CBO’s Positive Immigration Score: A Tiny Bit of the Econ Behind It

June 19th, 2013 at 8:09 am

Much more to be said about this topic, but I’m already getting some questions as to the economic assumptions behind the CBOs score of the immigration bill.  (Getting ready to go on the Diane Rehm radio show to talk sequestration’s impact).

How, for example, do you explain the budget agency’s finding that in the first decade (2014-23), the increase in the immigrant population would boost GDP but slightly lower GDP per capita (the latter relative to CBOs baseline projection–i.e., GDP/cap doesn’t fall, but it grows less quickly)?

Well, here’s some very easy math: GDP=GDP/POP*POP.   All CBO is telling us is that through 2031, population growth would outpace GDP growth (if you want to get fancy, take changes in natural logs of both sides; now you have additive growth rates).  So the economy gets larger–there’s more employment, more compensation, and more tax revenues–more government spending too, but revs>spending by about $200 billion over the first ten years.  But because population growth is a bit faster than GDP growth, per capita GDP (first term after the equals sign) grows more slowly than the baseline growth rate.

It’s not necessarily intuitive, but what’s going on here–what the little equation shows–is that population growth adds to GDP growth.  The bill, according to CBO, increases the US population by 16 million (about 4%) by 2033, and that leads to GDP that’s 3.3% higher in 2023 and 5.4% higher in 2033.

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2 comments in reply to "CBO’s Positive Immigration Score: A Tiny Bit of the Econ Behind It"

  1. smith says:

    Since you brought it up, $190 billion divided by the 135 million U.S. workforce (120 million full time plus part time equivalents, meaning 30 million part-time workers equals 15 million fulltime) equals $1,400 per worker per decade or $140 every year. What will we do with that $140? Hmm, taking an average income figure of $70,000 or median of $50,000, let’s use that as our wage increase for the next ten years. It’s only $360 less than the amount we’d need annually to keep pace with a 1% inflation rate.

    The question U.S. citizens should ask is will huge increases in the number or workers who are not free (with employment based visas), but face physical deportation* if their boss let’s them go for any reason, or no reason at all (it’s at will employment, same as most of the rest of the labor pool, excepting the forced travel to another country part), will this decrease expected future wages by more than $140/yr? (using the $50,000 median, .28%). Because of downwardly nominal wage rigidities, the effect might be seen as zero increase in wages (like the last ten years).

    This issue of employment based visas (I call corporate welfare) is separate from the main point of reform, letting 11 million undocumented immigrants become citizens. It’s also separate from the new so-called merit based visas which are also problematic (point system).

    *They do get two months to find a new job, I’m sure that wouldn’t affect their bargaining for a competitive wage rate, right?

    It sets a path opposite to the previous immigrant fueled strong labor movement of the early and mid 20th century.

  2. Kevin Rica says:

    The only thing that a good model does is produce conclusions that are logically consistent with its assumptions.

    So if a model assumes that population drives economic growth, then the model will show that GDP will grow when population grows. But it would be a circular argument to say the model proved its own assumption.

    So I think that whatever you MEANT to say, you need to restate “what the little equation shows–is that population growth adds to GDP growth.” I am not sure what you meant — but that can’t be right.

    Similarly, when you write “GDP=GDP/POP*POP” you need to add some perentheses. But if you mean GDP=GDP/(POP*POP) that can’t be correct unless POP = 1 and if you mean GDP=(GDP/POP)*POP that just means GDP = GDP, a tautology.

    It would be useful to see the underlying assumptions of the model. Is it using the simplified Haitian growth model:

    GDP = f(POP)

    That’s never been particularly robust and can’t explain why Canada and India have the same GDP.

    But as a Truman Democrat, I’d like to see how the CBO writes their excess demand for labor equation, some variant of:

    dw/dt = f(ND – NS)

    (sorry no supper or subscripts)

    Ironically, that’s the equation that the CoC cares about. We just care about it in different ways.