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Trump's deportation plan will cause a ripple of various economical effects

1. Disruptions in the labor market

a. Many industries in America, specially agricultural, depend on the labor from immigrants. These positions may be difficult to fill with citizens.

2. Tax burdens

a. Illegal immigrants pay taxes, their deportation can lead to inflation and higher tax burdens on U.S. citizens

b.Other side, removing these immigrants could ease the affordable housing problem in the U.S., create additional employment and possibly push firms to raise wages

3. Externalities

a. Deportation plan will produce negative social externalities --> families teared apart creating emotional and mental burden for individuals (children left behind)

b.economic strain on families, communities and industry

4. Uncertainty and asymmetrical information

a. Deportation leads to uncertainty for employers --> leading to hesitancy in hiring or investing

b. Employers often lack clear details about when or how deportation policies will be enforced, leading to poor decisions about staffing and resource allocation.

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Context:

Undocumented immigrants are more likely to take lower-paying, more laborious jobs (ex. agricultural jobs, construction jobs)

Effects of Trump's policy:

Businesses that previously relied on undocumented immigrants will need to fill their jobs with legal Americans

Americans typically won't work those jobs for as low of pay as immigrants

Because of this, wage rates will be forced to increase to attract workers

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When these wage rates increase,

Production/supply costs for the business will increase

This causes the supply curve to shift left

Price of products will increase to compensate for the higher wages

Higher price--> lower demand

In this case, less corn sold could really hurt farmers and agricultural businesses (even causing them to shut down)

Demonstrates Trump's policy misconception of mass deportation opening up jobs for Americans/ improving economy

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Article Title: "Mass Deportation and Its Impact on Labor Markets"

Source: Foreign Policy

Overview: The article explores the economic consequences of mass deportation policies, highlighting their impact on industries like agriculture and construction. It discusses how these policies lead to labor shortages, increased costs for businesses, and higher prices for consumers. Additionally, the article examines the challenges caused by unpredictable deportation enforcement, which creates uncertainty for both businesses and workers.

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Market Failures

Industries such as agriculture where undocumented immigrants represent a lot of the workforce will suffer from the effects of deportation

There will be a labor shortage causing less/slower agricultural output, further increasing prices of food particularly because demand is inelastic for these goods

will lead to inflation

heavier reliance on imports

Unintended consequences

Social safety net program disruptions: U.S born children with undocumented immigrant parents will have a higher demand for programs, leading to higher taxes and a potential cut to other public goods

Supply Chain disruptions: Labor shortages will lead to a lack of productivity, shipping delays, and higher logistical costs

Information Imperfections:

Undocumented immigrants will be uncertain of their legal status in the U.S which may impact long term decisions about employment and their future

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Bracero Program

allowed temporary labor contracts for Mexican workers to address labor shortages during World War II

Economic outcome:

significant labor supply for agriculture and other industries

kept labor costs low for employees

suppressed wage growth for domestic workers

termination of the program led to labor shortages and increased use of machines in agriculture

Comparison to Current Situation

could create similar labor shortages

agriculture, construction, and hospitality, which rely heavily on immigrant labor

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Challenges/modifications to the standard equilibrium model

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Challenges/modifications to the standard equilibrium model

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With undocumented immigrants being removed from the labor market, higher wages will need to be incentivized.

Firms in labor intensive industries can use market power to raise wages, creating higher costs for customers

The idea of the perfect economy being represented in the standard equilibrium model is challenged

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Mass Deportation During the Great Depression

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Mass Deportation During the Great Depression

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Over 1 million people from Mexico were deported to free up jobs for Native born workers

Economic Outcome:

initial goals of freeing up jobs had limited success

industries that relied on their labor suffered productivity losses

Comparison to Current Situation

similar productivity losses and labor market distortions could occur

Unlike the 1930's, today's economy is more globalized and dependent on low cost labor

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Stakeholders: Undocumented workers face job loss and family separation, while U.S. citizens are unlikely to fill vacated roles due to skill and wage mismatches. Businesses in industries like agriculture and construction experience labor shortages, rising costs, and potential closures. Consumers bear the burden of increased production costs, leading to higher prices for essential goods. The government faces reduced tax revenues and greater reliance on social safety net programs, straining public resources.

Policy effectiveness: Mass deportation policies harm the economy by disrupting labor markets, reducing output, and creating inequities that disproportionately affect vulnerable groups. To address these issues, immigration policies should be reformed to stabilize labor markets and reduce disruptions. Strengthening worker protections can prevent exploitation, and creating legal pathways for undocumented workers will allow them to contribute to the economy. Additionally, steps should be taken to ease the strain on social safety nets and provide support for affected families.