How Trump's mass deportations could backfire on the American economy by shrinking paychecks

CNN

3 days ago

Immigration
Donald Trump
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President Donald Trump has promised to unleash an economic boom that will turbocharge growth, fatten paychecks and chip away at America's mountain of debt.
However, a new analysis from Trump's alma mater suggests that his immigration crackdown – a centerpiece of his second term – could do the exact opposite.
Trump's policy of mass deportations would shrink most worker paychecks, erode gross domestic product (GDP) and spike the already-massive federal government budget deficit, according to a Penn Wharton Budget Model analysis shared exclusively with CNN.
'There is no question the US economy will get smaller as you deport a lot of the workforce,' Kent Smetters, professor of business economics and public policy at the University of Pennsylvania's Wharton School, said in an interview. 'You simply have fewer bodies to produce. Fewer people means a smaller economy.'
During the 2024 campaign, Trump vowed to wage the biggest domestic deportation program in American history and eventually expel millions of people.
The Penn Wharton analysis found that a four-year policy in which 10% of the nation's unauthorized immigrants are removed per year would increase federal deficits by $350 billion, reduce GDP by 1% and dent the average worker's wages.
The higher deficits are driven by a combination of lost revenue and new spending required to make mass deportations possible – on top of the funding for border security, interior enforcement and deportations provided by the tax and spending cuts package Trump signed into law this month.
If the immigration crackdown spanned 10 years, the cost to the federal government would rise to $987 billion, GDP would shrink by 3.3% and wages would tumble by 1.7%, researchers found.
That's not to say all workers would be harmed by the mass deportations.
Penn Wharton concluded that authorized, lower-skilled workers – including US-born ones – would get a pay bump due to less competition.
Wages for those authorized, lower-skilled workers would jump by 5% by 2034, the analysis said. However, if deportations are reversed after four years, wages for authorized low-skilled workers would eventually drop.
'Part of the promise of deportation is that those left behind are supposed to be better off. In reality, it's a much more mixed result,' Smetters told CNN.
Penn Wharton found that the outcome for high-skilled workers is clearer: They'd be worse off.
That's because unauthorized, low-skilled workers complement higher-skilled workers, defined in the analysis as native-born citizens, permanent residents and visa-holding immigrants with at least some college education.
Higher-skilled workers 'are generally harmed by deportation more than authorized lower-skilled workers are helped,' the Penn Wharton analysis found, adding that higher-skilled workers have a bigger impact on paychecks and GDP and contribute more to taxes.
High-skilled workers would suffer a $2,764 loss in annual wages on average if the immigration crackdown spanned 10 years, Smetters said.
'If you're middle class to higher income, you're going to be hurt by deportation because you rely on lower-skilled workers to make your job easier and to make your life more comfortable,' Smetters said.
For instance, he pointed to office workers who are helped by lower-skilled employees who clean buildings, do security and help transport people.
Lower-skilled workers, at times unauthorized, play central roles in various industries, including construction, restaurants and manufacturing.
This is especially true in agriculture.
Between 2020 and 2022, about 39% of crop farmworkers were US citizens, while 19% were authorized immigrants. That means the rest – 42% – held no work authorization, according to the US Department of Agriculture.
'There are a lot of jobs in the US that native-born people don't want – and foreign-born people are happy to have,' said Stephanie Roth, chief economist at Wolfe Research.
The White House pushed back against the Penn Wharton findings.
'These sort of pedantic analyses miss the forest for the trees by not accounting for the immense costs that everyday Americans are forced to bear due to illegal immigration: violent crime, rising housing costs, eroding social trust and even the overbearing of emergency rooms,' White House spokesman Kush Desai said in a statement to CNN.
Desai pointed to research that finds more than one in ten young adults in the United States are neither employed, pursuing higher education nor in vocational training.
'There is no shortage of American minds and hands to grow our labor force,' Desai said, 'and President Trump's agenda to create jobs for American workers represents this administration's commitment to capitalizing on that untapped potential to build America's next Golden Age while delivering on our mandate to enforce our immigration laws.'
It's true that some young people are having trouble finding jobs.
The unemployment rate for those aged 20 to 24 stands at 8.2% as of June – more than twice as high as the national rate, according to the Bureau of Labor Statistics.
However, it's also true that America's aging population creates real challenges for the economy and businesses.
Economists fear that as Baby Boomers continue to retire, businesses will struggle to find workers, a problem that would be compounded by a loss of foreign-born workers.
Roth, the Wolfe Research economist, worries that mass deportations, along with the Trump administration's decision to terminate the legal status of hundreds of thousands of migrants, will cause some worker shortages and lift prices for consumers.
'We need immigration. Foreign-born workers are critical to the labor force – especially in this environment where the population is aging,' Roth said.
Joe Brusuelas, chief economist at RSM, said the Penn Wharton study 'illuminates just how critical rational immigration policy is to the wellbeing of the American economy.'
He said the United States needs comprehensive immigration reform that features cross-border migration to support the labor needs of manufacturing, construction, agriculture and household maintenance as well as leisure and hospitality.
The study 'strongly implies that the current path of immigration policy is not economically sustainable nor supportive of growth or narrowing budget deficits,' Brusuelas said.