President Trump’s recent push to implement a merit-based immigration system has been discussed for many years among lawmakers. As we explained in our previous blog, a merit-based system would admit immigrants based upon the estimated potential value they would bring to the U.S. economy, emphasizing higher levels of education and skills. These types of systems currently operate in Canada, Australia, and several other countries. They favor higher-skilled immigration, under the belief that these workers provide a disproportional benefit to the domestic economy compared to immigration among lesser-skilled workers. This type of policy is also seen as better-plugging labor shortages in high-skill industries—such as engineering and technology.
While it is indeed true that the U.S. economy has a shortage of workers in higher-skill industries, especially the so-called STEM careers, what is lesser-known is that labor shortages also exist in lesser-skill industries. Indeed, employers have reported difficulties finding workers in labor-intensive industries such as construction, hospitality, health care, and agriculture. For example, a survey from the Associated General Contractors of America found that over 80 percent of construction firms are having difficulties finding workers. Similarly, wages for the average farm worker increased by 5 percent between 2015 and 2016 due to labor demand—yet the industry continues to be plagued by labor shortages.
Lesser-skilled immigration fills a unique role in the labor market, and is a crucial driver of economic growth in America.
We have noted in our previous research that lesser-skilled immigration can not only help fill these labor shortages, but it can also complement higher-skill native-born workers, by providing them the flexibility to specialize and increase their own skillsets to take higher-paying jobs.
On a broader economic level, a growing labor force is a key factor that determines the “speed limit” of overall economic growth. According to Harvard economist Dale Jorgenson, since 1947, increases in the number of workers in the U.S. economy have accounted for 30 percent of economic growth. These increases have come from many places: the post-WWII “baby boom,” the entry of more women into the labor force starting in the 1960s, and immigration (which peaked in the 1990s). The slow growth which has plagued the economic recovery since the Great Recession can be explained in part by declines in labor force participation—due to increases in retirement, disability, and school enrollment—as well as from slower population growth. But these trends that can be mitigated by increases in immigration of all skill levels. In fact, the growth we have had, around 2 percent, has been attributable in part to immigration.
While high-skill immigration is indeed crucial for entrepreneurship and innovation, policymakers would be wise not to neglect the benefits of lesser-skilled immigration—which fills a unique role in the labor market, and is a crucial driver of economic growth in America.