Penn Wharton Budget Model on the Economic Cost of Mass Deportation | YouTube Summarizer

Category: Economics

Tags: deportation economy GDP labor policy

Entities: Dian Looney Kent SMEs Pen Wharton budget model United States

Summary

Economic Impact of Deportation

Deportation generally reduces GDP due to a decrease in the workforce.
High-skilled workers rely on lower-skilled workers as complements, not substitutes.
Mass deportation could lead to higher wages for some low-skilled workers but harm high-skilled workers.

Production and Labor Dynamics

Traditional economic models viewed labor as interchangeable, but modern models recognize different skill sets.
Lower-skilled workers enhance the productivity and wages of higher-skilled workers.

Policy Implications

A 10-year deportation policy could shrink the economy by several percent.
The loss of workers affects capital and economic scale, impacting public goods and global influence.

Takeaways

Deportation impacts GDP and wages differently for high and low-skilled workers.
Lower-skilled workers play a critical complementary role in the economy.
Mass deportation policies could shrink the economy and reduce global influence.
Economic integration within the U.S. is crucial for maintaining wages and productivity.
Reevaluating labor dynamics can inform better immigration and economic policies.

Transcript

00:00

It has long been discussed the impact that deportation, including mass deportation, can have on the economy of a country, especially its GDP. But new research from the Pen Wharton budget model takes a deeper dive into some other impacts kind of on the fringes of

00:16

that uh element of the economy, such as how it might also impact something like the wages of high-skilled workers. Pleasure to be joined here in studio by Kent SMEs, who is faculty director of the Pen Wharton budget model.

Kent, great to see you again. Thank you.

Good to be back. Yeah,

00:31

thank you. What's interesting is the topic or that connection between uh deportation and GDP impact is something that's talked about a lot.

This paper kind of, as I said, goes around the fringes and looks at some of these other

00:47

areas. Take us into why that's important.

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 just a pure scale effect.

uh countries smaller, they're going to have less production. Um if you ask the average

01:05

person, especially nativeborn worker or authorized worker in the United States though, they're not so worried about GDP. It's like what's the impact on them, their wages, and so it's really more per capita is what is more

01:21

important here for this discussion. And it the fact of the matter is uh a lot of the deported uh workers um first of all if it does happen it's going to be quite costly much more costly than was uh in terms of the budget that was already

01:37

allocated in the recent reconciliation bill to pull it off. But if even if it did happen, um a lot of uh these lower skill workers, they're not substitutes uh for uh nativeorn workers, especially higher skill, which is basically 63% of

01:55

of the working age population. Um they are more compliments.

They're doing things that actually enhance the wages of higher skill workers. So we're not talking about just tech workers, just you own a business, you have workers.

You own a machine shop, you have

02:10

workers. You own a farm, you have workers.

So, we're not talking about, you know, the billionaires getting rich here. We're just talking about the basically what you and I would normally describe as middle class households who really do depend on the services of of these workers.

02:26

So, that element of how highkilled, high wage workers are impacted, take us a little deeper into that because that's something you kind of alluded to, not discussed about as much. That's right.

And in particular, the way uh there's a general consensus in economics of how we would model this is

02:43

that when we think about the production in the economy, um the really kind of old school way before we start thinking about what's called heterogeneous workers, different skill sets, is that everybody just kind of enters this production function with their labor.

02:58

And so suppose that you're three times more productive than me. Well, it would say therefore three of me could replace you.

We are still substitutes. You just happen to be three of me.

Um, a more modern way that's much more backed by data says if you're high skill and I'm

03:15

low skill, then it's not that three of me can replace you rather that if I go um your wages are going to go down simply because you are the person who owns that machine shop and you need me for for production. So these low lower

03:31

skill workers, we're talking about 11 12 million. Um some people say it's a little bit higher than that.

Uh it they they really do perform this kind of critical function that is wage enhancing for kind of basically anybody at middle class and higher. Uh usually they're more that that level is a compliment,

03:48

not a not a substitute. But if you have a a a significant level of deportation for people who are mostly in that low wage category, even I would think some of those low-wage jobs would be potentially impacted moving for farther down the

04:04

road in terms of do you have to pay now those people more? That's right.

To be able to fill those jobs. That's right.

And so uh there's no question so what we do is we look at what's called a four-year deportation policy. We don't say this explicitly but essentially suppose that you know this

04:22

deportation policy ends with this administration then things start to revert back. Um what happens there then we look at a 10-year deportation policy where at the end end of 10 years uh everybody essentially hypothetically all the unauthorized workers are gone and um

04:39

because very few people think we can do it faster than them but um and those have different impacts on lower skill uh workers. If you actually are doing a permanent deportation, yes, 63% of the population, the higher skill workers, they're going to be worse off.

But it's

04:54

actually true some of the lower skill workers are going to be better off because even though nativeorn and authorized workers in the United States are not perfect substitutes, even at lower skill with the low lowkilled deported workers, they are much more substitutes uh than they are

05:10

compliments. So, it's not maybe perfect substitutes, but they still are more substitutes than complent relative to high skill workers.

So, some of those could be better off. And we calculate under our deport uh permanent policy um their wages could actually go up by by about 5%.

Um under the four-year policy

05:28

though, they're actually harmed. And the reason why is because things eventually reverse.

Um but meanwhile, we've lost a lot of capital in the economy and so forth. So, ultimately, um their situation's not better off.

And so that 10-year window in terms of looking at