By Saker Nusseibeh
Should the US manage to secure a political settlement to bring its significant illegal immigrant workforce into the main economy, it would achieve significant economic growth, which combined with its other competitive advantages would support the US economy.
The US has 11 million illegal immigrants, which account for approximately 7% of the workforce. They do not appear in official statistics and their output is often difficult to measure. However, bringing them out of the shadow economy and into the mainstream would have a significant economic impact; potentially an additional $4.5bn in tax revenues within the first three years and $1.5trn added to GDP over 10 years.
Recognising this significant workforce as citizens would lead to wage increases and increased consumption. In 1985, Ronald Regan’s more modest amnesty for three million illegal immigrants led to hourly wage increases of 15% for the group within five years and in the later years many bought houses and pursued higher education. At present, the average illegal immigrant earns $13,000 a year compared to $28,000 for the average American and as these numbers move closer together, the impact will be significant.
Although the sheer number of illegal immigrants in the US does not amount to the number of those joining the middle classes in China, the multiplier effect of their rising wages is actually larger. This is because the threshold to middle class in emerging nations is much lower as is their per capita incomes, while in the US, the spending power of even the poor is higher.
If the average wages of 11 million US illegal immigrants were to double they would still be below the US average and yet their spending would increase much more significantly. An increase in wages by $10,000 a year, would equate to a further boost of $110bn in consumer spending or some 0.7% addition to GDP.
Immigrants may send a proportion of their salary to their native countries, but they also spend in the vicinity of where they live, specifically on homes, cars, phones and other consumer items.
Not all the repercussions of an amnesty for illegal immigrants are economically positive and there will be costs as millions of people become eligible for social benefits. These costs and the political repercussions of an amnesty will not sit well with all members of society and many of the US voting population perceive an amnesty as a further erosion of their majority. Notwithstanding the challenge of political consensus, the US economy maintains many of the advantages that have brought the country success. In addition, it now has the potential to be self-sufficient with regard to energy, with shale gas discoveries.
Unlike an economic bloc, such as the EU, it is an economy united by a common language, law, fiscal and monetary policy, and labour mobility between states provides huge flexibility. While the US is ranked only twelfth internationally in terms of the number of PhD graduates as a proportion of 25 to 29 year olds, it has the highest number of patents per capita. This ultimately feeds into additional economic growth by fuelling productivity and highlights the country’s enduring attraction as a destination for skilled economic migrants.
The US is a country that thrives on struggle, has a large population, a self-sufficient consumer, an aspirant middle class and all the ingredients for a productive and innovative work force. It is flexible and risktaking, which is why its current recovery will endure and why US equities will continue to advance.
Saker Nusseibeh is CEO and head of investment at Hermes Fund Managers
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