New Immigration Research Examines The Demand Side Of The Economy

Consumer spending drives the U.S. economy. However, new research finds ICE enforcement activity can shrink that spending.

UPENN Wharton economics professor Zeke Hernandez used data on over 5,000 ICE raids and combined them with 5.4 million data points (POIs, or points of interest) on foot traffic and spending. “Foot traffic falls 2.7% and spending declines 6.2% per POI per week—or 8.1 billion fewer visits and $3-14 billion in foregone spending in a single year,” according to the study.

Hernandez found that the impact of the ICE arrests was long-lasting and not confined to one demographic group. “Effects intensify near raid sites, do not dissipate over time and are remarkably general: declines occur regardless of neighborhood demography, affect workplaces and consumer-facing stores across myriad industries, and trigger no substitution to online shopping. The breadth of the local economic damage mirrors the breadth of the enforcement approach.”

The study’s significance lies in examining the demand side of the economy rather than focusing solely on labor-market impacts. All Americans and residents of the United States are consumers, and their spending satisfies their needs and wants while also generating economic activity that spurs jobs, investment and economic dynamism. To the extent that government policies interfere with consumer spending, they make Americans poorer and weaken the U.S. economy.

“The economic damage done to local communities by this administration’s approach to immigration enforcement is widespread, indiscriminate, and persistent,” said Hernandez in an interview. “It affects the demand side (spending) and the supply side (workers showing up), it harms everyone regardless of birthplace or ethnicity, and it hurts businesses across a wide range of sectors. And this isn’t a one-off event that dissipates after a few days or weeks—the shocks to workplaces and retailers aren’t going away.”

Immigration Research Findings Contradict Administration Predictions

The research findings contradict administration officials, such as White House Deputy Chief of Staff Stephen Miller, who have promoted the “lump of labor” fallacy approach to immigration policy, i.e., the assumption that if the U.S. government removes immigrants from the workforce, it will mean more jobs and better economic outcomes for U.S. workers and Americans.

“When you remove or scare a significant number of people from participating in the economy, you kick off a downward spiral,” said Hernandez. “Many are afraid to go out and shop. Many others are also afraid to show up to work, so they make less money and thus have less to spend. That one-two punch further means that businesses have to cut back on hiring or shut down altogether. Which means more business contraction and fewer jobs for everyone—including U.S.-born workers. That’s the economy of fear.”

The results indicate that the “welfare calculus of interior immigration enforcement extends well beyond its direct fiscal and humanitarian costs.” According to the study, “Targeted metropolitan areas absorb billions of dollars in lost business activity that falls on workers, customers and business owners regardless of their immigration status or political alignment. A legitimate national debate over the appropriate scope of enforcement should weigh these spillovers explicitly, particularly because they concentrate in local economies that disproportionately depend on small, independent businesses with limited capacity to absorb sustained demand or supply shocks.” Federal enforcement policies can also erode the tax bases of state and local governments, the research notes.

Economists Chloe N. East and Elizabeth Cox at the University of Colorado Boulder also examined the impact of immigration enforcement in a recent National Bureau of Economic Research paper. According to their study, “There is a negative and significant impact on employment of U.S.-born male workers with at most a high-school education, who work in likely affected sectors.” This aligns with models suggesting undocumented immigrants and U.S.-born workers are complements, not substitutes, in the labor market.

East and Cox saw no evidence that employers increase wages to attract U.S.-born workers to fill jobs affected by increased immigration enforcement. They found that companies hire fewer workers overall when they cannot find immigrant workers, and employers stop offering positions in specialized occupations typically filled by U.S.-born workers, such as electricians.

The Bureau of Labor Statistics reported in February 2026 a decline of 1,008,000 foreign-born workers since a peak in March 2025, according to a National Foundation for American Policy analysis. “There is no evidence that U.S.-born workers have benefited from the decline in the number of foreign-born workers,” NFAP notes. “The unemployment rate for U.S.-born workers was 4.7% in February 2026 compared to 4.4% in February 2025.”

Hernandez points out that the issue goes well beyond jobs and that the demand side of the economy is damaged by immigration policy that focuses on arresting large numbers of people to achieve quotas rather than concentrating on people with criminal convictions. “I would ask federal policymakers this question: As Congress considers giving another $70 billion to ICE, is this really the purpose for which you are funding immigration enforcement agencies?” said Hernandez. “We can all agree that enforcement is playing its intended role when people who are hurting communities, like those with actual criminal records, are removed. But if we direct billions of dollars to activities that hurt local economies widely and permanently, you aren’t just wasting money. You are spending to cause direct economic harm.”