“Give me your tired, your poor, your huddled masses” wrote Emma Lazarus in dedication of the Statue of Liberty. It is a beautiful sentiment, noble if you subscribe to the altruist Judeo-Christian ethic. But its economic side-effects should not be ignored.
During the 1990’s, legal and illegal immigration ran at a level of about 1.25 million persons per annum, of which 800,000 were legal immigrants, 275,000 illegal immigrants and 175,000 refugees and asylum seekers. Thus total legal and illegal immigration in the 1990’s was about 12.5 million, or 5.2 percent of 1990’s population of 248 million.
This level is up from about 7.3 million in the 1980’s, and only 4.5 million in the 1970’s. It also exceeds the previous record decade, 8.8 million in the 1900’s, although that figure was fully 11.5 percent of 1900’s population.
The U.S. thus appears to have taken a decision in favor of a relatively high level of immigration, after forty years of restrictive immigration policy in 1924-65 and a gradual relaxation thereafter.
This has obvious implications in terms of a multicultural society, crowded roads and schools, and a steady stream of new Democrat voters (who, and whose families, become more Republican as they integrate into U.S. society, but only over a generation or so.) However, its economic implications are much less clear, partly because the new relaxation in immigration was in its infancy at the time of the last real recession in 1979-82.
In an economic boom, such as the United States has enjoyed since 1992, immigration has not been a problem. With about 2.2 million jobs per annum being created in the eight years to November 2000, immigration at 1.25 million annually contributed about 600,000-700,000 of the workforce necessary to fill these jobs, i.e. about a third. Therefore, in principle, an economic recovery can be expected to last about 50 percent longer with the current level of immigration before the labor constraint becomes effective. In view of the current recoveries record length of over nine years, it would appear that this is approximately what has happened, with the recovery’s survival from about 1997 onwards having been due to relatively high immigration, together of course with Alan Greenspan’s relaxed monetary policy which allowed the recovery to continue.
A longer economic expansion cycle appears at first sight to be an unalloyed good. To the extent that immigrant workers are less well paid than domestic workers, a longer economic expansion allows domestic workers to propel themselves up the pay scale, achieving a standard of living higher than they could otherwise expect. To the middle classes, personal services such as taxis, hair dressing, retail service and domestic service, which typically become hard to obtain and unsatisfactory at the top of the cycle, remain more obtainable, cheaper and of better quality than without high immigration.
However, what may be a benefit in an up-cycle becomes an unalloyed damage in a down-cycle.
In a down-cycle, such as we appear to be entering (which, as suggested in previous “Bear’s Lair” columns, may well be a prolonged one) jobs cease being created and are instead destroyed.
In this case, a pressure of 600,000 to 700,000 new job seekers each year becomes a drain on the employment market, adding about 0.5 percent in each recession year, cumulatively, to the unemployment figures. In addition, the extra job seekers exercise downward pressure on domestic wages, in particular against blue collar wages in high-wage industries, since immigrant manual skills are generally comparable with those of domestic workers. Hence, in a recession, immigration will exacerbate, not modify, the inevitable economic and social tensions in society. Longer expansions modified by deeper, more strife filled recessions may not be thought an attractive tradeoff.
In addition to the effects on the domestic workforce, the United States must consider the effects on the countries from which the immigrants come. Lee Kuan-yew hit the nail on the head; he remarked in his memoirs, reviewed here last week, that Singapore benefited greatly from the tightening of British immigration restrictions on Commonwealth citizens in the 1960’s, because Singapore’s graduates were prevented from joining the “brain drain” and were instead induced to contribute their talents to the Singaporean economy. Had the U.S. then been running its current relatively open immigration policy, Singapore’s economic success would have been correspondingly hampered.
As Lee indicated, emigration of skilled personnel produces a negative effect on the donor economy that is at least equivalent to the positive effect on the U.S. economy. However, if a skilled German, for example, immigrates to the United States, he will only do so for a job closely equivalent to what he could have obtained at home. The effect on the German economy will be limited and the effect on the world economy, if his skills are better remunerated, may be marginally positive. Even a skilled emigrant from a high-wage country such as Germany however leaves behind him a network of personal connections, social knowledge and domestic “know-how” which form an important part of his potential lifetime career skills. Thus, in general, an emigrant even from a high wage country will be less “successful” in the United States than he would have been at home, though his lifetime earnings, particularly his after-tax earnings, may be higher.
The negative economic effects of emigration are clearly greatest in poor countries, where the incentives to leave are greatest and the pool of skills smallest. For a skilled citizen of a poor country, domestic career opportunities and potential remuneration may well be limited, unless he is closely connected to the local political elite. Hence such a person will be tempted to immigrate to the United States even when the only job available in the U.S. falls far short of fitting his talents and capacity — the Bosnian doctor will be happy to work as a U.S. janitor. In such a case, the emigrant’s departure will leave a serious gap in his home country’s pool of skilled graduates, while his arrival in the United States will merely add to the pressure on the U.S.’s low skilled workforce. Gross World Product will be correspondingly reduced, with a particular adverse effect on the emigrant’s country of origin.
By making it easy and attractive for high-skilled foreign labor to enter the United States, the U.S. is damaging Third world economies, and reducing economic activity in the world as a whole. In this case, high immigration is not simply a bad tradeoff, it is bad policy.
The solution is very clear. From the United States domestic point of view, the optimal policy is probably a restrictive one, similar to that of 1924-65, in which immigration was permitted only from those countries which were represented in the U.S. population in 1890, in proportion to such representation. That policy was replaced because of its unacceptably racist nature. However, a similar policy, which discriminated between countries of origin not on the basis of race, nor on the basis of existing numbers, but on the basis of the GDP per capita of the immigrant’s home country, could certainly be accused of being mercenary and snobbish, but not of being racist.
Under such a policy, immigration would be relatively unrestricted for inhabitants of rich countries, who could be expected to come only if they had a genuinely better job opportunity in the United States or a strong affinity with U.S. culture (we could expect to see, for example, many immigrants from EU countries who objected to socialism, or from Japan who objected to conformity.) Immigration from countries with standards of living much below that of the United States would be very restricted, perhaps immediate family only, with a very small quota for refugees or those with special skills. The division between rich and poor countries would best be by means of a sliding scale, and could perhaps reflect the “graduation” policies of the IMF and World Bank. In this way, countries could be “graduated” to higher levels by a process independent of the U.S. government, and would gain more favorable immigration status at the same time as they lost concessionary trade and finance rights.
The high U.S. level of immigration is not currently a “hot” issue except in rabidly political circles. In the oncoming recession, it is likely to become one, because of its effect on domestic unemployment — there is likely to be a strong “send them home” movement, focused particularly on low-skill immigrants, who drive down blue-collar wages and increase blue-collar unemployment. It is however, the influx of highly skilled immigrants from poor countries which is most damaging to the world economy, in particular to the immigrants’ countries of origin. A United States which takes an enlightened view of its role in the world will sharply restrict such immigration, and encourage high-skilled immigration only from countries of comparable economic attainment to itself.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
This article originally appeared on United Press International.