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Dallas Fed publication explores immigration reform, low interest rates and outsourcing

For immediate release: December 16, 2003

DALLAS — The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy examines the importance of immigration and immigration policy before and after 9/11, the effects of low interest rates on financial institutions, and the economic implications of outsourcing service jobs overseas.

In “ U.S. Immigration and Economic Growth: Putting Policy on Hold, ” senior economist Pia Orrenius states that the considerable economic growth America experienced in the 1990s could not have been achieved without labor provided by immigration. In the late 1990s, immigrants filled four of every 10 job openings at a time when the unemployment rate hit record lows.

After the September 11 attacks, however, immigration reforms were put on the congressional back burner, and tighter entry restrictions have curtailed travel to the United States by foreign tourists, businesspeople, students and refugees.

“ In one tragic day, Sept. 11, 2001, the prevailing sentiment turned from pro-immigration and free trade to closing the border, ” Orrenius writes.

Immigration policy determines how effectively America competes for foreign workers and their socioeconomic progress once they arrive, according to Orrenius. “ Both aspects are important to future economic growth. Both also require these policies to be implemented, not just left to languish, ” she writes.

In “ How Low Interest Rates Impact Financial Institutions, ” Vice President and senior economist John Duca writes that although low short-term rates have hurt some financial firms, the stimulus provided by the cuts has benefited the overall economy and financial system.

“ By acting aggressively, the Fed has reduced, but not eliminated, the probability of further cuts in short-term rates and their impact on the financial system, ” Duca says.

Initial concerns that continued reductions in short-term rates could hamper money market mutual funds and bank profits and restrict the flow of funds available for residential and commercial financing have subsided since spring 2003 as bond yields rose.

The impact of lower short-term rates should not further impact money funds and banks as long as no further rate cuts are implemented. However, if additional reductions are needed, effects on large financial firms likely would have a limited net impact on the economy, since firms could shift from issuing commercial paper to bank loans or bonds, Duca states.

Senior economist and policy advisor Thomas Siems and co-author Adam Ratner write in “ Do What You Do Best, Outsource the Rest? ” that Americans ultimately benefit from lower costs, improved economic choices and better jobs as companies choose to export work to other countries.

The latest commodity to be outsourced is skilled white-collar work, such as computer-related tasks, accounting and finance, and legal services, according to the authors. India, which boasts a skilled workforce able to perform needed services at lower wages than American workers, has been the greatest beneficiary, receiving about 60 percent of those jobs.

However, “ attempting to protect these jobs would mean higher prices for consumers and the unrealized potential for more productive jobs in new industries, ” Siems and Ratner write.

As long as the United States can keep its competitive advantage in innovation, history suggests that many better, higher-paying jobs will be created in the future.

Find the November/December 2003 issue of Southwest Economy online at


Media contact:
James Hoard
Phone: (214) 922-5307