Immigrants key drivers of United States economy Immigrants key drivers of United States economy\images\insights\article\statue-of-liberty-small.jpg August 24 2020 August 13 2020

Immigrants key drivers of U.S. economy

Create a safe, legal immigration framework for foreign workers.

Published August 13 2020

Bottom Line President Trump adopted a “Buy American, Hire American” anti-immigrant policy when he entered office. The most recent evidence of this was his decision last month to bar international college students from entering into or remaining in the U.S. if their schools shifted to online-only instruction in the wake of the coronavirus pandemic. Harvard and MIT filed suit to overturn that ruling, and nearly 60 other colleges and a host of Silicon Valley technology companies filed friend-of-the-court briefs in support.

There were nearly 1.1 million international college students studying in U.S. universities during the 2018-19 academic year, which includes those working after graduation while still on their student visas. Fortunately, in our view, the Trump Administration has since rescinded its ruling. As we discussed in our market commentary last week, this reversal should help to relieve tremendous financial pressure on colleges, whose budgets have been severely impacted by the coronavirus. Foreign students pay full freight and contribute an estimated $45 billion in tuition to U.S. schools, accounting for about 15-20% of a school’s total revenue.

In addition, we believe that this decision will help the U.S. accelerate its recovery from Covid-19 over time, as drawing the best and the brightest from overseas to live, study and work in the U.S. should help to drive stronger economic growth.

Why do we need immigrants? Although it’s stabilized over the past two years, the U.S. fertility rate dropped to a record low of 1.8 births per woman in 2018. That’s half the 1957 cycle peak at 3.6 and well below the replacement rate at 2.1. With $1.6 trillion in student-loan debt, many couples are opting for smaller families. Less generous maternity benefits and a dearth of quality child care likely exacerbate this demographic dilemma.

To offset this decline and fill new jobs, we need to create a safe, legal immigration system to attract both skilled and unskilled foreign workers, who will also pay taxes into our rapidly depleting Social Security Trust Fund. In our view, we desperately need these immigrant workers to keep our economy humming. Pew Research estimates that immigrants will account for 88% of U.S. population growth until 2065, so more stringent immigration policies could result in slower future economic growth.

Trump’s immigration policies The number of highly skilled immigrants had been rising over the past 30 years due to the expansion of the H-1B visa program, sparked by a surge of Asian immigrants this century. But between 2016 and 2019, Trump’s new rules imposed on these visas resulted in a 43% decline in net international migration to the U.S.

Imagine if Apple or Google were founded and headquartered somewhere else in the world. Steve Jobs’ father was a Syrian refugee and Google’s Sergey Brin is from Moscow. More recently, Instacart, Moderna and Zoom Video have all played a significant role in American lives during the “The Great Lockdown.” All three companies were founded by immigrants, and if immigration policies had been more restrictive, these companies would not have been American. So historically, immigrants have been a tremendous driver of innovation in this country.

Entrepreneurial spirit lost Immigrants are twice as likely to start a new business than are native-born Americans, and almost half of the companies in the Fortune 500 were founded by first- or second-generation immigrants. This absence could lead to less job growth in the future. Further, immigrants are responsible for inventing twice the number of patents, an important driver for innovation, than native-born Americans. Blocking these workers could result in investment and innovation moving to more immigrant-friendly countries than the U.S.

Immigrants mitigate brain drain The importation of highly skilled workers has been a huge plus for the American economy and future growth, as many of these immigrants are performing jobs for which not enough Americans are qualified. Even with immigrants, talent shortages are still an issue. In 2019, seven out of 10 companies said they are facing a shortage of talent. The Labor Department reported in 2019 that there were 670,000 more job vacancies than unemployed potential workers, although that was pre-pandemic. Since 2000, 40% of American Nobel Prizes for chemistry, medicine, and physics have been won by immigrants. Without such concentrated intellectual power, the U.S. might not be seen as a hub for talent, and companies may decide to set up shop elsewhere around the globe.

Role of international students International enrollment has been down since President Trump took office, as international students have complained of visa delays and denials, and U.S. universities have experienced greater difficulty in employing foreign-born faculty. The majority of our international students come from China.

Another issue to consider is that 23% of billion-dollar startups in the U.S. were founded or co-founded by international students. If these international students decide to go elsewhere, that could also hamper our growth potential. For 90% of American universities, the majority of full-time graduate students in computer science and electrical engineering come from abroad. These foreign students are not displacing American spots in these universities, as there are simply not enough Americans looking to work in these fields.

Economic effect Lower immigration could also hurt our aging population for two reasons. First, Social Security and Medicare rely on workers for funding. Second, most of the expansion of the work force over the next 15 years will be due to immigration, given that boomers will be entering retirement in droves and organic fertility trends are at a cycle trough. With first- and second-generation immigrants responsible for more than half of workforce growth over the past two decades, a loss of immigration can jeopardize future growth. Companies founded by immigrants lead to 42% more jobs than those founded by native-born Americans. Immigrants also are more mobile than natives, which can help bridge gaps in the labor market, driving down labor shortages.

Research assistance provided by Federated Hermes summer intern Sophia Tropaitis

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Tags Markets/Economy . Politics . Equity .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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