A Nation of Immigrants
Globalization has a bad name. Critics on the Left have long attacked it for exploiting the poor and undermining labor. Today, the Right challenges globalization for tilting the field against advanced economies. Kimberly Clausing faces down the critics from both sides, demonstrating that open economies are a force for good, not least in helping the most vulnerable. In Open: The Progressive Case for Free Trade, Immigration, and Global Capital, Clausing outlines a progressive agenda to manage globalization more effectively, presenting strategies to equip workers for a modern economy, improve tax policy, and establish a better partnership between labor and the business community. Open is the book we need to help us navigate the debates currently convulsing national and international economics and politics. Here is a brief excerpt looking at the positive influence of immigrants.
While immigration has increased in recent decades, as a share of the population, it is still shy of historic peaks around the turn of the twentieth century. While the absolute number of immigrants is larger than in times past, the share of immigrants in the population is a better indicator of their importance. Immigrants are now about 13 percent of the population. residents who were born abroad.
While immigrants are less than one-seventh of the population, they have an outsized effect on many key areas of the US economy. For example, they are disproportionately entrepreneurial; both in the United States and elsewhere, immigrants are more likely to found businesses than native populations. A 2012 report shows that more than 40 percent of America’s Fortune 500 companies were founded by immigrants or their children — including the oldest on the list, Bank of New York Mellon, founded in 1784 by Alexander Hamilton. Other important American companies with immigrant founders include Google (now part of Alphabet), AT&T, Goldman Sachs, Kohl’s, Nordstrom, Qualcomm, and DuPont.
Immigrants have a big role in successful business start-ups. Forty-four of the eighty-seven private start-ups that are now valued at over $1 billion were started by immigrants, and sixty two of these companies have immigrants as key members of their management team. Between 2006 and 2012, immigrants started one-third of the US venture capital–backed companies that became publicly traded, a total of ninety- two companies.
It is nearly impossible to imagine Silicon Valley without immigrants. Google, Instagram, Uber, and eBay were founded by immigrants, and the role of immigrants in the region extends far beyond these companies. As of 2014, 46 percent of Silicon Valley’s workforce was foreign- born. The share is even larger for workers between the ages of 25 and 44, and it rises to a whopping 74 percent of workers hired for their math and computer expertise in that age bracket. These workers also extend opportunities for American-born workers. Heavily immigrant “math-analytical” teams are often overseen by US-born management. Their mathematical prowess complements the linguistic and cultural fluency of native- born Americans in a pairing of specializations that makes both groups better off.
Immigrants tend to spur innovation in their communities, and they are much more likely to invent. A large number of immigrants come to the United States to study and work in fields associated with innovation. National Science Foundation data indicate that over 240,000 temporary visa holders were seeking graduate degrees in science and engineering in 2015. These visa-holding students were 31 percent of all graduate students in science, 64 percent in computer science, and 57 percent in engineering. One study concludes that foreign- born workers in scientific fields were responsible for between 30 and 50 percent of US productivity growth between 1990 and 2010.
The children of immigrants are also more likely to achieve prominence in their fields than the population at large. And they have positive effects on their entire counties: the greater the proportion of foreign-born residents in a county, the more children grow up to achieve great success in their fields. And while Nobel Prizes are not the paramount measure of economic success, it is instructive to observe how many US-based Nobel laureates have been immigrants. In 2016, Bob Dylan, who was awarded the Nobel Prize in Literature, was the only US winner who was American-born. Six other prizes, in scientific fields, went to researchers based at US institutions who were foreign-born. Over the years from 1977 to 2015, academics associated with American institutions won an astonishing 65 percent of all Nobel Prizes in scientific fields (Chemistry, Medicine, Physics, and Economics), but a minority (46 percent) of t hose prizes have gone to American-born recipients.
There has been a rapid increase in the education levels of new immigrants in recent years, with 48 percent of arrivals from 2011 to 2015 holding college degrees (a higher percentage than prevails among native workers). Yet while many immigrants are highly educated, others comes to the United States with less education. Still, low-skill immigrants also make important contributions to American society, and many have skills that are complementary to those of the US workforce. Low-skill workers typically fill jobs for which the supplies of US-born workers are scarce, working as agricultural laborers, construction workers, or domestic assistants. While their children may grow up to be the founders of billion-dollar startups, less educated immigrants are more likely to found smaller businesses like restaurants, salons, cleaners, or home repair shops. These small businesses are also a source of economic activity and job creation.
A colorful example comes from Huy Fong Foods, whose spicy Sriracha sauce inspires fanatical devotion. The $60 million company was founded by Vietnamese immigrant and entrepreneur David Tran. Tran is also a refugee; in the late 1970s, Tran and his family escaped from Communist- controlled South Vietnam aboard the Huey Fong, a Taiwanese freighter for which he named his new business in 1980. Tran exclusively uses California peppers (grown a few miles from Huy Fong’s Irwindale, CA headquarters) and manufactures every component of the famed Sriracha sauce on site. Tran has turned down almost two dozen offers to relocate, and he is committed to keeping his sauce an entirely American creation. He says that it constitutes a debt repayment, given that the United States was the only nation that welcomed him.
Immigrants Boost Growth
Immigrants bring tremendous gains to the US economy, and these gains come in several forms. Entrepreneurship and innovation create a more vibrant economy with stronger productivity growth, job creation, and dynamism. Immigrants increase economic growth not only directly, by increasing the number of workers in the economy, but also indirectly, by increasing the productivity of the economy as a w hole. As a National Academy of Sciences panel report concludes, “the prospects for long run economic growth in the United States would be considerably dimmed without the contributions of high- skilled immigrants.”
Immigrants often bring skills that are not found in large quantities in the domestic population. By adding immigrants to the mix, native workers can benefit from working with people whose skills complement their own skills, and this can lead to greater economic prosperity. Specialization patterns may change in response to immigrants in useful ways. For example, if highly skilled immigrant engineers provide engineering expertise, native workers may move into marketing or design work that complements the work of the engineers. This specialization fuels innovation by both groups and allows for greater adoption and diffusion of new technologies.
Immigrants also lower prices for all sorts of goods, including construction work, domestic services like child care and food preparation, and agricultural goods, and these lower prices enhance the purchasing power of native workers. Immigrants provide inexpensive house hold labor that frees others to use their work time most effectively. And, since immigrants are more mobile, they help smooth labor market adjustments, by increasing labor supply in areas of strong demand and reducing labor supply in weaker areas.
Immigration Solves Demographic Challenges
Immigrants are an important answer to the demographic challenges faced by many rich countries like the United States. (In fact, these demographic problems are far more pressing in some rich countries, such as Japan, precisely because they have smaller immigrant populations.) It is a very common pattern, across time periods and regions of the world, that as countries’ incomes grow and people get richer, there is a marked decrease in childbearing, slowing population growth.
Over time, slowing population growth raises the number of retirees relative to workers, putting large stress on government bud gets due to both the larger old- age spending (such as Medicare and Social Security in the United States) and the smaller tax payments of the retired. This bud get squeeze puts a higher tax burden on the current generation of workers. Older populations also reduce economic growth since a smaller fraction of the population is working. These demographic changes have been a source of much economic trouble in many countries.
For example, Japan has a very old population, with nearly 0.8 elderly persons for every person in the labor force; Italy has 0.5 elderly persons for each person in the workforce. Canada and the United States have healthier trends, even if both countries also face demographic pressures from the retirement of the baby-boom generation.
The United States has been blessed with higher population growth than many peer countries, and our demographic challenges, while large, are smaller than those in Italy and Japan. What is the source of this advantage? Simply put, recent waves of immigrants. Over the next fifty years, immigrants and their children are projected to account for the vast majority of US population growth, thanks in part to immigrants’ higher fertility rates.
In many advanced economies, plummeting birthrates have left policymakers scrambling for solutions to the bud get imbalances and slower growth that result from an aging population. In Japan, the population started to decline in 2004 because of low birth and immigration rates. If Japan’s 2016 fertility rate (projecting an average of 1.46 births per woman across their childbearing years) w ere to continue, sustaining the current population would require an influx of 650,000 immigrants per year. If neither immigration nor fertility rates increase, Japan’s population will fall by two-thirds, to approximately 42.9 million people, over the next hundred years. Such demographics make for unsustainable bud get pressures and dramatically reduced economic growth.
In contrast, the Canadian government has responded to demographic pressures by recognizing that immigrants fill an important need, and all of Canada’s current labor force growth can be attributed to immigration. The foreign- born, or “new Canadians,” now comprise one-fifth of Canada’s population, a proportion that increases to one- half in the country’s largest city, Toronto. Population growth via immigrant arrivals is roughly double growth via reproduction, and the Canadian government hopes to raise immigration rates even higher.
The Immigrants Themselves
Many benefits accrue to the United States from immigration, but it is important to remember the immigrants themselves, whose benefits from migration can also be enormous. As one testament to the benefits of migrating to the United States, consider the number of applicants for the annual visa lottery. Fifty thousand visas are awarded annually by lottery to migrants from countries that do not have large US immigrant populations. Even though this excludes the very populous countries of China and India, over fourteen million people applied for entry through this lottery in fiscal year 2018. While probabilities vary wildly based on country of origin, overall chances were less than 1 in 290.
This enthusiasm for immigration results in part from large wage differences. The average foreign worker from a less-developed country can expect to increase their wages fivefold by moving to the United States. Some countries of origin, such as Nigeria, Yemen, and Haiti, have a greater than tenfold wage increase for equivalent workers in the United States. (These calculations account for the traits of the workers and consider solely the wage effects resulting from where workers are located.)
For typical migrants, their productivity, wages, and living standards will be much higher in the destination country than in their origin countries. There are multiple reasons for these differences, but they largely result from superior resources in the destination country: better production facilities, more equipment, more advanced technology, superior infrastructure, and more sound and stable institutions. Institutional differences cover a lot of ground, but there is ample evidence of their importance in determining which countries are rich and which are poor.
Economists Daron Acemoglu and James A. Robinson provide a compelling argument for the importance of institutions in their book Why Nations Fail. They explore the geographically and culturally continuous community of Nogales, which is broken in two by the US-Mexico border: on the American side, incomes are higher, lifespans are longer, and educational outcomes are better. Acemoglu and Robinson argue that these differences stem from the countries’ different political and economic institutions.
According to Acemoglu and Robinson, countries have either inclusive or extractive political institutions; inclusive ones are defined by their pluralism (they address the demands of diverse citizenries) and by their centralization of power, while extractive ones fail to meet either or both of these conditions. Inclusive political institutions support and promote mass participation and opportunity, whereas extractive ones take wealth from one group for the benefit of another.
Over the course of a nation’s history, what may start as small institutional differences can become very big ones through the dynamics of virtuous or vicious circles. Immigrants moving from poor countries to rich countries are typically leaving extractive institutions for inclusive ones; their greater productivity in the destination countries reflects the myriad advantages of the wealth around them.
Because of the large difference between what migrants earn in their origin countries and what they could earn in the United States, there is a tremendous efficiency case for allowing more migration. Labor mobility is far more restricted than product mobility, and this creates the equivalent of large (typically over 400 percent, and sometimes over 1,000 percent) effective barriers. The average foreign worker from a less developed country receives a fivefold wage increase by moving to the United States.
The distortions from trade barriers are not even comparable. The typical US tariff barrier is closer to 3 percent, and Immigrants, even the exceptionally distorted sectors of the US economy (for example, sugar) have trade barriers that are equivalent to 80 percent protection. Since distortions associated with limiting labor mobility are much higher, the benefits from reducing these barriers are also much higher. This led Michael Clemens to quip that immigration barriers are leaving “trillion dollar bills on the sidewalk.” Indeed, the efficiency gains from reducing barriers to labor mobility are estimated to be many multiples that of reducing the barriers to trade, perhaps around fifty times the size.
Since benefits from immigration are so immense, this implies that it will be easier to compensate anyone who is hurt from immigration with these extra benefits, while still leaving large net benefits for those who gain from immigration. There are also fewer concerns with unfair competition than there might be with international trade, since immigrants are subject to the same tax laws, environmental standards, and other regulations as domestic workers.