Undocumented Immigrants’ Impact on US Labor and Economy

Photo of an immigrant in a strawberry field

As of late, the topic of illegal immigration is getting as much airtime as Brittney Spears did in the early 2000s. And I hate to burst your bubble, but all those undocumented immigrants are probably doing more good than harm.

Without the influx of ~2 million undocumented immigrants in 2023, labor shortages would have likely caused higher inflation. As the baby boomers retire and the US needs to re-industrialize, labor needs are skyrocketing; this will be putting a heavy strain on industries like healthcare, construction and agriculture, areas where these undocumented workers are heavily employed. Simply put, without these workers, the US economy would be hurting.

Policymakers have obstructed and neglected meaningful immigration reform since the 80s. However, if we could modernize this system (which would take some political creativity currently lacking in DC), we could realize the full benefits of these immigrants minus the constant political bickering.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Austin, Texas. And today we’re going to talk about everyone’s favorite topic this election season: illegal migration. I’ve no doubt on record saying that if the United States hadn’t had the wave of illegal migration that it had in calendar year 2023—about 2 million people—we’d probably be dealing with inflation north of 8% by now.

So I figured that’s worth a bit of an explanation. In most labor markets, you’ve got a degree of liquidity where workers can move from one subsector to another based on the economic moves and remuneration of the day. But for that to work, you can’t be headed states. You see, here in the United States, the baby boomers are in the process of retiring.

Two-thirds of them have already gone. So we have a labor shortage. In addition, the United States is in the midst of a massive re-industrialization wave as we prepare for the end of the Chinese system. Basically, if we want manufactured products, we have to build it ourselves. So demand has never been higher, and supply has been curtailed. We no longer have that pool of labor that can shift from one thing to the other or be tapped and tracked in terms of building booms.

And so anyone who is removed from the system immediately generates a pulse that goes through the entire network, driving prices higher. So yes, there are 2 million people who crossed illegally last year. Most of them are in the workforce, most here in Texas. As for the folks that are residing here illegally, which, based on whose numbers you’re using, are somewhere between 7 and 14 million.

That’s another huge chunk of the labor force that actually outnumbers the number of folks the United States has who might theoretically be looking for jobs. Unemployment in the United States is below 4%; we’re at historic lows right now. So if you were to remove some of the people who are working, we’d feel it immediately. Now, not all jobs are equal.

These illegal migrants do tend to cluster in three general categories. The first one is health care, particularly when you’re talking about something that’s on the edge of a janitorial job, you know, moving people, clearing bedpans, that sort of thing. The second is in construction, especially industrial construction, because, remember, the United States needs to double the industrial plant.

That doesn’t happen without building a lot of stuff. And third, and finally, agriculture, particularly in fresh foods, whether it’s vegetables or tree fruit. These last two are jobs that Americans just don’t want to do, won’t do, or can’t do. They’re hot. They’re heavy, outdoorsy work—certainly not the sort of stuff that today’s youth, especially Gen Z, is really interested in.

And so that just leaves us with the illegal labor pool. If you were to remove that labor pool, we wouldn’t be able to harvest any of our fruits and vegetables. So say goodbye to most of the produce in grocery stores. We certainly wouldn’t be able to build new homes or new industrial plants, so say hello to dependence on China until China is gone—and then you just don’t have stuff.

And if you don’t want to clean your own bedpan when you go into the hospital or retire, well, then, by all means, be against migration. The question, of course, is whether we can amend our legal structure so that we actually have an updated immigration system to process these people in a way that we find a.

At the moment, we haven’t had meaningful immigration reform in this country since the 1980s, and folks on both sides of the political aisle have taken steps at multiple points to prevent that from happening. So if

you were to wave a magic wand to make this all work better, you’d find a way to induce the would-be illegal migrants to actually collaborate with the system.

And that’s a very different sort of legal structure and enforcement and would require a degree of policy creativity we just have not seen in the White House or in Congress for quite some time

Immigration: Social Costs vs. Economic Benefits

Its easy to sit up in an ivory tower and say immigration is always good because of the economic benefits; however, turning a blind eye to the social implications of immigration would be irresponsible in a well-rounded discussion. Here’s what Canada and Germany have going on:

Canada jumped on the immigration train fairly early in order to counteract their demographic decline. This influx of young immigrants helped stabilize the population, boosted labor productivity, and brought in more taxes than it cost in benefits. Butttt Canada’s social fabric is rapidly changing due to this new (and growing) population of immigrants.

On the other end of the spectrum, we have Germany and they’re not exactly known for their history of immigration. Over the past few years, the Germans have brought in large numbers of refugees from places like Bosnia, Syria and Ukraine. That has created some hefty social challenges, which will only continue to grow as Germany must bring in millions of young immigrants annually to balance its demographics.

While there is a strong economic case for immigration, we must also consider the social and political costs that it comes with. No amount of money can make a round peg fit in a square hole…

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the top of the Grand Canyon of the 12. I’m in Yosemite, just below Glen Allen. This is where I’m going to be hiking for the next couple of days. Not bad!

Today, we are taking an entry from the Ask Peter Forum, and the question is: Could you go through the numbers on the pros and cons of mass immigration into countries, specifically like Canada and Germany?

People always talk about the economic upside and the tax benefits, but they rarely mention the downsides, like crime and social identity. It’s a reasonable question, especially as we see more and more countries aging. Since we have more nations basically aging out, immigration is often brought up as one of the few, if not the only, possible patches or even solutions.

Let’s start by saying Canada is a special case. Canada knew 30 years ago that they were headed for a German-style demographic implosion. Under the Harper government and later under the Trudeau government, they made the decision to open the floodgates and become an immigrant country. You’ve probably had, I mean, they didn’t count the statistics the same way we do in the United States, but roughly 3 to 4 million immigrants have come in and become Canadians during that period.

Most of these immigrants were in their 20s and 30s, as Canada specifically targeted younger people, unlike the migrants they had received in earlier years. This managed to stabilize the numbers, but only so long as they keep those inflows coming, because native Canadians, to use a church term, still have a very, very low birth rate. There’s no replacement coming from within the population, so a new social fabric is developing.

The numbers, which I don’t have top of mind, I apologize, are unequivocal: the new migrants, especially those under age 40, generate far more in tax payments than they take out over their lifetime. It’s a definite net fiscal benefit. In terms of jobs, as a rule, the people who migrate tend to be the more aggressive, skilled, and educated of their countrymen. This gives you a boost in labor productivity. Not everyone is an Elon Musk, but you get the idea.

Third is crime. Unequivocal data shows that in every country that tracks these statistics, crime committed by immigrants is significantly lower—typically at least a third lower—than crime committed by the native-born population.

Fourth, there’s something people usually don’t think about: education. In the United States, it costs over $150,000 to graduate a kid from high school. That’s just the government cost for education, not the societal cost of raising the child from birth to age 18, including healthcare. One of the benefits of migrants is that, you know, another country has already paid those costs, and now you’re benefiting from their labor. Economically, it’s a very easy case to make.

Two things to keep in mind. Number one: not all migrants are the same. Take the United Kingdom, for example. Indian migrants and family reunification—basically, the UK would bring in one person from India who meets all of these criteria we’ve discussed. But then they bring in their extended family, and all of a sudden you’ve got 60 Indian Brits, half of whom are over 60. It’s a different story if you’re bringing in new retirees; the cost to society can be very, very high.

Also, in the German case, the migrants from Syria—about a million of them—were 80–90% male. So, you’re not getting much of a demographic boost there because there weren’t enough women to have more children.

The second complicating factor is social cohesion. If immigration has been a part of your social fabric for decades or even centuries, absorbing people from different places is relatively easy. Countries like the United States, Australia, New Zealand, and Canada have done this in phases for a long time, so if someone says their parents are from a different country, most Americans won’t even blink. People in the U.S. assimilate very quickly.

But if your country doesn’t have that culture, like Germany, and you suddenly open the floodgates, things start to look very different. The first real wave of migration into Germany happened during the Bosnian wars in the 1990s. Germany did the right thing for the right reason by taking in refugees, but it changed the social character of the country. They did it again in the 2000s with Syrians, and now they’re doing it with Ukrainians. If you wait too long, until there are more people in their 40s than in their 30s, 20s, 10s, or even newborns, you’ll end up with a very different place.

This is the situation that Canada will face—not right now, but in 20 or 30 years. They waited until late in the day to start bringing in millions of people. If it happens over a long enough period, society can adapt. But in Germany’s case, this has all happened relatively quickly. To maintain their demographic standing, Germany may have to bring in 2 to 2.5 million people under age 30 every year for the next 20 years, just to stay where they are. By then, those people will form the majority of the country, which will make it a very different place.

If you look at immigration purely as a numbers game, a fiscal issue, or an economic growth issue, it’s a slam-dunk case. But we don’t live in that world. And you know what we call the gap between the ideal and reality? Politics.