Donald Trump Cuts Consumer Spending by Illegal Immigrants, Laments Federal Reserve Member

President Donald Trump should expand the economy by welcoming illegal immigrant consumers, rather than by boosting Americans’ wages and productivity, says a growing chorus of establishment voices on Wall Street, the federal government, and industry.

“There are millions of [illegal] immigrants living in this country … [who] are not going out and shopping,” because of Trump’s enforcement policies, said Robert Kaplan, the head of the Federal Reserve of Dallas, and a voting member of the Federal Reserve which regulates the economy by adjusting interest rates.

“They are staying home,” Kaplan complained during a May 31 presentation at the Council on Foreign Relations in New York. “They’re afraid if they go out they may not come home.”

Advocates for greater immigration rarely describe legal and illegal immigrants as imported customers. But those advocates are often quick to declare that enforcement of immigration laws will reduce consumer spending in the United States, to the disadvantage of businesses. For example, one pro-immigration advocacy group declared in March 2017 that:

The Partnership for a New American Economy (PNAE), for instance, estimates that undocumented [illegal] immigrants wielded $157.3 billion in purchasing power as of 2014—which is money spent in numerous U.S. businesses.

The PNAE is a pro-immigration group run by major business leaders who stand to gain from more imported consumers.

That demand for imported consumers is also echoed by Wall Street advisors, such as Mark Zandi, at Moody’s Analytics, who predicted that reduced immigration would lower housing prices. In 2015, Google chairman Eric Schmidt bluntly called on the federal government to import more consumers. “Most stock markets assume modest growth, so how are you over a couple of decades to deal with the fact that one-third of your [aging] customers are going to go away? … Well, one [way] is to produce more customers through immigration,” he said, adding that companies could also grow if they export more products and services.

But business will get more consumers in American once a better economy draws more absent Americans from the sidelines and into the economy, said an official at Trump’s Office of Management and Budget. “We do expect consumption growth to be faster going forward than it has been in recent years, but this is more a by-product of faster economic growth overall spurred by productivity growth,” said an official. “As firms invest more because of the Administration’s policies, labor productivity growth will rise and overall output will be higher.  This is the main source of the increased growth in consumption that we expect,” he added.

Business executives and their allies are already complaining that Trump’s immigration policies are nudging up Americans’ wages, as well as reducing consumer spending. For example, Patrick Harker, president of the Federal Reserve of Philadelphia, recently complained that Trump’s immigration policies are forcing up wages by enabling a labor shortage. “We’re feeling real tightness [in the labor market] and part of this is related to immigration policy,” he said.

“Tightness” is the term used to describe a shortage in workers in the labor market. In a “loose” market for labor, workers compete against other workers for jobs, so allowing employers to pay lower wages. In a tight market, where there are plenty of unfilled jobs, employers must bargain with employees by offering higher wages and benefits, plus better condition and treatment. That “tight labor market” pressure also prods employers to find, recruit and train marginalized workers, including some of the millions of working-age men who have quit the labor market since 2008.

A tight labor market also pressures employers to invest in boost their workers’ productivity by buying labor-saving machinery, such as tractors, forklifts, and robots. In turn, higher productivity means the employees can be paid more while still creating profits for Wall Street investors. Overall, the economy grows in line with growing productivity and growing population, either born or imported. 

The last time the nation achieved a tight labor market was in the late 1990s, just before President George W. Bush largely ended enforcement of immigration in 2001.

The head of Trump’s main budget office, former Rep. Mike Mulvaney, recently dismissed business complaints about a tight labor market. Millions of Americans have fallen out of the labor market since the 2000s, he pointed out, saying “if you created economic opportunity and jobs that they want, they would come back.”

“So I’m not worried about the tightness of the labor supply,” Mulvaney told The Wall Street Journal.

The OMB official told Breitbart:

The participation rate among 25-54 year-olds averaged 84.0 percent in 2000, but by 2016 had dropped to 81.3 percent.  If the same labor force participation rate had obtained in this age demographic in 2016 as it had in 2000, that would imply an extra 3.4 million people working [and consuming] in 2016.  This is only a rough, but illustrative, indicator of the number of people who could hypothetically be in the labor force if we had maintained the peak participation rate that we had achieved in 2000.

In fact, that huge number of missing workers are caused by the pre-Trump government policies, admitted a top economic advisor to President Barack Obama. “This [dropout] is caused by policies and institutions, not by technology,” said  Jason Furman, an economist who chaired Obama’s Council of Economic Advisors. “We shouldn’t accept it as inevitable,” he told a Brookings Institute expert, Dave Wessel in August 2016. Furman continued:

The fraction of prime age men who are working or looking for work has fallen continuously since the 1950s. In the early 1950s, 98 percent of men in that age bracket had a job … [or] were actively looking for one. Today, that fraction has fallen down to 88 percent. … Understand it is quite large. The difference between a recession and a normal economic period is maybe two percentage points on the employment population ratio … so this is something that is more like 10 percentage points … The fraction of prime age men who are working or looking for work has fallen continuously since the 1950s. In the early 1950s, 98 percent of men in that age bracket had a job … [or] were actively looking for one. Today, that fraction has fallen down to 88 percent.

In another measurement, dubbed the “employment to population ratio,” the percentage of working-age men is stuck at 85.3 percent, well below the 89.7 percent rate in 1999, leaving at least 2 million men sidelined and out of sight. 

In April, Kaplan called for the work participation be raised via additional government-backed training of workers — not via higher wages that would encourage workers to get their own training. He said:

Although the labor force participation rate for prime-age workers is about 88 percent for college graduates and 81 percent for those who have attended some college, it is only 76 percent for those with a high school diploma and only 66 percent for those who have less than a high school diploma. In short, where there is substantial labor slack in the economy, it is highly correlated with segments of the population with lower levels of educational attainment. While there are a variety of reasons for this correlation, individuals in these segments would benefit from additional skills training in order to be more productive members of the workforce.

The U.S. employment rate for prime-age men lags far behind the rate in high-wage Germany.

During the 2016 campaign, Trump promised to change immigration rules to favor Americans, saying:

When politicians talk about “immigration reform” they mean: amnesty, cheap labor and open borders. The Schumer-Rubio [2013] immigration bill was nothing more than a giveaway to the corporate patrons who run both parties. Real immigration reform puts the needs of working people first – not wealthy globetrotting donors. We are the only country in the world whose immigration system puts the needs of other nations ahead of our own.

Since his election, Trump has sharply reduced the inflow of illegal immigrants — but has not yet penalized companies that employ illegals. He has begun small-scale reforms to the contract-worker programs, such as the H-1B program, but has not tried to slow or pause legal immigration.

Each year, the federal government provides companies with 1 million new legal immigrants, plus 1 million temporary contract-workers, such as H-1B and H-2B workers. This inflow loosens the labor market, to the huge disadvantage of working Americans, and especially the four million Americans who enter the workforce each year. For example, the inflow of cheap labor cuts Americans’ wages and salaries by roughly $500 billion per year, nearly all of which is transferred to company owners and investors, according to data provided by the National Academies of Sciences in 2016. Also, the NAS report shows that federal, state and local government provide legal and illegal immigrants with at least $56 billion of taxpayer cash and aid each year, nearly all of which flow back into companies selling food, shelter, autos, retail products, and other consumables.

So far, there is no hard data evidence of a national surge in Americans’ wages, despite handwringing about labor shortage by business groups.  But there are a growing number of anecdotes about employers grudgingly raising wages, although mostly for higher-skilled white-collar workers. According to May 31 edition of the Federal Reserve’s “Beige Book”:

Labor markets continued to tighten, with most Districts citing shortages across a broadening range of occupations and regions. Despite supply constraints impeding the ability of firms to attract and retain qualified workers, most Districts reported that employment continued to grow at a modest to moderate pace. Similarly, most firms across the Districts noted little change to the recent trend of modest to moderate wage growth, although many firms reported offering higher wages to attract workers where shortages were most severe. A manufacturing firm in the Chicago District reported attracting better applicants and improving retention for its unskilled workforce by raising wages 10 percent …

Respondents in several sectors [in the Boston region] mentioned tight labor markets. None of our manufacturing contacts reported any significant hiring moves either up or down. A maker of envelopes said that they expected to hire significantly in the near future but not right now. Several manufacturing contacts said it was hard to find qualified workers. A manufacturer of semiconductors and related goods said that they had to raise starting wages to fill vacant positions in New England. A manufacturer of furniture said that retaining new hires was a major challenge as some workers quit within days of being hired. Staffing firms continued to report strong labor demand and tight labor supply. They singled out the following positions as particularly hard to fill: systems administrator, network engineer, and medical assistant. All contacted staffing firms indicated that bill and pay rates had increased… 

Pennsylvania staffing firms have remained very busy since the start of the year. Contacts from staffing firms in labor markets with lower unemployment rates have noted greater wage pressure, while contacts operating in markets with higher unemployment rates report minimal wage pressure…

[Near Cleveland,] High turnover remains an issue in the freight transportation industry. In order to retain drivers, one firm increased driver pay by 3 cents per mile, equating to a 7.5 percent wage increase. Attracting qualified applicants for low-skilled manufacturing jobs is difficult, and many newly hired workers prove to be unreliable. That said, competition for low-skilled workers is strong and is driving up starting wages…

[In Richmond] Generally, contacts reported labor shortages for computer scientists, computer engineers, data scientists, welders, and technicians. Also, more manufacturers had  difficulty finding quality workers for technical roles. Wages increased modestly for firms in most industries, and employment agencies said that clients had started to increase wages for positions that remained unfilled…

There are also some anecdotes about companies which respond to wage pressure by buying labor-saving machinery — much of which is made by Americans workers. According to Bloomberg:

At Task Force Tips, which makes fire-hose nozzles, a vision-guided robot performs a task a person used to do, grabbing a half-finished valve from a miller and handing it off to a mechanized partner that feeds it into the final processor. By adding a dozen bots over the past four years, McMillan said, he’s been able to keep the family business thriving in the face of stiff competition from lower-wage countries including China.

And the company payroll in Valparaiso, Indiana, has stayed steady at about 250. Task Force Tips doesn’t fire anyone when it brings in a robot, McMillan said. Instead, people are re-trained for jobs such as machine operator or technician. That keeps morale up and allows employees to see the machines as an advantage, gadgets that can do menial chores humans find tedious…

But many other companies are hoping imported labor can keep wage increases off the table. The Wall Street Journal reported: 

Ariens Co., a maker of lawnmowers and snowblowers, faces a bottleneck in its plans to raise production 40%. It can’t find enough workers. The Brillion, Wis., company bused some Somali refugees from nearby Green Bay to help, but they weren’t enough, and it is spending up to $15,000 a month on recruiting. “We see the demand right in front us,” said Chief Executive Dan Ariens. “It’s very frustrating.”

Follow Neil Munro on Twitter @NeilMunroDC or email the author at NMunro@Breitbart.com


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