Q&A – The Inflation Impact of Illegal Immigration
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Today’s Entry: Something I’ve not heard anyone talk about is the impact all of the illegal immigration is having on inflation. You can’t have millions upon millions of people pouring into the country (without) it having an impact on prices.
Bottom Line: You raise a great point. Usually to the extent the topic of illegal immigration in an inflation context is brought up its regarding deflation, as in wage deflation. However, with employment at historically high levels, the impact of migrants entering the United States potentially working for lower wages than legal citizens would, likely doesn’t have the same impact that it would during times of high unemployment. And there’s no doubt that with a record number of non-citizens in the United States, and ever more that come across every day due to the Biden administration's open border policies, what’s referred to as the “Shadow Economy” is larger than ever before. How much pricing pressure is coming from it? Could this be a significant catalyst for the ever stubbornly high rate of inflation?
I’ve previously reported the cost of every migrant as being $1,156 per federal taxpayer per year. That’s a hard cost, not a theoretical number. That gives you an idea of how big the overall national number is going to be. The U.S. House Homeland Security committee provides the big picture. As of last November, according to the Committee, the total annual cost looks like this...
- This report details the immense financial costs of the unprecedented border crisis being borne by American taxpayers, including the costs for health care, shelter, education, and law enforcement, as well as costs forced on private property owners and businesses. According to one estimate, housing and other services just to those who have been released into the United States on Mayorkas’ (referring to Homeland Security Secretary Alejandro Mayorkas) watch, or entered as known gotaways, could exceed $451 billion.
That introduces one significant piece of the migrant inflation puzzle. Taxpayers are ultimately on the hook for shouldering the costs of all of that spending but in the interim how is most of that cost accounted for? Additional debt spending by governments, which further weakens the US Dollar adding to the rate of inflation. Then you have the extra demand that’s created by additional debt spending which further adds to pricing pressure for goods, services and housing. Much has been made about the high cost of housing and specifically the lack of affordable housing. How much of the problem is potentially attributable to millions of illegal immigrants occupying affordable housing options in place of legal citizens? That dynamic adds to housing inflation. Then there’s the shadow economy itself.
Predating the Biden Administration the “Shadow” or “Underground economy” was estimated at 8.8% of US GDP. Not all of the underground economy is attributable to those lacking legal status in this country, but previous estimates have suggested up to 80% of it is. That would mean it's possible for up to 6% to 7% of the demand for goods and services to be coming from those lacking legal status. Whatever the actual number is, it would be accretive to inflation. So, in answer to today’s question what’s the impact on inflation?
In January, the Center for Immigration Studies analyzed the impact those lacking legal status in the workforce have on consumer prices. What they were able to estimate is that the “wage deflation” impact of illegal immigrants in the workforce amounts to a decrease in consumer prices of 0.32%. What that means in a macroeconomic context is that once the additional demand created on goods, services, housing, etc. exceeds 0.32% the impact is inflationary. There are so many factors which impact inflation, starting with the value of the US Dollar and so many guesstimates associated with the actual numbers of people living in this country lacking legal status, that it would be irresponsible to try to assign a specific inflation number to them. What is evidenced through this exercise is that:
- There is no doubt that the net effect of those lacking legal status is inflationary
- The narrative that illegal immigration is deflationary is false
- Housing is the sector of the economy with the most inflationary pressure from illegal immigrants
What’s also a given is that those inflationary pressures are growing by the day as the border effectively remains wide open. It’s likely that the reason economists and Federal Reserve governors alike have consistently underestimated inflation pressures in our economy is attributable to these. Economic modeling and forecasting is based on knowns which relies heavily on historical trends. Those aren’t nearly as reliable when historic numbers of people lacking legal status pour into the country, often becoming part of an ever-growing shadow economy.