Investing.com — In a note to clients this week, BCA Research challenged assumptions that President Trump’s immigration policies will tighten the labor market and cause inflation.
Analysts at the company said that while a decrease in labor supply is an expected outcome, labor demand will also decrease.
“Immigration’s contribution to aggregate demand exceeds spending on goods and services,” the company said.
“This also includes expenditures made on their behalf. For example, illegal immigrants are ineligible for most government welfare programs, but emergency Medicaid services are available. may also collect benefits on their behalf,” the BCA added.
They explain that building apartment complexes to accommodate the housing needs of displaced people could result in additional construction costs of $40,000 to $80,000 per migrant.
They also think the pace of policy implementation will be important.
The BCA acknowledges that a swift deportation campaign could actually tighten the labor market, but believes such an outcome is unlikely.
If the pace of immigration growth slows, demand for labor is likely to decline more than supply, as “the infrastructure simply does not exist to deport millions of workers.”
BCA also argues that the historical relationship between immigration and interest rates supports this view.
The United States, with the highest rate of immigration among the G3 countries, has historically had the highest interest rates, while Japan, with the least immigration, has the lowest interest rates.
Therefore, they believe that lower immigration rates could lead to lower equilibrium interest rates in the United States.
The BCA concludes that the economic impact of President Trump’s immigration policies is more complex than simple labor market tightening, with broader impacts on demand and interest rates shaping the outcome.
