Investing.com – BCA Research challenged speculation that Trump’s immigration policies will tighten the labor market and raise inflation for clients this week.
An analyst at the firm said that while a smaller supply of labor is the likely result, it will also reduce labor demand.
“Immigrants’ contribution to aggregate demand goes beyond the goods and services they consume,” the firm says.
“It also includes expenses incurred on their behalf. For example, although illegal immigrants are not eligible for most government welfare programs, they do have access to emergency medical services. They can also collect benefits on behalf of US-born children,” the BCA adds.
They explain that building multifamily housing to meet immigrant housing demand can result in $40,000–$80,000 in additional construction per immigrant.
They also believe that the pace of policy implementation is also important.
The BCA admits that a swift deportation campaign could indeed tighten the labor market, but they believe such an outcome is unlikely.
“The infrastructure to deport millions of workers simply doesn’t exist,” and slowing immigration growth is likely to reduce labor demand more than supply.
BCA also argues that the historical relationship between immigration and interest rates supports this view.
The US, with the highest immigration rate among the G3 economies, has historically maintained the highest interest rates, while Japan, with the least immigration, has the lowest rates.
They believe that a reduced rate of immigration may lead to a lower equilibrium interest rate in the United States.
The BCA concludes that the economic consequences of Trump’s immigration policy are more complex than a simple tightening of the labor market, with broader effects on demand and interest rates shaping the outcomes.