Long-run effects of restrictive immigration policy on aggregate supply and demand

Aggregate supply and demand model: The long-Run effect of a less open immigration policy

The real wage rate

A 'closed door' immigration policy will result in fewer individuals competing for jobs and thus drive up the price of labor. It will also likely limit the number of lower-wage workers in America as a whole. This is not simply true of minimum wage jobs, but also jobs within other sectors where workers from the developing world with marketable skills might find better wages in the United States than they would in their home countries. Foreign and recently naturalized workers as a whole, many feel, "compete unfairly in terms of the compensation that they are willing to accept" compared with citizens who have resided in America for longer periods of time (AEWR 2007, Congressional Research Service).

The level of employment

Reduced numbers of available workers will result in a lower rate of unemployment for U.S. workers, based upon the principles of supply and demand.

The rate of inflation

Higher wages overall will result in higher prices, as employers must raise prices to make up for the reduced availability of low-cost labor.

Economic growth

Reduced immigration will yield higher costs of production (higher wage rates) and fewer individuals demanding goods and services, and thus reduce the overall rate of growth.

From a short-run perspective, it would seem to be in the interest of the 'average' American worker to support limits upon immigration, given this will raise his or her level of wages and improve his or her employment prospects. On the other hand, America has always been a nation of immigrants, many of whom have created new businesses and infused the nation with new ideas. Increased immigration can thus generate greater long-term productivity, growth, and expanded opportunities for all individuals, regardless of where they were born.