Planet Money - The long view of economics and immigration (Two Indicators)

Episode Date: November 20, 2024

Mass deportations. What would actually happen—economically—if the President-elect follows through on promises to deport millions of people from America.We don't have to guess.Today we have two stories from Planet Money's daily podcast, The Indicator. First, the story from another time the US cracked down on immigration with the expressed intent of helping the economy. We look at how that worked out. And then we distill 20 years of research on immigrants and economic growth. What does immigration do for an economy? What types of immigration help? And who benefits?Our most recent newsletter goes into more depth on some of this. Part one of two here. Subscribe to our newsletter here.This episode is hosted by Adrian Ma, Darian Woods, and Wailin Wong. These episodes of The Indicator were originally produced by Cooper Katz McKim and Julia Ritchey, and engineered by Kwesi Lee and Maggie Luthar. They were fact-checked by Angel Carreras and Sierra Juarez. Kate Concannon is The Indicator's Editor.Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from TELUS Business. This Black Friday, TELUS Business is helping small businesses get more done and save. Get the latest technology for your business at exclusive Black Friday prices. Shop these limited time offers today at telus.com slash business Black Friday. Conditions apply. TELUS, proud supporter of Canadian business. This is Planet Money from NPR. When we asked for your questions right after the election, business. This is Planet Money from NPR. When we asked for your questions right after the election, there were a few that we got

again and again. One of those was how would mass deportation affect the economy? Another was how do you even measure the economic impact of immigrants and immigration? Well, we have some answers, some evidence, and it comes in the form of two stories. Hello and welcome to Planet Money. I'm Darian Woods. And I'm Adrian Ma. First, Darian and our co-host, Waylon Wong, have a story from another time the U.S.

cracked down on immigration with the express intent of helping the economy. We look at how that worked out. And then we take 20 years of research and we distill it into what immigrants contribute to economic growth. And we run the numbers for immigration in the U.S. Today's stories come from Planet Money's daily podcast, The Indicator. Enjoy. it. Adrian Ma here. Pessimism about the U.S. economy helped Donald Trump win a second term.

The thing, though, is that when you look at America relative to other developed advanced economies, America has done remarkably well. In our recent Planet Money bonus episode, an extended cut of my chat with Simon Rabinovich on why the U.S. economy is still the envy of the world. To listen, sign up for NPR Plus at plus.npr.org. Okay, so does this sound like you? You love NPR's podcasts. You wish you could get more of all your favorite shows and you want to support NPR's mission to create a more informed public. If all that sounds appealing, then it is time to sign up for the NPR Plus bundle. Learn more at plus.npr.org.

In 1880, the Chinese were the biggest group of immigrants in the Western U.S. They accounted for around 20% of all immigrants in the region. This was a time of open borders. Basically, if you had enough money to make the trip, you could come to the U.S. And Chinese immigrants arrived in the West in two big waves. First during the California Gold Rush of the 1850s, and then to build the Transcontinental Railroad about a decade later. first during the California gold rush of the 1850s, and then to build the transcontinental railroad about a decade later.

The new arrivals were mostly working-age, able-bodied men. Nancy Chen is a professor of economics at Northwestern University's Kellogg School of Management. The interesting thing about the Chinese is that they were very organized in the way they came to the US. She says that most of the Chinese immigrants came via US-based companies run by Chinese merchants who spoke English.

They recruited workers in China, handled all the paperwork, and hired out teams of laborers to American employers. They were able to go to very peripheral places and be productive. A whole group or a company of men would go to the frontier, where they're building railroads or taking down trees or reclaiming land, and they would be self-sufficient. For example, the workers figured out their own housing and food. And so American employers really like working with them because you pay a price,

and then it's not much hassle. But the Chinese workers also faced racism and suspicion. Nancy says anti-Chinese sentiment gained momentum in the 1870s. There was a recession in the US that hit Western states more than Eastern ones. When economic opportunities are less plentiful, I think there's often, and unfortunately, this desire to pin it on someone. Lawmakers in Western states started to restrict how Chinese immigrants could work and live.

They were banned from owning farmland or getting access to fishing grounds. State and federal legislation also made it difficult, if not impossible, for Chinese men to enter interracial marriages or bring over their wives from home. These policies snowballed into the Chinese Exclusion Act of 1882. The law banned all Chinese-born laborers from entering the U.S. for 10 years.

It also prevented Chinese already in the U.S. from becoming citizens. And these restrictions were extended and tightened over time. The stereotypical immigrant story for America is you come from a country to America for better opportunities. And the Chinese Exclusion Act basically made that impossible to do for the Chinese. The exclusion laws also enabled an atmosphere of targeted racist violence. In what's now Wyoming and Oregon, white men massacred dozens of Chinese laborers. So Chinese immigrants left the U.S. in large numbers.

And of course, there were very few new Chinese migrants. Nancy and several researchers recently published a working paper about the economic impact of the exclusion policies on the Western US. They calculated that the Chinese Exclusion Act reduced the Chinese labour supply by 64%. And remember, competition for jobs was one of the main justifications for the law. So Nancy wanted to study what happened to white US born workers in Western states. And you know, honestly, we thought we would find that they benefited. We thought this was going to be a story of winners and losers, but

what we found was this was a story of losers and losers. Here's what Nancy means. She found that the white male labor supply in the West was reduced by 28%. Basically, in places that Chinese immigrants vacated, white workers also left. And there weren't enough new workers moving from eastern states to fill the gap. A possible reason for the decline in white workers, Nancy says, is that the loss of the Chinese immigrants might have drained some towns of their economic vitality. The Chinese got really into services. They would run a bar, a hotel.

Everyone eats there. Everyone sleeps there. The Chinese leave. They shut down the hotel. They would run a bar, a hotel. Everyone eats there. Everyone sleeps there. The Chinese leave, they shut down the hotel, they shut down the bar, they shut down the restaurant. All of a sudden, your town is a lot less attractive for everyone. During the Chinese Exclusion Era, one sector where local white workers did appear to swap in for departing Chinese workers was mining. But Nancy says that's an exception to the broader trend. Like take manufacturing. There, her paper documents a slowdown. And this happened both in terms of output and in the number of businesses. Overall, Nancy says the numbers suggest that the Chinese Exclusion Act was a drag on economic

growth in the Western US until at least 1940. The act wasn't repealed until 1943. That's after China joined the Allies in World War II. Nancy says her research on the Chinese Exclusion Act shows the danger of enacting wide-sweeping policies. The legislation wasn't explicitly a deportation program, but it did lead to Chinese immigrants leaving the U.S. in large numbers.

The law had far-reaching consequences that, Nancy says, weren't anticipated by lawmakers. Even if we believe that immigration policy is there to serve the economic interests of American citizens, we want to think through the immigrants that we want to ban or that we want to reduce. What are they doing? Is it something that Americans value? And if they go, who's going to do the job? And at what price will they do it for? And what will Americans have to pay for that?

Next up, Adrian and I talk with Zeke Hernandez about his economic research on immigration. Zeke's a professor at the University of Pennsylvania's Wharton Business School. And he says, amid all the coverage and the political speeches, he's really noticed two narratives about immigrants taking hold. Immigrants are villains who are here to steal your job and undermine your safety and destroy American culture and our heritage The other narrative is is immigrants are the poor huddled masses Who need our compassion and we must help them even if it costs us. It's either kind of fear or pity

I'm definitely one of the villain immigrants. I Was not gonna say anything but since you said, it's out there in the open now. But you know, Zeke says this dichotomy between fear and pity, it distracts us from the larger truth about immigrants. Coming up, we break out of the binary. What's good, y'all? It's Gene Dembe from CodeSwitch. What's good y'all? It's Gene Dembe from Code Switch.

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Zee Hernandez has moved around a lot during his lifetime. He was born in Uruguay, and his family moved from there to various parts of Central America and eventually to Argentina. And there, he says he noticed just how different economically countries could be. I was in the poorest slums of the city of Buenos Aires. And so when you see old men crying because they can't find work, or women that are totally anxious because they can't feed their kids,

that really moves you. When Zeke came to the US for college, he became fascinated with the question of why some countries prosper economically and others falter again and again. The answer seemed to come down to people. I realised that if you want to explain the movement of investment, ideas, innovation, customers,

and just the evolution of economies and markets. You can't separate that from the movement of people. And since then, Zeke has been researching how immigrants shape economies around the world. He recently wrote a book laying out what he's learned called The Truth About Immigration, Why Successful Societies Welcome Newcomers. So the argument I'm making is based on 20 years of research is that immigrants don't need your fear. They don't need your pity.

They are good for you. Good for you and your children. And that's both economically and socially. Zeke says the reasons for this can be broken down into five things. Five things any group of people contributes to economic growth. And because immigrants are people,

they also contribute these things. They are talent, consumption, taxes, investment, and innovation. Let's unpack those. So we'll start with talent. Immigrants bring skills and the ability to work. They often fill

jobs where there aren't enough native born workers willing or able to do them, which could be anything from picking fruit to practicing medicine. But Zeke says it would be a mistake to think that an immigrant's labor is the only thing they contribute to an economy. Yeah, I mean, after they work, they have paychecks to spend, right? So the second thing they bring is consumption. In economic terms, when immigrants enter an economy, they increase aggregate demand for

goods and services. But that's really just the beginning of it. The more interesting part is what happens next. One is what I call a novelty effect, which is immigrants just because they have different tastes and preferences, right? They grew up liking, I don't know, different foods or different kinds of music, or they use technology a little bit differently or something like that They are introducing new categories of products and services or brands that they liked Where they came from. Yeah. So for example in DC where I live

There's a large Ethiopian community and you're more likely to see in this area a demand for Ethiopian food in restaurants or In a place with lots of Korean immigrants retailers may be more likely to import Korean beauty products. So this is the novelty effect of immigrant consumer demand. Right, like I come from New Zealand and there is a fruit I cannot find in New York. It's called a feijo. And I order the mail order from California. What does it taste like? It's really tangy, sweet, bowl of perfume and delight. It's hard to explain. Please send them to me. I'm not sure they'll still be good by then.

Now, the third thing immigrants contribute is taxes. They pay sales taxes, payroll taxes that fund social security. And that's even true for many undocumented immigrants. Now, in the short run, there is a cost to integrating newer immigrants, which is disproportionately borne by local governments, the cost of public education and social services like food assistance.

But in the long term, Zeke says that these costs are outweighed by the taxes immigrants pay. Zeke says that the average immigrant makes a net positive contribution of just over a quarter million dollars. The fourth thing that immigrants contribute to the economy, which Zeke says is often overlooked, is investment. And this can happen a couple of ways. For one thing, you can have foreign companies investing in the US.

The research I've done in the US, for example, shows that when immigrants increase by 1% as a share of a state's population, that state becomes 50% more likely to get investment from the immigrant's home country than it otherwise would have been. If you want to see like a contemporary story on this, look no further than Pollo Campero, which is one of the fastest growing restaurant chains in the United States. And of all places, it's from Guatemala. So you have this Guatemalan company over the past couple decades opening U.S. locations. At this point, they have over 100 of them. And they open them in places where there tend to be a lot of immigrants from Central America. That's what I call the immigration investment jobs triangle. That is immigrants settle, investment follows, those investments create jobs and not jobs just for immigrants.

And then another way investment can happen is an immigrant to the US starts a business. Immigrants are also 80% more likely than native born people to start a business. And that means that they're putting their own capital, their own investment in a new business. And that means that they're putting their own capital, their own investment in a new business. Okay? Now that 80% is at the average for every business from a mom and pop restaurant to Google or Zoom or Duolingo, which are immigrant founded firms. The fifth and final thing immigrants contribute to economic growth, according to Zeke, is innovation. They bring ideas. Just check out some of these stats. One study estimates that in recent decades, immigrant inventors were responsible for one in three US patents. In addition, nearly half of Fortune 500 firms were founded by an immigrant or a child of immigrants.

So that rounds out the five things immigrants contribute to the economy, which again, any group of people has these five qualities. It's just that immigrants bring a different set of skills and different tastes and ideas which help grow the economy in a way that it couldn't otherwise. Zeke says this is just as true for people who immigrate to the U.S. illegally as those who come here legally. I think the difference is that illegal or undocumented immigrants often have a ceiling on how much of those five things they can contribute because of their legal status.

I'll tell you a short story on this. My barber is really good and we've become good friends over time. He confessed to me after years of getting to know each other, that he's an undocumented immigrant, he's not in the country legally. He also told me that his lifelong dream has been to start his own barber shop, and he has $200,000 saved in cash, ready to start this business,

which almost knocked me off my chair. I was like, you have how much money? Wow, yeah. And I was like, wow, okay. And I said, well, why don't you do this? And he said, I can't because of my legal status. So the real tragedy of illegal immigration when it comes to the economy is that we don't get as money

of the five things that immigrants bring as we could if they were here legally. Now Zeke wants to be clear, he's not advocating for illegal immigration, but he is in favor of more legal pathways. To put it another way, there hasn't been a major update to U.S. immigration policy in over three decades. And because of that, Zeke argues that the U.S. economy is missing out.

Today's story is first aired on our other podcast, The Indicator from Planet Money. It comes out five days a week and is always ten minutes or less. So check it out on your podcast thing. These episodes of The Indicator were produced by Cooper Katz-McKim and Julia Richie, with engineering by Quacey Lee and Maggie Luthor. They were fact-checked by Angel Carreras and C.R. Juarez, Kate Cancannon edits the show and the indicators of production of NPR.