet our economic goals.

What’s the problem? President Trump’s proposed fiscal-policy reforms seek to boost economic growth by adding 25 million new jobs in the next decade. While that estimate seems high, it translates into a reasonable goal: a monthly average of 208,000 nonfarm payroll gains, levels we exceeded in January and February of this year. But U.S. population growth is now at its slowest pace in history, averaging only 0.4% annually. That has contributed, along with a decline in productivity, to the slowdown in GDP growth over the past decade. A successful immigration policy is critical to supplement the slower fertility rate.

According to Wells Fargo, between 1970 and 2014, the number of babies born annually to U.S. natives declined by 360,000 while increasing by 630,000 for foreign-born mothers. So as baby-boomers begin to retire and the fertility rate in the U.S. slows, immigration could help to provide a sustainable way to reach our economic objectives. Not only do these foreign-born children increase the population rate, but foreign-born residents are more likely to participate in the labor force and have been responsible for half the growth in the labor supply in the past decade.

Low-skill workers important There are 11 million undocumented illegal immigrants in the U.S., about 3.4% of our total population. While this is a concern to the country’s security and a potential threat to American jobs, these immigrants do play a key economic role in society. About 8 million of these hard-working people take difficult jobs that many Americans don’t want to do, such as work in agriculture, hospitality (hotels and restaurants), child & elder care, housekeeping, lawn maintenance and construction, all while paying taxes.

Another component of U.S. immigration is the DACA (Deferred Action for Childhood Arrivals) program. There are about 800,000 so-called “Dreamers,” young immigrants who were brought to the U.S. at a very young age. They are protected from deportation under a renewable two-year program, and have been given opportunities to study and work here.

High-skill workers critical As part of President Trump’s campaign promises, he signed a “Buy American, Hire American” executive order on April 18, specifically drawing attention to the H-1B program, which allows higher-skilled, foreign-born workers who have a specific skill set to come to work in the U.S.

Why is this program necessary? Two reasons. First, there’s an estimated half-million highly-paid, high-tech jobs in the U.S. that are unfilled right now because we don’t have enough qualified candidates. Second, three-quarters of the candidates for master's and Ph.D.’s in STEM majors at U.S. universities are foreigners, with 46% of them from India and China. What happens when these foreign-born high-achievers graduate from Stanford or MIT? We generally deport them. A more effective policy might be to staple a green card to their diplomas and encourage them to stay and take one of those open high-tech jobs or start a new company.

Absent that, a revamp of the H-1B visa program is a possible solution, as H-1B holders help companies by filling these crucial job openings. They are a source of income for their companies and they contribute to society by paying taxes and providing support for Social Security and disability insurance, even if they might not stay long enough to ultimately collect the benefits from these programs. Against the backdrop of the November election, however, the key will be to make immigration policies as employment-oriented and growth-driven as possible while keeping the country safe.

Revamp of the H-1B visa program underway President Trump asked the Departments of Labor, Justice, Homeland Security and State to work on improving the program, focusing on any fraudulent acts and making sure no jobs are getting taken away from Americans. Following Trump’s order, the U.S. Citizenship and Immigration Services announced it would no longer automatically qualify entry-level computer programming jobs as a “specialty occupation” and soon after, the Justice Department also responded and warned companies they would be looking closely to see how H-1B visas were being used and to ensure that no American worker was getting replaced with cheaper labor from abroad. In addition, fast-track processing of H-1B applications were temporarily suspended in order to allow the U.S. Citizenship and Immigration Services (USCIS) to prioritize H-1B extension on those visas close to expiry date.

Although the order didn’t change any of the program’s components, its purpose was to call for strict enforcement and to dissuade any potential forms of abuse in the system. We think the reforms in the program are important enough to warrant being addressed by the first quarter of 2018, in order for the country to benefit from highly skilled workers and ensure the program’s correct use.

Likely H-1B visa revisions Changes probably will focus on the lottery system and the minimum wage that must be paid to the foreign worker by the company. Most reforms want to scrap the lottery system and institute a more rigorous selection of visas based on wage and skill levels. That, in turn, would increase wages. The current minimum annual wage for this program is $60,000, which many believe is a strong incentive for companies to hire foreigners instead of Americans, who would demand a much higher salary. So increasing the minimum wage to $100,000 or more is a good first step.

Other potential reforms include raising both the costs and paperwork in the application process, to dissuade companies from sponsoring a foreign candidate instead of hiring an American for the position. We could also cap the number of employees under an H-1B visa, remove loopholes that allow companies to get a large proportion of their workers with lower wages to reduce costs and remove the master’s degree exemption, which allows for a company to replace an American worker with a foreigner who has a master’s degree.

Presidential apprentice? Last week, President Trump signed an executive order for the “Apprenticeship and Workforce of Tomorrow” program, to create five million apprenticeships in the next five years by removing federal restrictions that prevented certain industries from creating apprenticeship opportunities. The program will train Americans to help them get skilled jobs, help young people who will not benefit from a college degree and avoid crushing student debt, which now totals $1.3 trillion. While many programs are for jobs such as electricians, plumbers, carpenters, construction workers and maintenance, they are expanding into new sectors such as restaurant management. The average starting salary for these apprenticeship jobs is around $60,000, higher than the average salary in America today and well above what many college students earn in their first job.

Automation a growing problem for low-skill workers The rise of automation and cloud computing have impacted the demand in jobs for low-skilled computer labor far more than foreign-born workers have. Americans are not just competing with foreign workers, but all workers are competing against machines that can replace certain skills.

Conclusion While all of these reforms would benefit both the H-1B visa program and the country, they are not likely to be implemented in the near future, as Democrats and Republicans don’t agree on wider immigration legislation, and only Congress can pass a reform for this program. Republicans need to move along with their agenda before the midterm elections in November 2018, demonstrating progress with stronger economic growth, employment and wages. For that reason, the much-needed reforms in the H-1B program could be passed by the first quarter of next year as part of a larger reconciliation bill.

Research assistance provided by Federated summer intern Victoria Sanzo