Here’s a chart that caught our eye from the CBO’s latest report on US immigration trends, updated with data through the end of 2009:
As the report explains, legal permanent resident status (commonly known as getting a “green card”) is a step towards citizenship and allows immigrants to live and work in the US indefinitely, subject to certain conditions. After increasing in each successive decade since the 1930s, the percentage of legal permanent resident grants as a share of the US population at the start of the decade fell in the 2000s.
By way of explanation, the CBO says the following, almost as a throwaway line:
The most recent decline may be the result of increased scrutiny of applications stemming from concerns about national security.
Also included was this chart showing the percentage of the population that is foreign-born, which did continue to climb last decade, though its rate of growth slowed:
Comprehensive immigration reform is an idea that gets floated now and again — and although it might be a defining 2012 campaign issue, we suspect that an actual agreement to liberalise current US policy is unlikely anytime soon.
In the meantime, not only is the US cracking down more on illegal immigration and on those who employ illegal immigrants; the country is also making the legal immigration process infinitely more ponderous.
Markets writers don’t cover immigration news very often, and it’s easy to see why. Tracking immigration takes time, and important new data worthy of discussion is released infrequently. The trends themselves — at least those big enough to affect a nation’s macroeconomic situation — seem to play out slowly. This is especially the case in big developed countries like the US.
So immigration takes a back seat in the news cycle to more timely events that affect economic growth (monthly jobs numbers, business investment, exports and imports, etc). But, well, it’s a huge economic issue!
Over the weekend, the WSJ published an interview with BlackRock strategist Bob Doll, during which this came up:
Over the next 20 years, the U.S. work force is going to grow by 11%, Europe’s going to fall by five, and Japan’s going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth,” he says. “And the reason for this is pretty simple. We have higher immigration than both of these, and we make more babies. We have a higher fertility rate. And they are the long-term determinants of population growth and therefore work force growth.” …
Mr. Doll explains the economics: “The long-term growth rate of any economy is the product of the change in the size of the work force multiplied by the productivity of the work force.” Productivity is very hard to predict, he reports, but demographics is easy. “You count noses.” And that tally shows a very healthy America.
But doesn’t Mr. Doll smell trouble on productivity? It rose just 1.3% in the first quarter compared to the same quarter last year. He says that U.S. productivity is “OK and better than lots of other places.” This is a recurring theme of our discussion— that America is the least worst among the major developed economies.
Maybe. Doll’s comments reminded us of a Credit Suisse note from late last year that we never got around to posting (whole thing in the usual place). And it seems that he’s right about the relative position of the US against at least the next two largest developed economies. There’s a lot of detail in the Citi note, but a few charts will suffice for our purposes.
First, the population and labour force of the US continued to grow in the last decade and will continue to grow in this one; Japan and Germany can’t say the same:
Second, a comparison of fertility rates:
Third, a breakdown of the population change in the US, which had higher net migration than the other two countries:
In other words, things could be a lot worse for the US. However…
As we wrote previously, in the last decade the US relied overwhelmingly on labour productivity increases for its economic growth. The labour force participation rate actually had been falling prior to the recession because of demographic trends that are likely to continue, and it has obviously fallen further since. That the labour force itself kept growing was due to the population growth that you see in the charts above.
Yet productivity growth had already been slowing (compared to previous decades), and there’s no telling what it will be like in the near future. And hey, Japan and Germany are just two other countries: eleven others in the OECD have populations with a higher percentage of foreign-born people than the US.
In other words, there’s no reason for the US to get complacent on immigration, and certainly none to backtrack. Especially because there are studies showing that immigration enhances productivity (thereby solving two problems, population and productivity, at once), is especially good for cities, and boosts house prices. And as the CBO report explains, fertility rates among immigrant women aged 14-49 are higher than those of native-born women. Immigration also provides more workers to lower the old-age dependency ratio, something that should matter in a country with so many retiring boomers. Yes, there are nuances in all of these, but we think you know where we stand.
In a recent speech, Brad DeLong said the following in the context of a discussion on housing:
I can’t look forward and see any future in which immigration falls. Move any Indian engineer with an M.S. degree from Bangalore to the San Francisco Bay and you double their productivity. Move anybody gutsy enough to crawl through a storm sewer into San Diego from Chiapas to the United States and you quadruple their productivity. With such enormous economic incentives to move here, people will find a way. Globalization means more people will see how big the rewards to getting to America are. And when they get here and attain an American standard of living they will want to buy houses.
We hope DeLong is right, because American policymakers aren’t making it easy.
Related link:
Labour force follies – FT Alphaville