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Thursday, 24 September 2015 09:24

Why More Immigration, Not Less, Is Key to U.S. Economic Growth

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For those in favor of immigration reform, it might have been a relief that the presidential candidates spent more time describing how workers overseas are stealing American jobs than they did accusing foreign workers of stealing jobs right here in the U.S.A. But the status quo on immigration apparently supported by the candidates isn’t nearly good enough.

Beyond the huge importance of immigrants to the U.S. economy today, three forces are making immigration reform more urgent: growing crackdowns on undocumented workers at the state level, which are already hurting farming and are likely to spread to other sectors, including construction; the aging of populations in the U.S. and Europe; and increasing opportunities in the developing world, which are luring home skilled immigrants the U.S. needs most.

High-tech industries probably have the most to gain from action on immigration. Carl Lin of Rutgers University looked at the impact on tech stock prices of a doubling of H-1B visas for skilled foreign workers in the U.S., thanks to the 1998 American Competitiveness and Workforce Improvement Act. High-tech industries absorb around 80 percent of H-1B visa applicants. Lin estimates that in the month after the act passed, companies in those industries enjoyed 15 percent and higher cumulative excess returns—a measure of the impact of news on stock prices.

More broadly, a Kauffman Foundation study by researcher Vivek Wadhwa suggested that in 2006, foreign nationals residing in the U.S. were named as inventors or co-inventors of one-quarter of all patent applications filed from the U.S. Wadhwa’s study of foreign-born entrepreneurs found that one-quarter of science and technology companies founded from 1995 to 2005 had a foreign-born lead technologist or chief economist. These businesses employed 450,000 workers.

But it is not just at the level of entrepreneurs and inventors that immigration is playing an increasingly vital role in sustaining Americans’ quality of life. Patricia Cortes and Jessica Pan of Boston University and the National University of Singapore report (PDF) that foreign-educated nurses now account for 20 percent or more of all those taking the U.S. licensure exam—up from 6 percent in the mid-1980s. The considerable proportion of those nurses who were educated in the Philippines ended up earning 4 percent more than the average nursing wage in 2010, and Cortes and Pan suggest the reason for the premium is "quality differences." One more reason Americans should get serious about immigration: When they get sick, they probably want to get treated by a Filipino nurse.

At the low-education end of the scale, according to a 2011 Brookings Institution analysis of immigrant skills and employment in the U.S., low-skilled immigrants in the country had a higher level of employment and a lower rate of household poverty than native low-skilled populations, despite the fact that employed immigrants earned $5,000 less than employed natives.

As the baby boom generation retires, the need for immigrant labor to sustain rich world lifestyles will climb higher. That problem used to look less serious in the U.S. than it did in Europe because, with a historical fertility rate near 2.1 compared with well below 2.0 in Europe, America’s demographic transition looked to be less dramatic. But since the financial crisis, U.S. fertility has also dropped below two children born per woman. Analysis by Moshe Hazan and Hosny Zoabi at Jerusalem’s Hebrew University finds that an important reason for historically large families in the U.S. was cheap child care, much of it provided by undocumented workers. If low-skilled migration stops, the fertility rate could remain permanently depressed, in which case the long-term "crisis" in entitlement programs, from Medicare to Social Security, that rely on a good ratio of workers to retirees will become an urgent problem.

By 2030, nearly 70 percent of Latinos who came to the U.S. during the 1990s are expected to own a home, according to John Pitkin, Julie Park, and Dowell Myers from the University of Southern California. That’s good news, the researchers point out, because the 78 million-strong baby-boom generation in the U.S. will be looking to downsize as their children leave home. Workers from Latin America were central to building the boomer housing stock, and they’ll be central to ensure it is still worth something in 20 years.

Yet despite the growing importance of migrants to the U.S. economy, Vivek Wadhawa reports in a recent update to his Kaufmann study, called "The Immigrant Exodus," that an unprecedented number of Indian and Chinese students being educated in the U.S. intend to go home rather than try to stay in the U.S. to work. The proportion of high-tech startups founded by Chinese and Indian immigrants in Silicon Valley dropped from 52 percent in 2005 to 44 percent this year. Even the size of the illegal immigrant population has been declining since 2007, by about 200,000 a year, according to the Pew Hispanic Center.

Bloomberg View

Kenny is a senior fellow at the Center for Global Development and author of The Upside of Down: Why the Rise of the Rest is Great for the West.

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