Oil's the Reason the Illegal Immigrant Population is Declining

In the last several years, the Immigration and Naturalization Service (INS) has been granting legal status to many more people than the US Census Bureau estimates are entering the country.  How could this be?

At any given time, there is a population of undocumented immigrants in the country.  Over a period of years, a good portion of these will work their way through the immigration system and gain a residency permit.  Thus, the illegal immigrant population is growing by the number of new undocumented immigrants per year, and declining by the number of undocumented persons gaining residency permits.

In boom times, for example during the 1990s, illegals enter the country in large numbers to capitalize on job opportunities.  INS and US residency requirements mean that these entrants take some time to process, either due to INS bureaucracy or residency requirements.  Thus, the population of illegals swells in times of strong economic growth.

By contrast, in a recessionary environment, illegal workers are affected as much as anyone else.  There is less work, and therefore less incentive to enter the country illegally.  At the same time, those already in the country will tend to stay and gradually be granted residency status.  Whereas illegal immigration outpaces residency permits during boom times, more permits are granted than illegals enter during downturns.  And that’s the situation which has prevailed since 2005.

Once again, 2005 is fingered in an economic downturn of some sort.  The economist John Fernald of the Federal Reserve Bank in San Francisco recently noted 2005 as the year which US productivity growth first deviated from trend.  And another thing happened in 2005.  The oil supply stalled out, and US oil consumption plateaued with resulting high oil prices. 

It’s not the first time that the illegal immigration population declined in the US.  The last time it did so: the Second Oil Shock of 1979.  Then, as now, residency permitting outpaced illegal immigration.  And this continued until well after that oil shock ended in 1985, with the net illegal population beginning to grow again only after 1991.


Source: US INS, US Census, PEW Research

If we follow this logic, the net illegal population will not begin to grow again, in all likelihood, until after 2020—if at all.  In the meanwhile, if PEW Research’s estimate of 11.7 million undocumented aliens in 2012 is right (but which I think more likely reflects 2011 numbers), then the undocumented population most probably peaked in 2005 in excess of 13 million, and in 2014 will fall to 10.8 million, 17% below its peak value.  Given the current pace at which residency permits are granted, together with the US Census Bureau’s estimates for future immigration, the undocumented population will fall by another 1.4 million to 2020.

This is not to say that formerly undocumented immigrants have left the country.  Far from it.  They have officially become Americans, for better or worse.  But illegal they are no longer.

For those who see the US in some sort of terminal decline, whether from ‘secular stagnation’ or demographic effects, they should keep in mind that we have been here before, in the wake of the last major oil shock.  It’s not zero interest rate boundaries, nor hysteresis.  It’s oil, as it was before, and still is today.