Three Ways Obama's Immigration Plan Could Be Good for Economy

NEW YORK (TheStreet) -- President Barack Obama's immigration plan will help the economy. It may not help a ton, but it will help a little bit -- at the margins. 

Regardless of what you feel about its impact on citizenship, or even the rule of law, there are three good reasons to support this plan.

First, the economy needs more workers. Second, those workers need larger raises. And third, the tepid recovery needs more consumer spending.

A few million more workers will help with these problems, at least some. Not one of these issues will be changed dramatically by legalizing about two million workers, who are likely already employed, in a work force of around 156 million.

So let's look at these issues in more depth.

1. The economy needs more skilled workers.

It's not just you; America is getting old. And that is hampering how fast the economy can grow.

Morgan Stanley chief economist Vincent Reinhart says the aging workforce reduces the economy's natural growth rate by 0.5 percentage points a year -- that's a drop from 2.5% to 2%, or a 20% reduction in growth simply due to aging.

Immigrants, on the other hand, tend to be young and looking for work. The Federal Reserve figures that half of the decline in workforce is because Baby Boomers are retiring, and that's probably too low. (The percentage of adults working has dropped almost 4 percentage points, to 62.8%, in seven years.)  
 
Here's how legalizing immigrants will help some. About 65% of them work, according to the Migration Policy Institute, and 28% are out of the work force, while 7% are unemployed. A true immigration reform that opens up the U.S. to younger workers would be even better.

That's especially true for technology companies that need highly specialized workers, which is addressed by a part of Obama's plan. You can't spend much time in Silicon Valley without noticing how many Asians and Indians make the place go. A large number of them end up starting companies of their own.

A 2007 study by Stanford professors found that half of the Valley's startups were founded by immigrants, but Stanford researcher, Neesha Bapat, says that proportion has been dropping.

This plan should help reverse that.

It's hard to go wrong in admitting people who are so skilled. If one of them helps to start the next Facebook (FB) or Google (GOOG) , all the better. There's plenty of precedent for it, from Sun Microsystems (ORCL) to Pinterest. Sergey Brin, after all, was born in Moscow.

2. Workers need a raise. Immigration will help (some of) them to get it.

Studies show the 1986 immigration reform, signed into law by President Ronald Reagan, helped previously illegal workers get raises of about 6%. Libertarians at the Cato Institute argue that newly legalized immigrants will also be willing to invest more in training to boost their job skills.

A full legalization of all undocumented immigrants would add $700 billion to the economy over a decade, Cato says, citing a study by researchers at the University of California, Los Angeles.

The effect on overall wages would not be large, but it would make a difference, writes Adam Omizek of Moody's Analytics.

"States where the impact will be greatest include California, Texas, Florida, New York and Nevada, where undocumented workers make up 10.2% of the workforce," the Moody's Analytics economist writes.

"Wage gains for immigrants are unlikely to be large enough to noticeably affect aggregate wage measures, although some states may see small increases," he said.

3. More income means more spending.

It's obvious on some level that putting more money in more pockets will lead to more spending. This will prime the pump that is capitalism.

Consumer spending has risen at an annual rate of about 1.8% this year. It's clear that that figure could use some help.

As with wages, the impact of immigration reform on spending won't be huge. But especially at lower-end stores like Walmart (WMT) , it ought to be there. And since 63% of undocumented immigrants lack health insurance, the potential to help companies from UnitedHealth (UNH) to HCA (HCA) is pretty clear.

None of this addresses the arguments the President's critics have made about whether illegal immigration undermines the rule of law, or whether he has the authority to make the changes he has made without congressional approval.  Elections settle questions like those.

But Obama's actions will have the eventual effect of putting a little more money in American pockets.

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