Immigration reform key to growing U.S. economy, Dallas Fed CEO says in El Paso

El Paso Times (TX)

Oct. 03--Immigration reform is needed to grow the nation's economy in the future and invigorate an aging national workforce, the head of the Federal Reserve Bank of Dallas told El Paso community leaders at a luncheon.

"If you think you're going to cut the number of immigrants substantially and grow GDP (gross domestic product, or economic growth), those two things do not go together. We need to grow the workforce if we're going to grow GDP," Rob Kaplan, chief executive officer of the Dallas Fed told a packed Community Foundation Room in Downtown El Paso on Tuesday.

"While Texas is growing its workforce and population, the rest of the country is not," Kaplan said.

"The participation rate -- the percentage of 16- to 64-year-olds that are in the (nation's) labor force -- has declined since 2007, and we believe this is due to aging demographics."

Growing the workforce is a key to future economic growth, Kaplan said. That can be done by getting more blacks, Hispanics, women, and former prisoners back into the workforce, and by reforming federal immigration policies, he said.

Kaplan made his remarks during a question and answer session with Mary Kipp, El Paso Electric chief executive officer and a member of the Dallas Fed's board of directors. The session was part of a community luncheon held Oct. 2 by the Dallas Fed's El Paso branch.

'Skill-based' immigration system

The U.S. economy is expected to grow at about a 3 percent rate this year, but decrease to a growth rate of about 2.5 percent in 2019, and slow further in 2020, Kaplan said.

"We have been advocates, the Dallas Fed, ... to redo our immigration policies and have it be more skill-based and employer-based, much more like Canada," Kaplan said.

In a question and answer session with news reporters after his luncheon session, Kaplan said his immigration-growth stance is not counter to the Trump administration's immigration policies. Those are aimed at reducing undocumented immigrants and getting a merit-based immigration system.

It's likely "immigration (reform) will be at least part of the puzzle in terms of improving workforce growth," he said.

The Texas economy is outperforming the national economy, and is expected to continue to do so in large part because of the state's continued growing population, and growing workforce, Kaplan said.

Texas' population boom

Projections show the Texas population, now at 28 million, could grow to near 40 million in 16 to 24 years, he said.

El Paso has more of a challenge of benefiting from the state's population growth because El Paso has not been the destination that Austin, San Antonio, Houston, and Dallas have been, Kaplan said after his luncheon talk.

However, he said, a growing state population "can only have positive spillover effects to El Paso," he said.

Another key to growing both the United States and Texas economies in the future is to improve workers' education levels and job skills, he said. And that has to start with better education programs in children's early years, he said.

The United States has 46 million people with a high school education or less, he said.

"If you're one of the 46 million that don't (have a college diploma), your job is likely to get restructured or eventually eliminated. And unless you go get retrained, which is a lot easier to say and a lot harder to do, you're going to find another job in a strong job market, but you're going to see your income and productivity (go way down), and that's ... one reason productivity growth is sluggish," he said.

Fed interest rate increases

Kaplan said after his talk that he supports a small increase in the federal funds interest rate in December and possibly two more modest increases in 2019 until what he termed a "neutral stance" is reached with a rate around 2.5 to 2.75 percent.

The Fed last week raised the federal funds rate -- the rate banks charge each other for overnight loans -- by a quarter point to a range of 2 percent to 2.25 percent. That rate affects interest rates charged for credit cards, home mortgages, and other types of loans.

The Fed held the rate near zero for years after the Great Recession of 2007-09 and then has nudged it up gradually as the national economy has improved.

NAFTA replacement, USMCA

Kaplan also said that having the revised North American Free Trade Agreement, now called the United States-Mexico-Canada Agreement, or USMCA, completed takes away uncertainty that had "some chilliing effect on CEOs to spend on expansion."

On Sunday night, Canada agreed to join the United States and Mexico in a trade deal that will replace NAFTA, U.S. and Canadian officials said Sunday night. The last-minute deal would provide the U.S. with greater access to Canada's dairy market, an issue that had been considered vital for U.S. dairy manufacturers.

The agreement with Canada came about a month after the U.S. and Mexico announced that they had reached a new trade pact to replace NAFTA.

The agreement still has to be approved by the legislative bodies of the three countries.

Vic Kolenc may be reached at 546-6421; [email protected]; @vickolenc on Twitter.

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