Gauging the Benefits Immigrants Bring to Receiving Countries
Liberal Western societies have without a doubt become much more plural and diverse over the past few decades. But this pluralism has been shaken by several factors, not least of which have been rising inequality over the past two decades and the massive economic downturn in the wake of the 2008-09 financial crisis.
In the US, immigrants – and in particular Mexicans – have increasingly become the classic scapegoat for politicians to lay blame on for the country’s social and economic ills. Across the Atlantic the situation is hardly better. A political class already wary of immigrants has become ever warier with the massive influx of Middle Eastern refugees fleeing a regional conflagration.
As a result, the long-standing debate on the impact of international migration on host countries has been reignited, whether it’s with respect to wages and the employment levels of native workers or economic growth and the social climate.
The overlooked drawbacks
Given this, France Stratégie invited Harvard University professor George Borjas, a labour economist, to explore the issues surrounding immigration in the 21st century.
Borjas stressed at the outset that there is a wide consensus among social scientists that immigration is good for all of society. However, this viewpoint tends to leave out inconvenient facts, he asserted.
He pointed to what would happen if the world were to adopt a policy of open borders. Mass migration from the impoverished South to the advanced North would cause wages to rise in the former and fall in the latter. This, he said, is an example of a detail that is left out by immigration advocates.
In reality, he stated, there would indeed be a lot of winners, but at the same time many people would lose out with open borders. This is because immigrants are people and not “robotic workers” as many social scientists see them, he claimed. The implication being there are negative externalities, i.e. unintended consequences.
To illustrate the negative impact immigrants can have on the economy, Borjas referred to American economist Paul Samuelson, who, writing in 1964, noted that the US’ severe restriction of immigration after WWI helped keep wages high. Borjas specified that these restrictions were largely lifted as of 1965.
A Cuban refugee himself, Borjas cited the 1980 Mariel boatlift, when Fidel Castro allowed Cubans who wished to leave the country to do so, as an example of immigrants depressing wages and indirectly contributing to increasing inequality. Some 125 000 exiles went to Miami during the boatlift, where they settled. The effect of this influx on the wages of all non-Cuban high school dropouts was analyzed at the time and shown to be next to nil. However, Borjas has revisited the data, looking at the effect on male non-Hispanic high school dropouts exclusively. He showed that in fact the Marielito arrivals brought down wages substantially for this particular cohort.
Beyond the impact of immigrants on wages, Borjas also looked at the wages of immigrants themselves, showing how their economic integration has become more difficult in recent decades. Starting in the 1980s newcomers’ wages increased much more slowly than was the case with immigrants in previous decades.
For example, arrivals in the late 1950s saw their wages increase close to 15% over about ten years, whereas those who arrived three decades later saw their wages rise only about 5% over the same time period. Immigrants who arrived in the late 90s enjoyed no increase whatsoever over a ten-year period.
Borjas went on to poke holes in the popular perception of the US melting pot taking in Europe’s tired and “huddled masses yearning to breathe free”, showing how it has not been as successful as is commonly thought outside the country. According to a recent study, the immigrant-native occupational gaps often took time to be overcome and sometimes even persisted across generations. One explanation for this is that when there is mass migration, as in the US in the early 20th century, newcomers tend to live in ethnic enclaves, which hinders their integration in their new country.
The broader picture
Hillel Rapoport, professor of economics at the Paris School of Economics, reacted to Borjas’ presentation, putting it in a wider perspective. First off, he pointed out that the law of supply and demand applies to the effect of new arrivals on natives’ wages only if native and immigrant workers are perfect substitutes. The negative effects are often illustrated by zeroing in on highly specific subsets of workers. In fact, many studies suggest that newcomers may complement the skills of native workers.
What’s more, Rapoport mentioned that in many Western countries immigrants are on average more skilled than the native population. In addition, immigration’s impact on the labour market depends to a large degree on the institutional context, e.g. minimum wage and labour laws.
Regarding externalities, Rapoport was quick to point out that over the long run immigrants’ positive externalities outweigh their negative externalities. They contribute to productivity growth through their complementary knowledge and skills (he cited a paper he co-authored on diversity and its benefits in particular in terms of skills).
They also boost innovation and entrepreneurship, expand the set of goods consumed and produced and increase global connections that favour trade and foreign direct investment (FDI). To back this claim up he referred to a recent study (Kerr and Kerr, 2016) that shows that while immigrants make up 13% of the US population, they account for 26% of its entrepreneurs. What’s more, 36% of new US firms have at least one immigrant as a founder.
Global connections are also a key benefit immigrants bring to a country. Case studies have shown that the elasticity of trade to migration is about 10%. What this means is if an immigrant cohort is doubled, exports to their home country will increase by about one-tenth. On top of this, immigrants reduce transaction costs and information asymmetries, creating new investment opportunities.
At the same time, host-country values, preferences and behavior are transferred back to the home country, leading to things like more democracy and lower pregnancy rates, for example.
Rapoport quoted Harvard professor and noted political scientist Robert Putnam, who stressed that while immigration and ethnic diversity tend to reduce social solidarity and social capital in the short run, in the long term it brings important cultural, economic, fiscal and developmental benefits. On the whole, receiving countries stand to gain from a more skilled and diverse immigration.