Immigration crackdowns are good politics but bad economics

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is chair of Rockefeller International

As migrants poured over the southern border last year, they became an even hotter political issue in the US, with many Democrats joining Republicans in calling for measures to control the illegal flows.

The economic conversation, however, is heading in a different direction. It’s about how the immigration surge helped explain the Goldilocks economy (neither too hot, nor too cold) of 2023, and how the political backlash imperils this windfall.  

Driven by wars, hardship and the end of the pandemic, immigration jumped worldwide last year. The net increases, covering both legal and illegal migrants, hit multi-decade highs in many of the most popular destination countries. Compared with the average annual gains in the 2010s, net immigration roughly tripled in 2023 to 3.3mn in the US and to 670,000 in the UK, while roughly doubling in Canada and Australia.  

In many countries, a backlash was already under way, and has accelerated predictably. The foreign-born population has been growing steadily in the US since 1980 and now accounts for almost 15 per cent of the whole, a peak last reached in 1910, when there was also a nativist streak unleashed in American politics and calls for stricter controls. Much of the current backlash is a reaction to the surge in illegal and dangerous crossings. It is animated in part by renewed hostility towards migrants and in part by a humane desire to fix the scenes of suffering.  

But in a period in which ageing populations are gutting workforces worldwide, migrants also provide a practical, much-needed boost in labour terms. Thanks to both immigrants and more Americans returning to work, the US labour force in 2023 grew three times faster than the underlying population. This helps explain why the widely expected recession never arrived.  

The immigration surge contributed significantly to easing labour shortages, slowing inflation and lifting consumer demand. Net migration to the US accounted for roughly one-quarter of the increase in consumer spending — a healthy 2.7 per cent last year. In Canada and the UK, the surge added about 1 per cent to consumption growth. 

The exact impact on the labour force is more uncertain, since it is hard to know what share of new arrivals, particularly among those who entered illegally, got jobs. But the impact was large enough for Federal Reserve chair Jay Powell to mention in his December press conference, when he cited immigration picking up as one of the factors that eased supply bottlenecks last year. That in turn reduced upward pressure on wages and inflation.

In short, the conditions of 2023 — with unexpectedly high growth and a surprisingly rapid and significant retreat in inflation — are thanks in under-appreciated part to immigrants. 

Now, the forces that boosted immigration last year are dissipating. The Biden administration is already detaining illegal immigrants at the border in record high numbers, and has signalled its willingness to tighten enforcement further, if Republicans back more funding for Ukraine.

The US Border Patrol encountered and apprehended many fewer would-be immigrants in the last week of December than in earlier weeks. That may be a Christmas pause, or it may reflect the waning of the post-pandemic rush. Either way, an emerging immigration bust threatens the outlook for 2024, given that many people expect the Goldilocks conditions to continue.  

The big risk is that legitimate concerns over illegal immigration spill over to restrict or discourage the flow of legal immigrants as well. The UK recently took steps to lower immigration by more than half to 300,000. Australia just tightened visa rules for students and low-skilled workers.

Even Canada, which is raising its quota for permanent immigrants, is moving to limit the influx of temporary workers. France, imposing perhaps the toughest measures, is limiting welfare for foreigners, making it easier to remove migrants and ending automatic citizenship for children born in France to immigrant parents. 

These steps may be good politics, in a world turning weary of outsiders, but they are questionable economics. By one recent count, the US would need to let in nearly 4mn migrants a year, every year, to prevent its population growth turning negative in the coming decades. And most developed economies are much farther down the road to population decline than the US. Smart politicians will need to find a balance between controlling the chaos of illegal immigration, and limiting the economic fallout of anti-immigrant policies.