In his State of the Union address in February, President Obama outlined a number of initiatives for his second term, including comprehensive immigration reform. The immigration issue has received little beyond lip service in Washington in recent years. But for the first time in a generation, there seems to be political will on both sides of the aisle to pass new immigration legislation.

While this issue is generally framed as a political or cultural one, it holds important fiscal consequences for investors and the corporations in which they are shareholders.

Economics 101

As anyone who has taken an introductory economics class knows, revenue -- at its most basic level -- is the product of price multiplied by quantity. In order to increase sales, a business can either raise prices or sell more product. In order to sell more product, the business must either find new customers, or sell greater quantities to existing customers.

Since consumer demand is the most important driver of the U.S. economy, this equation is essentially the same with respect to the economy as a whole.

Gross domestic product, though flawed, is the best measure we have of economic growth. It measures the value of all goods and services produced in the country during a given time period. Since Real GDP ignores inflation or the effect of prices going up, the only way to increase GDP is for more goods and services to be consumed.

Growing the population, therefore, is one of the best ways to ensure continued economic growth.

The Baby Bomb

As with revenue, there are two ways to grow the population: Increase the birth rate or increase immigration. Unlike in many of the world's developed countries, the birth rate in the U.S. has been high enough to support steady population growth during our recent history.

From 1950 to 2010, the U.S. population grew at an annualized rate of 1.2 percent. However, that rate has slowed recently, and population growth during this decade is on pace for the slowest increase since the Great Depression. In 2012, the population grew by just 0.73 percent, and the birth rate dropped to its lowest level since 1920.

Much of the blame lies with the financial crisis and the Great Recession, but it's important to remember that the decline in population growth can have long-term economic consequences.

The precipice Japan is heading toward offers an example of the potentially catastrophic effects of population decline. That nation is aging faster than any in the world, and the expensive burden of caring for a disproportionately elderly population is only going to grow heavier. On top of that, Japan also officially bans unskilled foreign labor, which has only made its demographic problem worse.

The Immigration Fix

When it comes to the economic impact of immigration, critics often accuse illegal immigrants of "taking" jobs from Americans, but there is no finite limit on jobs in this country.

Allowing immigrants into the country creates new consumers, which increases demand and leads to job growth. They spend money at Dow heavyweights like Walmart (WMT), McDonald's (MCD), and Home Depot (HD), buy cars, pay rent and utilities, and support countless other businesses.

Reforming immigration would also help the economy at the market level. Profit growth is valued above all else in the stock market, and as noted before, companies must either increase prices or volume in order to boost their dollar sales, the main driver of profit growth. A company can only increase prices so much without cutting into demand, so growing volume is the preferred means of increasing profits.

Less controversial but just as important for the economy is allowing international students to stay here and work after they graduate. Giving those students the opportunity to stay here and work would make it easier for U.S. companies to fill job openings in growth-driving fields like science and engineering and further encourage entrepreneurship within our borders, making it more likely that the next Google (GOOG) or Facebook (FB) will start in the U.S.

Growing the population has never been a stated goal of U.S. policy, but it should be an implicit aim. Reforming our immigration system to encourage healthy population growth fills voids in the job market, which in turn fuels growth among existing businesses. And that opens up opportunities for new businesses to be created.

In short, it rewards all stakeholders in the economy.

Motley Fool contributing writer Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, Home Depot, and McDonald's. The Motley Fool owns shares of Facebook, Google, and McDonald's. Try any of our newsletter services free for 30 days.

Photo Credit: Sarah L. Voisin/The Washington Post via Getty Images

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Jeremy, I'm game, lets just have unrestricted immigration for 5 years, and our fiscal problems will be solved. All those extra sales of milk, cigs, cars, insurance (ha). However, lets not deduct all the costs. Educating the youngsters, all that free medical care, more cops, more prisons, more welfare, AIDC, Section 8 housing, and the other 800 welfare programs, forget all that social security we will have to pay the 61 year olds who come in this year,,and the medicare.. All in all, Jeremy,,,that is the most moronic article I have ever read.

March 06 2013 at 4:14 PM Report abuse +1 rate up rate down Reply
David John Francis

You cannot just construct the initial double or triple layer fence as determined under the 2006 Secure Fence Act signed into law by former President Bush. Because it is assumed that somewhere between 40 to 46 percent of people on business trips, visitors and on educational visas overstays don’t return to their home country. As efficient as the 2006 secure fence act would be, some new concept should be used to track overstays. In other countries including Mexico they know whether you have left, once the dated visa runs out. But we only have to study Immigration policies here, to recognize how lapse they are; intentionally voted that way or not? Entering another foreign nation such as Mexico is a Felony, but not here? For first time offenders it’s a loose rap on the hand and deportation and that’s if you can catch them at the border?

Entering this sovereign country without permission is a simple civil infraction; nothing to deter anybody there? It just encourages more to pour in, which is what big businesses demand. From the 1986 Immigration Reform and Control (IRCA) that was one monolithic travesty, because the laws in place were never enforced. In the last few weeks President Obama and his incredulous Liberal Socialist have found the “Sequester” a good excuse to release unknown numbers of illegal aliens back in the American job market. I assume that entities like the United States Chamber of Commerce, Unions and corporate cash have much to do with dismissing these people into the streets as cheap labor. I firmly deem now that Americans placing trust in decades of the prior elected tenant/lawmakers present and future faces with the majority swearing false oaths to the people, indifferent to the concerns of the people, filling their pockets with special interest favors.

March 06 2013 at 1:49 PM Report abuse rate up rate down Reply