Trump Promised to Fix Inflation. He’s Doing This Instead.

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Immigrants are a central force within American society. Many work labor-intensive jobs that help get food to our grocery stores and build our homes, and they live within our communities, where they spend money and uplift the economy. Yet President Donald Trump has deemed them a threat, with plans to remove 1 million immigrants by the end of this year. If his mass deportation agenda is successful—it has already targeted immigrants at their jobs, homes, and even immigration-related courthouse hearings—it stands to seriously jeopardize one of the strongest economies in the world.

Immigrants make up 18 percent of the U.S. labor force. It is estimated that 7.3 million do not have legal status. They tend to predominantly work in agriculture, construction, and hospitality, filling jobs that for decades employers have struggled to staff with U.S.-born people. Trump briefly realized this back in June and temporarily paused Immigration and Customs Enforcement raids within the agriculture and hotel industries, but quickly reversed course, and the raids continued. Meanwhile, the raids have created a culture of fear, pushing many immigrants to stay home from work, with the National Association of Home Builders telling Reuters that entire crews have not shown up to job sites recently. At a Kraft-Heinz plant in Michigan, a slew of immigrant workers abruptly had their work visas revoked, forcing their American counterparts to work overtime.

All this disruption can’t help but impact the broader U.S. economy. Will prices go up? Will wages come down? Will U.S.-born workers replace immigrant workers in these jobs? To understand what all of this could mean for the U.S. labor market, I spoke to Pia Orrenius, a labor economist at the Federal Reserve Bank of Dallas. She researches the impact of immigration on labor markets, and previously advised the Bush administration on the Council of Economic Advisers in the Executive Office of the President.

Our conversation has been edited and condensed for clarity.

Shirin Ali: Over the last few months, we’ve been hearing stories of ICE agents arresting immigrants while they’re at work, and some aren’t showing up out of fear. Some farmers are facing a labor shortage because of this, but to what extent will this have an impact on our economy?

Pia Orrenius: The biggest impact of what’s going on right now is a decline in growth, and that’s going to manifest itself in the way of a decline in labor force growth. It’s also a decline in consumption, because immigrants come into the country and they’re also consumers. They contribute to labor supply and to aggregate demand. So we see a big negative impact on GDP growth from the decline in immigration.

Then the question is, we have interior immigration enforcement now, and they’re rounding up people and arresting them, in some cases, not just at the work site, but in other unusual places. There’s a lot of fear and trepidation in the immigrant community around this immigration enforcement, but how many people has ICE been able to arrest and remove so far, compared to the foreign-born labor force, which is something like 32 million people? They have arrested 150,000 people, and of those, we don’t know how many have been removed. We are not yet really seeing in the aggregate data, the impact of the immigration enforcement and deportations.

I think what you might be able to see is the chilling effect. There are two things we don’t know: How big is the chilling effect? People are afraid, and they’re going to be less likely to go out to shop, work, and participate in the labor force. That could be a very large effect, because now you’re talking about something that could affect the whole population of unauthorized immigrants and their families, which is in the many, many millions. This could be a significant chilling effect. Then there’s the other thing we don’t know, which is the self-deportations. We don’t have reliable numbers on self-deportation, besides what we read about anecdotally, people having chosen to return home as a result of the fear, uncertainty, and them not wanting to live like that. My guess is that self-deportation is still very, very limited, but my guess is also that the chilling effect is significant.

Some farmers and housing developers who rely heavily on immigrant labor have warned that their prices could increase if they continue to face labor shortages, which would eventually be passed on to consumers. Is this something that would contribute to inflation at a more national level?

Less foreign-born labor means that, yes, in certain sectors where they heavily rely on foreign-born workers, especially the low-skilled, kind of more unauthorized workers, or the asylum-seekers, they’re going to see labor shortages. When you have labor shortages, it can be harder to hire, and in that situation usually wages go up, because you need to attract workers. So then the cost of the product that the person is selling or making goes up. Whether this spills over into the broader economy and we can see it in the inflation gauges that the Federal Reserve follows, that’s unclear. But certainly in the industries that rely on foreign-born workers, you’re going to see labor shortages and probably wage pressure.

The other thing that’s happening at the same time is that with fewer immigrants and the chilling effect, you’re also going to have a decline in aggregate demand, or at least a decline in the growth of aggregate demand. That also affects prices, because for every immigrant that comes into the U.S. to supply labor, they’re also a consumer. We don’t know what the net effect on aggregate demand will be when you subtract a consumer and a worker. Maybe aggregate demand also falls, but then what happens to price, when you have both the supply curve and the demand curve shifting?

Some Republicans have argued that immigrant workers accept lower wages, which ends up hurting the negotiating power of U.S.-born workers. Do you agree with that? 

Generally, new immigrants mostly compete with existing immigrants. Where you see a negative wage impact is really on existing immigrant workers, because they’re what we call substitutes. They’re very similar in their qualities, and so they work in similar jobs. Now with natives, it’s trickier, because they’re not doing these jobs in many cases, so they’re not competing head-to-head with immigrants.

The negative wage impacts typically go on the prior immigrants when you bring in more immigrants. Frankly, if you look at the labor market since COVID, it’s been a very tight labor market with record low unemployment rates and pretty rapid wage growth. We’ve had record unemployment and good wage growth, and even currently we’re having decent wage growth.

There’s another popular Republican talking point that immigrants are taking away jobs from U.S.-born Americans. Is that true?

When you’re talking about the types of jobs that immigrants on the low-skill end often hold, more blue-collar jobs, then we’re talking about industries and occupations that have been dependent on immigrants for so long in this country. We’re talking decades and decades. These are jobs that natives are not typically competing head-to-head with immigrants for. Now, there are some exceptions, like groups of native or U.S.-born workers who have very little experience or a low skill level, like teenagers.

U.S.- born young people between the ages of 16 and 19 might do a stint in construction or hotel work or restaurant work, or even agriculture. But in general, because immigrants are really specializing in occupations where good language skills are not really required and a lot of other immigrants also work in these fields, we find that natives are not typically competing head-to-head in this low-skilled labor market. If you bring in more immigrants to work, the only people who could see an effect would be prior immigrants, as opposed to U.S.-born workers.

How would you characterize the role immigrants play in our economy?

We have a very large, successful U.S. economy that grows very quickly compared to other advanced nations, like in Europe, for example. We grow much more quickly in states like Texas, where I am, which grows even faster than the U.S. on the whole. In the process of that growth and the diversification of the economy over time, there’s been a huge need to fill gaps in the labor force. We’ve done that with immigrant labor. The nice thing about the U.S. is that we have an employment-based system, at least for high-skilled immigrants, so high-skilled immigrants come into industries and occupations that are naturally growing where we have these gaps. Look at H-1B visa workers, for example, that have flowed into high tech and made our high-tech industry the best in the world and make us the most innovative economy, both in technology and pharmaceuticals.

Now, the problem is on the low-skill end, where we have employment-based immigration, but we just don’t have visas. We’ve relied for decades and decades on unauthorized immigration, and people come across the border and take jobs. Initially it was just for farm work, if you go back to the 1960s, when they ended the Bracero Program, which allowed people to immigrate legally to the U.S. and be farm workers, immigrants started coming illegally to take that kind of work. Then as the economy grew, there were more jobs in the service sector, manufacturing and construction. That flow of immigrants just continued, and the problem is that we have very few visas that are employment-based visas for low-skilled workers from other countries, but we do have a lot of employment-based visas for high-skilled workers.

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