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Dan Loney: It has long been
discussed, the impact that deportation, including mass
deportation, can have on the
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economy of a country, especially
its GDP. But new research from the Penn Wharton Budget Model
takes a deeper dive into some
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other impacts, kind of on the
fringes of that element of the economy, such as how it might
also impact something like the
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wages of high-skilled workers.
Pleasure to be joined here in studio by Kent Smetters, who's
Faculty Director of the Penn
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Wharton Budget Model. Kent,
great to see you again. Good to be back, yeah. Thank you. What's
interesting is, the topic, or
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that connection between
deportation and GDP impact is something that's talked about a
lot. This paper, kind of, as I
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said, goes around the fringes
and looks at some of these other areas. Take us into why
that's important.
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Yeah. I mean, there's
almost no debate at all that as you get rid of people, your GDP
is going to go down. And that's
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just a pure scale effect.
A country's smaller, they're going to have less production. If you
ask the average person,
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especially native-born worker or
authorized worker in the United States, though, they're not so
worried about GDP. It's like,
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what's the impact on them, their
wages? And so it's really more per capita, is what is more
important here for this
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discussion. And the fact of the
matter is, a lot of deported workers— first of all, if it
does happen, it's going to be
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quite costly. Much more costly
than it was in terms of the budget that was already allocated in
the recent reconciliation bill
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to pull it off. But even if it
did happen, a lot of these lower skill workers, they're not
substitutes for native-born
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workers, especially higher skill,
which is basically 63% of the working age population. They are
more complements. They're doing
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things that actually enhance the
wages of higher-skilled workers. So we're not talking about just
tech workers. Just— you own a
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business, you have workers. You
own a machine shop, you have workers. You own a farm, you
have workers. So we're not
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talking about billionaires
getting rich here. We're just talking about the— basically what
you and I would normally
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describe as middle class
households who really do depend on the services of these
workers.
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So that element of how high-
skilled, high-wage workers are impacted, take us a little deeper
into that. Because that's
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something you kind of alluded
to, not discussed about as much. That's right. And in particular,
the way— there's a general
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consensus in economics of how we
would model this, is that when we think about the production in
the economy, the really kind of
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old school way before we start
thinking about what's called heterogeneous workers, different
skill sets, is that everybody
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just kind of enters this
production function with their labor. And so, suppose that
you're three times more
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productive than me. Well, it
would say, therefore, three of me could replace you. We are still
substitutes. You just happen to
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be three of me. A more modern
way, that's much more backed by data, says, if you're high skill
and I'm low skill, then it's not
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that three of me can replace
you. Rather that if I go, your wages are going to go down
simply because you are the
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person who owns that machine
shop and you need me for production. So these lower-
skilled workers, we're talking
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about 11, 12 million. Some
people say it's a little bit higher than that. They really do
perform this kind of critical
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function that is wage enhancing,
for, kind of— basically anybody middle class and higher. Usually
they're more— that level is
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a complement, not a
substitute. But if you have a significant level
of deportation, for people who
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are mostly in that low-wage
category, even, I would think, some of those low-wage jobs
would be potentially impacted
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moving further down the
road in terms of, do you have to pay, now, those people more—
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That's right.
— to be able to fill those jobs? That's right. And so there's no question. So what we
do is, we look at what's called a
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four-year deportation policy. We
don't say this explicitly, but essentially, suppose that, you
know, this deportation policy
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ends with this administration,
then things start to revert back. What happens there? Then
we look at a 10-year deportation
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policy, where at the end of 10
years, everybody essentially, hypothetically, all the
unauthorized workers are gone.
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And— because very few people
think we can do it faster than that. But— and those have
different impacts on lower-skill
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workers. If you actually are
doing the permanent deportation, yes, 63% of the population of
higher-skilled workers are going
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to be worse off. But it's
actually true, some of the lower- skilled workers are going to be
better off, because even though
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native-born and authorized workers
in the United States are not perfect substitutes, even at
lower skill with the low-
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skilled deported workers, they
are much more substitutes than they are complements. So it's
not maybe perfect substitutes,
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but they still are more
substitutes than complements relative to high-skilled
workers. So some of those could
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be better off. And we calculate,
on our deport permanent policy, their wages could actually go up
by about 5%. Under the four-
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year policy, though, they're
actually harmed. And the reason why is because things eventually
reverse. But meanwhile, we've
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lost a lot of capital in the
economy and so forth. So ultimately, their situation is
not better off.
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And so that 10-year window, in
terms of looking at it, what potentially, then, with that
type of a policy in place, is
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the potential GDP impact for an
economy at that point? Yeah. There's no— so there's general
agreement, the economy is just
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definitely gonna get smaller by
several percent relative to where it would otherwise be. And
so then the question is, why do
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we care about pure scale effects,
versus per capita? And one reason why you may care about
scale effects is that there is a
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general understanding that
certain things, like public goods, there's economies of
scale, that they can be spread
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across a much larger population
base. Also, when you think about America's presence in the world.
I mean, even though some people
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want to pull back on that, the
fact of the matter is, we have a lot of presence and military might
and so forth. And that then does
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depend much more on GDP than it
does on per capita GDP. You have some countries, Switzerland and
others, who are very wealthy per
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capita for various reasons. But
they're not going to have the same sway in the world. And you
know, we tend to sometimes
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minimize that sway. But in fact,
it shows up in so many different ways. Not just the reserve
currency that everybody likes to
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focus on, but lots of different
persuasion and ability to kind of get stuff done and make sure
markets stay open and so forth.
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So the numbers are as you
have seen them play out within the research. What do you think the
takeaway is from doing this
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research and having this
understanding a little bit deeper on kind of the breadth of
what the impact could be?
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Yeah, I mean, we're much more
integrated, even inside the United States. I mean, yes, some
people debate this international
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integration and so forth. Even
putting that aside, just within this country, we derive our wages
from other— working with other
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people. And, you know, I do— I'm
a professor. I have students. You know, that provides
income. We have so many people
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at this university that do so
much behind the scenes and so forth, way outnumber the
professors. Ten to one. And
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they're doing so much. And so
this idea that, you know, you know, I'm my little island— this
is simply not true. And we need
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to kind of recognize that we're
much more connected that way. And when you start to break down
some of those relationships,
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it's going to ultimately— someone
has to pay for that. It's going to ultimately be a higher skill.
And again, we're talking about
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roughly 63% of the working age
population here, not the billionaires. And— middle class
and higher. It's pretty much us
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that are going to bear the
brunt of that. Kent, great to see you again.
Thanks very much.
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A pleasure. And you can view the research that
they have done at their website. Penn Wharton Budget Model. Just
find it wherever you are on the
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internet. Many thanks to Kent
Smetters. I'm Dan Loney. Thanks for joining us here on <i>This Week
in Business</i>.