Image: Elias Castillo via Unsplash
The recent economic slump and surging unemployment haven’t changed the widely held belief that long-term growth and prosperity will be driven by innovations and supported by domestic consumption. The resulting global competition for talented workers amidst worsening demographic indicators across the global North creates the need for pragmatic policies aimed at attracting skilled immigrants.
The United States is still the OECD’s leading destination country, receiving about 20 percent of the global immigrant inflow. But the numbers fell to their lowest level this decade under the Trump administration, which has been known for its controversial and sometimes hostile policies towards immigrants.
Starting with derogatory comments about Mexicans and an executive order halting immigration from seven Middle Eastern countries, President Trump recently signed an executive order to stop issuing green cards and another one suspending guest worker visas, like the H-1B.
These decisions might have appealed to Trump’s electorate, but not to the American economy.
The last move was instantly labelled as “damaging” by Twitter and was criticized by other corporate giants, including Amazon, Apple, Tesla, Google and Microsoft, who overwhelmingly rely on foreign talents.
Although immigrants make up less than 15 percent of the U.S. population, they account for more than 25 percent of U.S. venture capitalists and over 30 percent of the founders of U.S. startups.
Aaron Levie, CEO of the Box cloud computing company, perfectly summed up what’s at stake by Tweeting: “When you restrict immigration, the jobs still get created, just somewhere else. And later down the road, when those individuals create the next Google, it won’t be here.”
But while the U.S. may change course on immigration following the presidential election in November, the long-term economic impact of Trump’s policies might already be hard to roll back.
In June, the Brookings Institution warned that the U.S. is headed for “a large, lasting baby bust.” According to a report by the think tank, the U.S. will see 300,000 to 500,000 fewer children born in 2021 than there would have been without the crisis, which amounts to a decrease of roughly 10 percent from 2019. That means the number of babies never born is likely to greatly exceed the number of Americans who have died from the coronavirus, which now surpasses 150,000.
During the past decade, the U.S. has already seen the slowest population growth in a century, while the country’s total fertility rate dropped from 2.1 children per woman (the replacement rate) to 1.7. Last year, the American population grew by 1,552,022 people, an increase of one-half of one percent from 2018, which is a slower rate than during the Great Depression. This year, that number is likely to be even lower.
Although the economic impact is not yet evident, and other factors – such as the decision of many women to postpone having children – are at play, the U.S. economy will still pay the price for the current decline.
Slow population growth not only depresses economic development, but also imposes a burden on younger generations to support future retirees. For instance, every decline of two-tenths in the total fertility rate (that is, two fewer children per 10 women) necessitates an increase in the Social Security payroll tax of about 0.4 percentage points. Instead of diving into a nativist abyss, U.S. politicians should be doing everything possible to offset the demographic decline unless birth rates recover to reach the replacement rate – if they ever will.
But while the situation in the U.S. does not look good, it is still worse in Europe.
According to Eurostat, the median age of the European Union’s population is projected to increase by 4.2 years, from 42.4 years in 2015 to 46.6 years in 2080. As a result, the old-age dependency ratio is expected to increase by 23% by 2080, which would mean that by 2080 there will be just two people of working-age for every elderly person. The countries of Sothern and Eastern Europe could be hit particularly hard and face a severe depopulation crisis. This might not only sink standards of living, but also, as the Financial Times put it, lead to a “demographic time-bomb.”
Although a three-year investigation by the European Commission into the EU’s demographic future concluded that greater migration or higher fertility rates alone won’t change the momentum toward a weakening labor force, it is evident that Brussels still needs an improved immigration policy that will attract skilled migrants.
“Unless we want to gradually turn into an aging continent, we need new blood,” Josep Borrell, now the European Union’s foreign minister, said in 2018. Three years earlier, then-United Nations Secretary-General Ban-Ki Moon noted the same problem: “The equation is clear: to meet its workforce deficit and maintain its economic dynamism, Europe needs migrants.”
For Brussels, outlining a coherent and mutually agreed immigration policy is easier said than done. The European refugee crisis contributed to the rise of right-wing parties across member states, which used the momentum to attack immigration policies currently in place.
Although Germany and several other countries have recently improved their policies to welcome more skilled immigrants, there are still no signs that the EU is on a path to develop a more pragmatic and welcoming universal plan to attract skilled immigrants.
Yet, a smart approach to immigration could be the key to economic recovery in the post-pandemic world. Canada and its points-based system may be the best example we currently have about how to make that happen.
Canada hasn’t had a replacement-rate fertility level since 1971. At the same time, the number of centenarians in the country has tripled since 2001 to more than 10,000. The situation imposed a heavy burden on the local healthcare system, and skilled immigration came to the rescue.
A 2019 report found that without immigration, real GDP growth in Canada during the next two decades would drop to 1.1 per cent by 2040. But allowing immigration to rise to one percent would allow GDP growth to hover between 1.7 and two percent. Multiple analyses also showed that immigrants contribute to lower healthcare costs, while their growing numbers do not lead to higher unemployment rates but quite the opposite.
Last year, about 82 percent of Canada’s population growth came from immigrants, with the overall growth rate totaling 1.4 percent — the largest annual rate in Canada’s history and the highest of any G7 country.
Although the pandemic has raised unemployment rates in Canada, the government so far has not announced any cuts to its ambitions plans to attract more than one million immigrants over the next three years. That is a big number for a country of roughly 37 million.
Just like in the EU, there are still debates in Canada on whether attracting skilled workers could be the long-term solution to an aging population. Immigration helps to offset a declining working force, but Canada may need to constantly attract newcomers in order to keep its social system afloat amid declining birth rates.
The successful case of Canada might also be explained by its relatively small size in terms of population compared to the EU or the U.S., as well as its diversity and institutional specifics that allow immigrants to integrate more quickly into local communities.
Although it is unclear how long Canada will be able to continue with its ambitions immigration targets, it is evident that its economy will continue to benefit from smart immigration policies in the foreseeable future. It might be time for other OECD nations to take note.
