In his first act since returning to the Oval Office this week, President Trump tasked federal agencies with developing ways to potentially lower prices for American consumers. But experts warn that his administration's crackdown on immigration could increase inflation as well as hurt many businesses by decimating the country's workforce.
“The reduction in labor supply means upward pressure on wages, which has implications for a variety of sectors, including inflation pressures, particularly for food prices,” Stephen Brown, deputy chief economist for North America at Capital Economics, told CBS MoneyWatch.
David Baer, director of immigration studies at the Cato Institute, a libertarian think tank, said labor shortages resulting from the Trump administration's effort to deport undocumented immigrants could reduce production of some products and services.
“Ultimately, the main way immigration affects inflation is that if jobs are left open and production cannot keep up with demand, it will drive up prices,” he said.
Which sectors are most dependent on immigrant workers?
according to Estimate From New York's nonpartisan Center for Migration Studies and other groups, about 8.3 million undocumented immigrants work in the US, or more than 5% of the country's workforce.
Undocumented immigrants make up about 20% of the agriculture industry's workforce, according to Capital Economics, which advises large investors, although that figure can be about half that for some specialty farms.
“This is the key area that comes up again and again,” Brown said, adding that harvesting delicate fruits is more labor-intensive than growing grain crops, for example. This means large-scale deportations could lead to higher fruit prices.
“The impact of inflation may affect food overall, but particularly fresh fruits, rather than the ingredients of more processed foods,” he said.
Construction companies, including businesses that focus on home renovation and landscaping, have the highest share of undocumented workers and may also face labor shortages if the government takes a crackdown.
“With respect to home improvement projects, those prices may become out of reach to the point that people feel they can't do it anymore. And the lack of supply will be a big issue there as well,” Brown said.
Restaurants and food service businesses, which employ large numbers of undocumented workers, may be at particular risk if deportations increase. Labor shortages will force such enterprises, including millions of small eateries across America, to raise their wages to attract new employees. But it would also increase menu prices, potentially driving away customers.
“They don't necessarily have the ability to raise wages, so those locations may close because they don't have the workers,” Brown said.
Julia Gelatt said, “Removing large numbers of immigrants would drastically reduce the labor force, which could lead to higher wages, but would likely lead to higher prices for food, building and repairing homes, hotel stays, and other things for which “Americans expect to see lower prices.” , Associate Director of the US Immigration Policy Program at the Migration Policy Institute.
This is because there are some jobs where even higher wages generally fail to attract US-born workers, such as farming. “Wages may not increase and instead we will see only a short-term reduction in the availability of workers to harvest crops,” he said.
Cato Institute's Baer says turning away undocumented workers could also have a profound impact on legally employed workers. For example, there are an estimated 2 million undocumented workers in the construction industry, but their bosses are mostly Americans.
“Many immigrants work jobs that support jobs held by Americans,” he said.
“The same is true in hospitality. Americans are more likely to be in management and supervisory roles, so if you pull out a bunch of workers you're supervising, there will be fewer jobs for those supervisors and you “We're going to see everybody level out,” Bear said. “The economic impacts are going to be much broader than people expect.”