FORECASTS & TRENDS E-LETTER
By Henry Rohlfs
May 21, 2024

IN THIS ISSUE:

1.  Inflation Outpacing Wage Growth

2.  Mayhem at the Southern Border

3.  Immigrants Squeeze Out Native-Born

4.  A Final Thought

Earlier this month, the Bureau of Labor Statistics (BLS) released its monthly jobs report, called the Employment Situation Summary. Most financial news outlets published the unemployment rate reported in it, which at 3.9% has changed little over the last year. Great news, right?

But buried in the report is a statistic that has been overlooked in the mainstream media. Actual wage growth has decreased over the last two years. In fact, inflation has been outpacing wages, with the gap between the two widest in the third quarter of 2022.

The question of course is why. We’ll look today at a major reason behind the wage/inflation gap: rampant illegal immigration.

Inflation Outpacing Wage Growth

As I mentioned earlier, the recent BLS jobs report showed the growth in average hourly earnings has declined from a cycle peak of 5.9% year-over-year in March 2022 to 3.9% in April 2024. The Federal Reserve believes that, if there is reasonable improvement in productivity, a wage growth rate of 3% might be the sustainable number to achieve its 2% inflation target. While this decline in wage growth is certainly encouraging for the Fed, we should be seeing more consistent growth in real wages.

I believe one significant reason for the drag in wage growth is the surge in immigration across the southern U.S. border over the past three years.

Mayhem at the Southern Border

According to the U.S. Border Patrol, nearly 8 million people have streamed across the southern border into Texas, New Mexico, Arizona and California over the past three years. Some seek asylum and turn themselves over to Border Patrol agents. But approximately 2.7 million “inadmissible aliens” have been released by the Biden administration into the country since January 2021. Another 1.5 million are “got-aways” – individuals seen entering illegally but not stopped.

U.S. Border Patrol agents who usually perform patrol work have been reassigned in greater numbers to ports of entry merely to process immigrants. Others have been reassigned to bolster border security. Border Patrol officials testified to the House Committee on Homeland Security that as much as 38% of agents have been shifted from “enforcement” to “processing” duties.

I recently had the opportunity to speak with a Border Patrol agent based in Brownsville, TX about this problem. He described the same issue in his sector, saying more agents were pulled from the field to deal with the paperwork needed to process asylum seekers. One interesting observation he mentioned was the increase in immigrants from Asia and the Caribbean. These asylum-seekers pay cartels to bring them to the U.S. or take the “walking route” to America. He quipped that he was even learning some Chinese and French Creole to be able to speak with them.

It is estimated that the illegal immigrant population grew to 12.8 million by October of 2023, up 2.6 million since January 2021, when the president took office. This is the net increase in the illegal population based on monthly Census Bureau data, not the number of new arrivals.

Immigrants Squeeze Out Native-Born

First off, the growing number of illegal immigrants places budgetary pressure on the cities and counties in which they settle. The cost of housing, transporting, educating and providing health care for them is largely shouldered by local, state and federal taxpayers. Most border towns are relatively small and cannot afford the extra financial burden.

Gov. Greg Abbott of Texas has repeatedly underscored this point by transporting immigrants seeking asylum to “sanctuary cities” amid complaints by destination officials. New York says it’s at a breaking point. Chicago says it is running out of space. Denver has declared a state of emergency. Sorry folks – welcome to the reality we have experienced for years in Texas.

Of course, many illegal immigrants have found employment, either on the books or as part of the under-the-table economy. According to the Labor Department’s household data report, the number of foreign-born workers (16 years of age and older) has increased over the last 12 months by 520,000, establishing a worker participation rate of 66.0%.

But over this same period, the number of native-born workers (16 years of age and older) has declined by 5,000 through April 2024, with a participation rate of 61.7%. The overall participation rate in the U.S. economy was 62.7% in April.

The bottom line is more foreign-born and fewer native-born workers are in the workforce.

A Pew Research Center study shows most Americans believe illegal immigrants do jobs Americans don’t want. This idea is false. Besides agriculture, the vast majority work in the service industry or construction.

Many Americans do not face significant job competition from illegal immigrants, because they tend to have more years of schooling or they work in the public sector. But millions of Americans do compete with them for jobs. Those who do face competition from illegal immigrants tend to be the least educated and poorest Americans – U.S-born and legal immigrant.

A 2019 review of over 50 studies by economist Anthony Edo came to the conclusion that low-skill immigration tends to make low-skill natives the “losers” and high-skill natives the “winners”, with an increase in inequality as one of the consequences. Of course, lower wages for some Americans can increase economic opportunities for other workers, and it can also increase profits for businesses and lower prices for consumers.

But there is no free lunch. These benefits require that some Americans, typically at the bottom of the labor force, lose out.

There is clear evidence that immigration does reduce the wages and employment of U.S.-born workers. The National Academies of Sciences, Engineering, and Medicine reviewed the research on the effects of immigration on the U.S. labor market and cited numerous academic studies showing negative wage impacts from immigration, particularly on the least educated.

A Final Thought

The Department of Homeland Security and Justice Department announced Thursday a new court docket targeting migrants who have unlawfully crossed the US southern border. Migrants placed on the docket will have their cases resolved within 180 days – cutting the process down by months, if not years.

Steven Camarota with the Center for Immigration Studies writes,

“The continued arrival of so many immigrant workers, a large share of whom are illegally in the country, allows policy-makers to ignore the huge deterioration in labor force participation among the U.S.-born. After all, why worry about all the American-born people not in the labor force when we can simply bring in ever more immigrants to fill jobs?”

Politicians and business groups will continue to focus on solving a tight labor market by giving more jobs to immigrants rather than incentivize Americans who are still on the economic sidelines.

All the best,

 

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