Xenophobic anti-immigrant sentiments are nothing new. Antisemitism is an early form of such a populist ideology, directed at an involuntary Jewish influx (exile to the diaspora).
Anti-immigration movements are founded on myths and fallacies. Two of the most potent are: 1. Immigrants are usurping indigenous workplaces; and 2. That most immigrants are poor and, consequently, a burden on social services, education, and welfare budgets.
Both claims are grossly counterfactual.
Immigrants and the Fallacy of Labor Scarcity
Jean-Marie Le Pen – France’s erstwhile dark horse presidential contender – was clearly emotional about the issue of immigration and, according to him, its correlates, crime and unemployment. His logic was dodgy at best and his paranoid xenophobia ill-disguised.
But Le Pen and his ilk – from Carinthia to Copenhagen – succeeded to force upon European mainstream discourse topics considered hitherto taboos. For decades, the European far right has been asking all the right questions and proffering all the wrong answers.
Consider the sacred cow of immigration and its emaciated twin, labour scarcity, or labour shortage.
Immigrants can’t be choosy. They do the dirty and dangerous menial chores spurned by the native population. At the other extreme, highly skilled and richly educated foreigners substitute for the dwindling, unmotivated, and incompetent output of crumbling indigenous education systems in the West. As sated and effete white populations decline and age, immigrants gush forth like invigorated blood into a sclerotic system.
According to the United Nations Population Division, the EU would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need to absorb almost 14 million new, working age, immigrants per year just to preserve a stable ratio of workers to pensioners.
Similarly hysterical predictions of labour shortages and worker scarcity abounded in each of the previous three historic economic revolutions.
As agriculture developed and required increasingly more advanced skills, the extended family was brutally thrust from self-sufficiency to insufficiency. Many of its functions – from shoemaking to education – were farmed out to specialists.
But such experts were in very short supply. To overcome the perceived workforce deficiency, slave labour was introduced and wars were fought to maintain precious sources of “hands”, skilled and unskilled alike.
Labour panics engulfed Britain – and later other industrialized nations such as Germany – during the 19th century and the beginning of the twentieth.
At first, industrialization seemed to be undermining the livelihood of the people and the production of “real” (read: agricultural) goods. There was fear of over-population and colonial immigration coupled with mercantilism was considered to be the solution.
Yet, skill shortages erupted in the metropolitan areas, even as villages were deserted in an accelerated process of mass urbanization and overseas migration.
A nascent education system tried to upgrade the skills of the newcomers and to match labour supply with demand.
Later, automation usurped the place of the more expensive and fickle laborer. But for a short while scarce labour was so strong as to be able to unionize and dictate employment terms to employers the world over.
The services and knowledge revolutions seemed to demonstrate the indispensability of immigration as an efficient market-orientated answer to shortages of skilled labour.
Foreign scientists were lured and imported to form the backbone of the space, computers, and Internet industries in countries such as the USA.
Desperate German politicians cried “Kinder, not Inder” (children, not Indians) when chancellor Schroeder allowed a miserly 20,000 foreigners to emigrate to Germany on computer-related work visas.
Sporadic, skill-specific scarcities notwithstanding – all previous apocalyptic Jeremiads regarding the economic implosion of rich countries brought on by their own demographic erosion have proven spectacularly false.
Some prophets of doom fell prey to Malthusian fallacies.
According to these scenarios of ruination, state pension and health obligations grow exponentially as the population grays. The number of active taxpayers – those who underwrite these obligations – declines as more people retire and others migrate.
At a certain point in time, the graphs diverge, leaving in their wake disgruntled and cheated pensioners and rebellious workers who refuse to shoulder the inane burden much longer. The only fix is to import taxable workers from the outside.
Other doomsayers gorge on “lumping fallacies”.
These postulate that the quantities of all economic goods are fixed and conserved. There are immutable amounts of labour (known as the “lump of labour fallacy”), of pension benefits, and of taxpayers who support the increasingly insupportable and tenuous system.
Thus, any deviation from an infinitesimally fine equilibrium threatens the very foundations of the economy.
To maintain this equilibrium, certain replacement ratios are crucial. The ratio of active workers to pensioners, for instance, must not fall below 2 to 1. To maintain this ratio, many European countries (and Japan) need to import millions of fresh tax-paying (i.e., legal) immigrants per year.
Either way, according to these sages, immigration is both inevitable and desirable. This squares nicely with politically correct – yet vague – liberal ideals and so everyone in academe is content. A conventional wisdom was born.
Yet, both ideas are wrong. These are fallacies because economics deals in non-deterministic and open systems. At least nine forces countermand the gloomy prognoses aforementioned and vitiate the alleged need for immigration:
I. Labour Replacement
Labour is constantly being replaced by technology and automation. Even very high skilled jobs are partially supplanted by artificial intelligence, expert systems, smart agents, software authoring applications, remotely manipulated devices, and the like. The need for labour inputs is not constant. It decreases as technological sophistication and penetration increases. Technology also influences the composition of the work force and the profile of skills in demand.
As productivity grows, fewer workers produce more. American agriculture is a fine example. Less than 3 percent of the population are now engaged in agriculture in the USA. Yet, they produce many times the output produced a century ago by 30 percent of the population. Per capita the rise in productivity is even more impressive.
II. Chaotic Behaviour
All the Malthusian and Lumping models assume that pension and health benefits adhere to some linear function with a few well-known, actuarial, variables. This is not so. The actual benefits payable are very sensitive to the assumptions and threshold conditions incorporated in the predictive mathematical models used. Even a tiny change in one of the assumptions can yield a huge difference in the quantitative forecasts.
III. Incentive Structure
The doomsayers often assume a static and entropic social and economic environment. That is rarely true, if ever. Governments invariably influence economic outcomes by providing incentives and disincentives and thus distorting the “ideal” and “efficient” market. The size of unemployment benefits influences the size of the workforce. A higher or lower pension age coupled with specific tax incentives or disincentives can render the most rigorous mathematical model obsolete.
IV. Labour Force Participation
At a labour force participation rate of merely 60% (compared to the USA’s 70%) Europe still has an enormous reservoir of manpower to draw on. Add the unemployed – another 8% of the workforce – to these gargantuan numbers – and Europe has no shortage of labour to talk of.
These workers are reluctant to work because the incentive structure is titled against low-skilled, low-pay, work. But this is a matter of policy. It can be changed. When push comes to shove, Europe will respond by adapting, not by perishing, or by flooding itself with 150 million foreigners.
V. International Trade
The role of international trade – now a pervasive phenomenon – is oft-neglected. Trade allows rich countries to purchase the fruits of foreign labour – without importing the laborers themselves. Moreover, according to economic theory, trade is preferable to immigration because it embodies the comparative advantages of the trading parties. These reflect local endowments.
VI. Virtual Space
Modern economies are comprised 70% of services and are sustained by vast networks of telecommunications and transport. Advances in computing allow to incorporate skilled foreign workers in local economic activities – from afar.
Distributed manufacturing, virtual teams (e.g., of designers or engineers or lawyers or medical doctors), multinationals – are all part of this growing trend. Many Indian programmers are employed by American firms without ever having crossed the ocean or making it into the immigration statistics.
VII. Punctuated Demographic Equilibria
Demographic trends are not linear. They resemble the pattern, borrowed from evolutionary biology, and known as “punctuated equilibrium”. It is a fits and starts affair. Baby booms follow wars or baby busts. Demographic tendencies interact with economic realities, political developments, and the environment.
VIII. Emergent Social Trends
Social trends are even more important than demographic ones. Yet, because they are hard to identify, let alone quantify, they are scarcely to be found in the models used by the assorted Cassandras and pundits of international development agencies.
Arguably, the emergence of second and third careers, second families, part time work, flextime, work-from-home, telecommuting, and unisex professions have had a more decisive effect on our economic landscape than any single demographic shift, however pronounced.
IX. The Dismal Science
Immigration may contribute to growing mutual tolerance, pluralism, multiculturalism, and peace. But there is no definitive body of evidence that links it to economic growth. It is easy to point at immigration-free periods of unparalleled prosperity in the history of nations – or, conversely, at recessionary times coupled with a flood of immigrants.
So, were Le Pen and his intellectual progeny right?
Only in stating the obvious: Europe can survive and thrive without mass immigration. The EU may cope with its labour shortages by simply increasing labour force participation. Or it may coerce its unemployed (and women) into low-paid and 3-d (dirty, dangerous, and difficult) jobs. Or it may prolong working life by postponing retirement. Or it may do all the above – or none.
But surely to present immigration as a panacea to Europe’s economic ills is as grotesque a caricature as Le Pen has ever conjured.
Immigrants are Poor, Undereducated, Unskilled – In Short: a Burden
The modern historical source of this counterfactual statement harks back to the 1990s. It behooves us, therefore, to study that period in order to get to grips with the emergence of this myth.
Human trafficking and people smuggling are multi-billion dollar industries. At least 50% of the 150 million immigrants the world over are illegal aliens. There are 80 million migrant workers found in virtually every country. They flee war, urban terrorism, crippling poverty, corruption, authoritarianism, nepotism, cronyism, and unemployment. Their main destinations are the EU and the USA – but many end up in lesser countries in Asia or Africa.
The International Labour Organization (ILO) published the following figures in 1997:
Africa had 20 Million migrant workers, North America – 17 million, Central and South America – 12 million, Asia – 7 million, the Middle East - 9 million, and Europe – 30 million.
In the 1990s, immigrants make up 15% of staid Switzerland’s population, 9% of Germany’s and Austria’s, 7.5% of France’s (though less than 4% of multi-cultural Blairite Britain). There are more than 15 million people born in Latin America living in the States. According to the American Census Bureau, foreign workers comprise 13% of the workforce (up from 9% in 1990).
A million have left Russia for Israel. In this past century, the world has experienced its most sweeping wave of both voluntary and forced immigration – and it does not seem to have abated.
According to the United Nations Population Division, the EU would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need almost 9 times as many to preserve a stable workers to pensioners ratio.
The EU may cope with this shortage by simply increasing labour force participation (74% in labour-short Netherlands, for instance). Or it may coerce its unemployed (and women) into low-paid and 3-d (dirty, dangerous, and difficult) jobs. Or it may prolong working life by postponing retirement.
These are not politically palatable decisions. Yet, a wave of xenophobia that hurtled lately across a startled Europe – from Austria to Denmark – won’t allow the EU to adopt the only other solution: mass (though controlled and skill-selective) migration.
As a result, Europe has recently tightened its admission (and asylum) policies even more than it has in the 1970’s. It bolted and shut its gates to primary (economic) migration. Only family reunifications are permitted.
Well over 80% of all immigrants to Britain are women joining their husbands, or children joining their father. Migrant workers are often discriminated against and abused and many are expelled intermittently.
Still, economic migrants – lured by European riches – keep pouring in illegally (about half a million every year to believe The Centre for Migration Policy Development in Vienna). Europe is the target of twice as many illegal migrants as the USA. Many of them (known as “labour tourists”) shuttle across borders seasonally, or commute between home and work – sometimes daily.
Hence the EU’s apprehension at allowing free movement of labour from the candidate countries and the “transition periods” (really moratoria) it wishes to impose on them following their long postponed accession.
According to the American Census Bureau’s March 2002 “Current Population Survey”, 20% of all US residents were of “foreign stock” (one quarter of them Mexican). They earned less than native-born Americans and were less likely to have health insurance. They were (on average) less educated (only 67% of immigrants age 25 and older completed high school compared to 87% of native-born Americans).
Their median income, at $36,000 was 10% lower and only 49% of them owned a home (compared to 67% of households headed by native-born Americans).
The averages masked huge disparities between Asians and Hispanics, though. Still, these ostensibly dismal figures constituted a vast improvement over comparable data in the country of origin.
But these are the distant echoes of past patterns of migration.
Traditional immigration is becoming gradually less attractive. Immigrants who came to Canada between 1985-1998 earned only 66% of the wages of their predecessors. Labour force participation of immigrants fell to 68% (1996) from 86% (1981).
While most immigrants until the 1980’s were poor, uneducated, and unskilled – the current lot is middle-class, reasonably affluent, well educated, and highly skilled.
This phenomenon – the exodus of elites from all the developing and less developed countries – is called “brain drain”, or “brain hemorrhage” by its detractors (and “brain exchange” or “brain mobility” by its proponents). These metaphors conjure up images of the inevitable outcomes of some mysterious processes, the market’s invisible hand plucking the choicest and teleporting them to more abundant grounds.
Yet, this is far from being true. The developed countries, once a source of such emigration themselves (more than 100,000 European scientists left for the USA in the wake of the Second World War) actively seek to become its destination by selectively attracting only the skilled and educated citizens of developing countries.
They offer them higher salaries, a legal status (however contingent), and tempting attendant perks. The countries of origin cannot compete, able to offer only $50 a month salaries, crumbling universities, shortages of books and lab equipment, and an intellectual wasteland.
The European Commission had this to say 30 years ago:
“The Commission proposes, therefore, that the Union recognize the realities of the situation of today: that on the one hand migratory pressures will continue and that on the other hand in a context of economic growth and a declining and aging population, Europe needs immigrants. In this context our objective is not the quantitative increase in migratory flows but better management in qualitative terms so as to realize more fully the potential of immigrants’ admitted.”
And the EU’s Social and Employment Commission added, as it forecast a deficit of 1.7 million workers in Information and Communications Technologies throughout the Union:
“A declining EU workforce due to demographic changes suggests that immigration of third country nationals would also help satisfy some of the skill needs [in the EU]. Reforms of tax benefit systems may be necessary to help people make up their minds to move to a location where they can get a job…while ensuring that the social objectives of welfare systems are not undermined.”
In Hong Kong, the “Admission of Talents Scheme” (1999) and “The Admission of Mainland Professionals Scheme” (May 2001) allowed mainlanders to enter it for 12 month periods, if they:
“Possess outstanding qualifications, expertise or skills which are needed but not readily available in Hong Kong. They must have good academic qualifications, normally a doctorate degree in the relevant field.”
According the January 2002 issue of “Migration News”, at the time, with unemployment running at almost 6%, the US H1-B visa program allowed 195,000 foreigners with academic degrees to enter the US for up to 6 years and “upgrade” to immigrant status while in residence.
Many H1-B visas were cancelled due to the latest economic slowdowns, but the US provided other kinds of visas (E type) to people who invest in its territory by, for instance, opening a consultancy.
The UK has implemented the Highly Skilled Migrant Programme which allows “highly mobile people with the special talents that are required in a modern economy” to enter the UK for a period of one year (with indefinite renewal). Even xenophobic Japan allowed in 222,000 qualified foreigners in 2000 (double the figure in 1994).
Germany has absorbed 10,000 computer programmers (mainly from India and Eastern Europe) since July 2000. Ireland was planning to import twenty times as many over 7 years before the dotcoms bombed.
According to “The Economist” in 2001, more than 10,000 teachers have left Ecuador since 1998. More than half of all Ghanaian medical doctors have emigrated (120 in 1998 alone). More than 60% of all Ethiopian students abroad never return. There are 64,000 university educated Nigerians in the USA alone. More than 43% of all Africans living in North America have acquired at least a bachelor’s degree.
Barry Chiswick and Timothy Hatton demonstrated (“International Migration and the Integration of Labour Markets”, published by the NBER in its “Globalisation in Historical Perspective”) that, as the economies of poor countries improve, emigration increases because people become sufficiently wealthy to finance the trip.
Poorer countries invest an average of $50,000 of their painfully scarce resources in every university graduate – only to witness most of them emigrate to richer places. The haves-not thus end up subsidizing the haves by exporting their human capital, the prospective members of their dwindling elites, and the taxes they would have paid had they stayed put. The formation of a middle class is often irreversibly hindered by an all-pervasive brain drain.
Politicians in some countries decry this trend and deride those emigrating. In a famous interview on state TV, the late prime minister of Israel, Yitzhak Rabin, described them as “a fallout of the jaded”. But in many impoverished countries, local kleptocracies welcome the brain drain as it also drains the country of potential political adversaries.
Emigration also tends to decrease competitiveness. It increase salaries at home by reducing supply in the labour market (and reduces salaries at the receiving end, especially for unskilled workers).
Illegal migration has an even stronger downward effect on wages in the recipient country – illegal aliens tend to earn less than their legal compatriots.
The countries of origin, whose intellectual elites are depleted by the brain drain, are often forced to resort to hiring (expensive) foreigners.
African countries spend more than $4 billion annually on foreign experts, managers, scientists, programmers, and teachers.
Still, remittances by immigrants to their relatives back home constitute up to 10% of the GDP of certain countries – and up to 40% of national foreign exchange revenues.
The World Bank estimated that Latin American and Caribbean nationals received $15 billion in remittances in 2000 – ten times the 1980 figure. This may well be a gross underestimate. Mexicans alone remitted $6.7 billion in the first 9 months of 2001 (though job losses and reduced hours may have since adversely affected remittances). The IADB predicted that remittances will total $300 billion between 2000-2010 (Latin American immigrants send home c. 15% of their wages).
Official remittances (many go through unmonitored money transfer channels, such as the Asian Hawala network) are larger than all foreign aid combined.
“The Economist” calculates that workers’ remittances in Latin America and the Caribbean are three times as large as aggregate foreign aid and larger than export proceeds.
Yet, this pecuniary flood is mostly used to finance the consumption of basics: staple foods, shelter, maintenance, clothing. It is non-productive capital.
Only a tiny part of the money ends up as investment. Countries – from Mexico to Israel, and from Macedonia to Guatemala – are trying to tap into the considerable wealth of their diasporas by issuing remittance-bonds, by offering tax holidays, one-stop-shop facilities, business incubators, and direct access to decision makers – as well as matching investment funds.
Migrant associations are sprouting all over the Western world, often at the behest of municipal authorities back home. The UNDP, the International Organization of Migration (IOM), as well as many governments (e.g., Israel, China, Venezuela, Uruguay, Ethiopia), encourage expatriates to share their skills with their counterparts in their country of origin.
The thriving hi-tech industries in Israel, India, Ireland, Taiwan, and South Korea were founded by returning migrants who brought with them not only capital to invest and contacts – but also entrepreneurial skills and cutting edge technologies.
Thailand established in 1997, within the National Science and Technology Development Agency, a 2.2 billion baht project called “Reverse the Brain Drain”. Its aim is to “use the ‘brain’ and ‘connections’ of Thai professionals living overseas to help in the Development of Thailand, particularly in science and technology.”
The OECD (“International Mobility of the Highly Skilled”) wrote at the time that:
“More and more highly skilled workers are moving abroad for jobs, encouraging innovation to circulate and helping to boost economic growth around the globe.”
But it admits that a “greater co-operation between sending and receiving countries is needed to ensure a fair distribution of benefits”.
The OECD noted, in its “Annual Trends in International Migration, 2001” that (to quote its press release):
“Migration involving qualified and highly qualified workers rose sharply between 1999 and 2000, helped by better employment prospects and the easing of entry conditions. Instead of granting initial temporary work permits only for one year, as in the past, some OECD countries, particularly in Europe, have been issuing them for up to five years and generally making them renewable.
Countries such as Australia and Canada, where migration policies were mainly aimed at permanent settlers, are also now favoring temporary work permits valid for between three and six years … In addition to a general increase in economic prosperity, one of the main factors behind the recent increase in worker migration has been the development of information technology, a sector where in 2000 there was a shortage of around 850,000 technicians in the US and nearly 2 million in Europe…”
But the OECD underplayed the importance of brain drain:
“Fears of a “brain drain” from developing to technologically advanced countries may be exaggerated, given that many professionals do eventually return to their country of origin. To avoid the loss of highly qualified workers, however, developing countries need to build their own innovation and research facilities … China, for example, has recently launched a program aimed at developing 100 selected universities into world-class research centers. Another way to ensure return … could be to encourage students to study abroad while making study grants conditional on the student’s return home.”
The key to a pacific and prosperous future lies in a multilateral agreement between brain-exporting, brain-importing, and transit countries.
Such an agreement should facilitate the sharing of the benefits accruing from migration and “brain exchange” among host countries, countries of origin, and transit countries.
In the absence of such a legal instrument, resentment among poorer nations is likely to grow even as the mushrooming needs of richer nations lead them to snatch more and more brains from their already woefully depleted sources.
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