Investing.com — BCA Research challenged the assumption that Trump’s immigration policies will tighten the labor market and stoke inflation in a note to clients this week.
An analyst at the firm said that while a smaller labor supply is a likely outcome, this will also reduce labor demand.
“Immigrants’ contribution to aggregate demand goes beyond their spending on goods and services,” the firm states.
“It also includes spending that takes place on their behalf. For example, while illegal immigrants are ineligible for most government welfare programs, they have access to emergency Medicaid services. They can also collect benefits on behalf of US-born children,” BCA adds.
They explain that the construction of multifamily housing to accommodate displaced housing demand can generate $40,000–$80,000 in additional construction per immigrant.
They also believe the pace of policy implementation will also matter.
BCA acknowledges that a swift deportation campaign could indeed tighten the labor market, but they consider such an outcome unlikely.
“The infrastructure to deport millions of workers simply does not exist,” and any slower-paced reduction in immigration growth would likely reduce labor demand more than supply.
BCA also argues that the historical relationship between immigration and interest rates supports this view.
The U.S., with the highest immigration rates among G3 economies, has historically maintained the highest interest rates, whereas Japan, with minimal immigration, has seen the lowest rates.
They believe a reduced immigration rate could, therefore, lead to a lower equilibrium interest rate in the U.S.
BCA concludes that the economic implications of Trump’s immigration policies are more complex than a simple tightening of the labor market, with broader impacts on demand and interest rates shaping the outcomes.
