International migration: trends and economic benefits.
People migrate in search of a better economic life for themselves and their families. It not only affects them personally but also has a cumulative effect on the economic growth of both the sending and recipient country. Economic growth and the standard of living in any country depend on its demographics, resources, and available technology in the long-run. A young and skilled workforce contributes to innovation that leads to higher productivity and per capita income, and better a standard of living. Aging of the labor force and a fertility implosion will lead to slower economic growth in industrialized countries. The combination of increased longevity and a reduced birth rate in the U.S. is already challenging long-run economic growth and relatively higher standards of living. The retirement of baby boomers' will result in significant losses of much needed experience, skills and institutional knowledge that will adversely affect productivity and economic growth (Gordon, 2014).
Tax financed health care costs and social security benefits for senior citizens are also contributing to larger budget deficits and the national debt as baby boom generation ages. Since the start of 2011, over 11,000 baby boomers have been turning 65-years old everyday and many have left the workforce. The over age 65 U.S. population is expected to increase to 88.5 million by 2050 from 40.2 million in 2010. Globally, the number of people over the age 60 is projected by the UN to reach almost 2 billion or over 22 percent of world population by 2050 (Bloom, Canning, & Fink, 2011).
The U.S. Census Bureau estimates that the absolute increase in the world's working-age population (15-64 years old) between 2010 and 2030 will be around 900 million people, 400 million fewer than over the past two decades (Eberstadt, 2010). Gad Levanon of Conference Board writes, "Current population projections predict that the population aged (18-64), which has been growing by only 0.3-0.4% per year in recent years, will continue to slow down, and from 2020 to 2030 will grow by just 0.15% to 0.25%." In addition, the U.S. labor force participation rate is projected to be at 60.4 percent in 2050 (Toosi, 2006). Since the financial crisis in 2008 and advances in technology and a sluggish recovery have expedited the baby boomer's exit from the workforce by making their skills obsolete. Because labor force growth rate is one of the major determinants of long-term economic growth, a declining growth rate of labor force also reduces the standard of living for the people.
Immigration presents one possible means to replacing the aging labor force and increasing the labor force participation rate in the U.S to pre-1995 levels. The debate on immigration reform in the current economic environment has produced negative sentiments towards immigrants during a time of increased global economic integration, technological and communication advances, changes in production processes, and structural and demographic changes in labor forces that have increased interdependence among developed and developing countries. The common perception is that immigrants compete with native-born workers for jobs and displace them by bidding down wages. The possible economic benefits from immigration are often ignored. However, during the 1990s, most of the developed countries understood the potential benefits to their economies from immigration and therefore, increased their efforts to increase the numbers of migrant workers coming to their countries.
Migration affects both sending and receiving countries. Countries with emigration experience both gains and losses. The main economic benefits of emigration are remittances from abroad whereas losses come from the loss of trained and educated individuals. Immigration helps to relieve short-term labor shortages in the receiving country and increase long-term if migrant possess the skills needed by the employers. Recently, most of the attention has been paid to the potential adverse effects on the employment of the native-born workers while the economic benefits from skilled labor immigration are ignored (Vedder, 2013).
This study investigates trends in world migration and the contributions by immigrants to the economic growth in the U.S. Section II discusses international migration trends and immigration into the U.S. A simple Cobb-Douglass model is used to explain the productive contributions of labor in section III. Section IV presents the economic benefits of immigration, followed by the benefits to the country of origin in section V. Finally, section VI concludes this study.
INTERNATIONAL MIGRATION TRENDS
There were 75.9 million international migrants in the world in year 1960. Their number grew to 81.5 million by 1970, to 99.8 million by 1980, to 154.0 million by 1990, to 174.9 million by year 2000, and to 232 million in 2012. The United Nations Development Programme (World Migration Report 2013) projects that 405 million migrants by 2050 with an increase from one in forty people classified as migrant in 1960 to one in twenty-two by 2050. The UN Department of Economic and Social Affairs (UN DESA) in 2010 reported that top ten countries host 51.7 of total international migrants with the largest share going to the U.S. UN DESA classifies top ten countries as the U.S., Russian Federation, Germany, Saudi Arabia, Canada, France, United Kingdom, Spain, India, and Ukraine.
Historically, immigrants constituted 14.8 percent of the U.S. population in 1890s. Then immigration started to decline while emigration from the U.S. increased in the 1900s. Under the Wilson administration, Congress passed the first comprehensive immigration act in 1917 which included a literacy test requirement. It was followed by the National Origins Act (1924) that set a quota system on the number of immigrants in order to stop large flows of European immigration. President Kennedy realized that immigrants are needed to spur economic growth in the U.S. He proposed the Immigration and Nationality Act also known as the Hart-Cellar Act (1965) that President Johnson signed into law. Census Bureau reports that immigrants constituted only 4.7 percent of the U.S. population in 1970s but because of the Hart-Cellar Act, immigration started to increase and by 2010, immigrants constituted 12.9 percent of the U.S. population.
UN DESA classifies countries into developed and developing regions whereas the World Bank classifies countries using their gross national income per capita. North represents developed countries with higher per capita income and the South represents developing countries with lower per capita income. Most of the migration is assumed to occur from South to North; however, South to South migration has increased during the past two decades. Most of the migrants are from the South in absolute numbers because collectively the South has a greater population. The migrants from the South are also younger in age than those from the North (World Migration Report, 2013).
Migration increased from South to North between years 1960 and 2000 due to changing immigration policies in the North and their desire to extend the processes of rebuilding and development after the Second World War. 23 percent of all international migrants lived in North America and one-third lived in Europe according to World Economic and Social Survey, 2004 (UN Department of Economic and Social Affairs). The migrant population also increased in Asia to 71 million by 2013 mainly fuelled by the increasing demand for foreign labor in the oil-producing countries of Western Asia and rapidly growing economies in South-Eastern Asian countries. The U.S gained 23 million international migrants followed by the UAE with 7 million and Spain with 6 million respectively between 1990 and 2013. UN News Centre reports that 74 percent of all international migrants are of working age (20-64 years old).
The motivation for people leaving their home country is either economic or social. The economic decision is strongly impacted by the income differential between the immigrating and the emigrating countries. During the World Economic Forum in Davos in 2011, income inequality and corruption were singled out as the two most serious challenges facing the world. The gap between income per capita in high-income and low-income countries increased from $18,500 in 1980 to $32,900 in 2007, before falling slightly to $32,100 in 2010 in real dollars using purchasing power parity. Table 1 shows immigrants as a percent of the population in selected countries.
Annual changes in international migration are influenced by the demand and supply of local labor, wage differential between place of origin and destination, migration policies of emigrating and immigrating countries, and their political relations with each other. Most of the immigrants who settle in the North arrive through highly regulated channels that serve the needs of the receiving countries. Table 2 shows people admitted by the select developed countries. In all countries, migration increased between 2000 and 2010 except for the U.S. and Germany. The U.S. adopted restrictive immigration policies after September 11, 2001 attack and Germany in 2004. The global financial crisis that began in 2008 and resulted in the "Great Recession" in the North slowed migration except for Switzerland.
Immigration to the U.S.
During the last fifty years, the U.S. foreign-born population has gone through many changes. In 1960s, one in twenty residents in the U.S. was an immigrant and they lived mostly in the Northeast and Midwest. By 2010, one in eight immigrant residents lived in the West and South. Decennial census and American Community Surveys show that immigrants came mainly from Europe in the 1960s but in recent years, more immigrants are arriving from Asia and Latin America. Table 3 shows the change in nationality of immigrants arriving in the U.S.
The composition of new immigrants is very different than the immigrants that arrived prior to 1980s. Mexico leads in the total number of recent immigrants whereas Asian immigrants lead in education attainment and entrepreneurship. Among the 25 and older age group, 49 percent of Asians hold at least a college degree compared with 28 percent of the U.S. population overall. They also have a higher median annual household income ($66,000 versus $49,800) and median household wealth ($83,500 vs. $68,529) when compared to all U.S. adults (Pew Research Center) in 2010.
IMMIGRANTS BRIDGING THE GAP OF ECONOMIC GROWTH
Long-run economic growth is an important factor in raising the standard of living for the citizens of any country. The key determinant of growth is improvement in labor force productivity, which depends on investment, technological advances, and educational achievement. These all lead to innovations in the form of new goods and services which in turn raise the national level of welfare. The most important requirement for innovations is the supply of a highly skilled labor force (Sergio, 1990).
Economists use production function to explain sources of economic growth. A simple example is the function,
Y = f(A, K, L)
Y is real GDP;
K is capital stock that includes machinery, buildings and other structures;
L is labor, which includes the number of persons involved in the production processes, or their hours of work per period, and their skills; and A is an index of productivity.
A simple functional form which assumes that capital and labor are substitutable is the Cobb-Douglas production function that takes the following form:
Y = A [K.sup.[alpha]] [L.sup.[beta]]
[alpha] represents the share of the capital stock in production growth and
[beta] the share of labor, with [alpha] + [beta] = 1. A large body of economic literature has yielded estimates of [alpha] = 1/3 and [beta] = 2/3.
Thus, GDP growth = Productivity growth + (1/3) Capital growth + (2/3) Labor growth
However, with a steady state growth process, capital growth is equal to labor growth and therefore,
GDP growth = Productivity growth + Employment growth.
Both productivity and employment growth, and therefore standard of living are dependent upon a skilled workforce. It is well known that the U.S. population is aging and that future generations are much smaller in number than those of the recent past. In addition, the aggregate labor force participation rate has declined to 62.8 percent during December 2013 and it is estimated by the Bureau of Labor Statistics to further decline to 61.6 percent by 2022. Therefore, increasing capital in the context of declining employment growth and a lack of highly skilled labor will not add to productivity and will lead to slower economic growth.
Even though the population of the U.S. is on the rise, its young labor force still is smaller than the number of people age 65 and older. The share of older people in population is estimated to increase to 23 percent by 2025 from 18 percent in 2015. This increase means the dependency ratio (the number of people of working age compared with the number of young and elderly) will rise sharply. A shortage of the young workers may have adverse macroeconomic consequences such as persistently high unemployment in some industries that demand higher skill levels. The UN 2011 report, Pensions at a Glance, estimates the support ratio (working age population between 20-64 years supporting every person age 65 and over) to decline to 2.58 by 2050 from 4.35 in 2013 and 6.97 in 1950.
This shortage of native-born people to fill jobs vacated by the current workers has intensified the need for migrant workers. Migrants were a small portion of the population during past decades. Immigrants make a variety of economic, social and cultural contributions to the host economy. One of the important traits of immigrants is that they are disproportionately concentrated in working ages. Immigration and American Economic Growth reports 80.5 percent of the foreign-born populations as opposed to 60.3 percent of the native born population were in the workforce and the worker to non-worker ratio was 4.13 percent for the foreign born and only 1.52 percent non-migrant in year 2010.
Both immigration and emigration affect the working age population and economic growth in a country. Congressional Research Services estimates suggest that emigration from the U.S. has been rising since 1970s, albeit, at a slower rate than immigration into the country. Emigration depends upon economic conditions and the immigration policies of the sending and receiving countries. Emigrants are not only the foreign nationals who were living in the U.S. legally, but also U.S. citizens who have chosen to live in other countries for a variety of reasons. The collection of emigrant statistics was discontinued in 1957 and no direct measure is available since then. Table 4 ranks top 10 emigration countries in the world.
Gross immigration has exceeded gross emigration in the U.S. except during great depression years when out-migrants exceeded in-migrants reflecting fluctuations in the economic conditions. Using indirect demographic techniques, the Census Bureau estimated that the number of emigrants leaving the United States has been increasing over the past decades. The changing demographic profile of the United States reports that the emigration to immigration ratio reached 0.29 between 2001 and 2008, up from 0.15 during the 1950--1960 decade (Shrestha & Heishler, 2009).
ECONOMIC CONTRIBUTIONS OF IMMIGRANTS
The U.S. economy has been growing at an anemic growth rate of 2.0 to 2.5 percent and its national debt has soared to above $17 Trillion. At the same time the unemployment rate has stayed stubbornly high for the past five years and the labor force participation rate has fallen as well. According to the World Bank, countries that promote free migration of labor are far richer than the countries that restrict labor migration. Immigration is usually higher during periods of economic expansion when wages are rising. Immigrants contribute to the labor pool when there are labor shortages at both the high and low skill ends of the spectrum. Therefore, they fill an increasing share of jobs overall and keep the wage pressures down. New immigrants accounted for 6.1 percent of the U.S. labor force in 2011 whereas they make up 25.6 percent and 25.9 percent for Australia and, Canada respectively. (OECD, 2013)
Between 2003 and 2012, the U.S. labor force added more than 8.4 million workers. More than 4.4 million of the new workers were immigrants. In 2011, 83.5 percent of immigrants were private wage and salary workers, 7.7 percent of them being self-employed compared to 77.7 percent of natives being in the private sector and 5.9 percent self-employed. Recent migrants have created more jobs than they have filled. Self-employment among immigrant group is higher than for natives. The Urban Institute reports, in cities throughout the United States, immigrants are credited with reviving once-abandoned commercial areas and with revitalizing entire neighborhoods (Fix et al., 1994).
Immigrants have been important to the U.S. economy in the past and they are important today. The Immigration Reform and Control Act of 1986, even during the 1990-1991 recession with high unemployment, helped to raise wages and spurred increases in educational, home, and small business investments by newly legalized immigrants. Current comprehensive immigration reforms are expected to generate $1.5 trillion in additional GDP over 10 years. Immigrant are not just workers, they are also consumers. As workers, they contribute to taxes and as consumers they spend money where they earn.
Immigrants contribute in a variety of ways to economies. They provide leadership and labor for the expansion of growing economic sectors. The Executive Office of the President in its July 2013 report estimates that by 2033, the U.S. economy will be 5.4 percent larger; productivity of labor and capital will increase by 1 percent; real wages will rise by 0.5 percent; federal deficits will be reduced by nearly 850 billion; the U.S. debt will fall by 3 percent annually; and solvency of the social security fund will extend by two years. Immigrant-owned small businesses generated a total of $776 billion in receipts and employed an estimated 4.7 million people in 2007. Immigrants were also responsible for starting 28 percent of all new U.S. businesses in 2011. More than 40 percent of Fortune 500 companies were founded by immigrants or children of immigrants. These companies represent 7 of the 10 most valuable brands globally, collectively employ more than 10 million people and generate annual revenue of $4.2 trillion.
Immigrants with different skills than the native-born workers diversify the workforce and increase productivity and output. The American Enterprise Institute found that an immigrant with an advanced degree has increased employment of native-born persons by 44 jobs and by 86 jobs if they have a degree in STEM field. Their analysis also shows that an immigrant with an advanced degree paid over $22,500 in federal, State, and FICA taxes while their families received benefits one-tenth that size through government transfer programs (Zavodny, 2011).
BENEFITS TO THE COUNTRY OF ORIGIN
Remittances are a portion of income that migrant workers send back home to provide financial support to their families (Ratha, 2013). Over the past couple of decades, as the number of migrant workers increased, remittance flows also accelerated. For many countries, they are the single largest financial inflow, providing a significant impact on the economic well-being of recipient families and on the growth and stability of recipient countries by being a source of foreign reserves. Remittances to the developing world are expected to grow to $414 billion in 2013 and are projected to cross the half-trillion mark worldwide by 2016, according to revised estimates and forecasts issued by the World Bank. Table 5 ranks the top countries receiving remittances.
Remittances exceed the foreign exchange reserves in at least 14 developing countries. As the developing countries face weakening balance of payments, remittances become an important source of foreign currency earnings. Table 6 lists the top countries where remittances are greater than 100 percent of foreign exchange reserves.
Global economic integration, technological and communication advances, changes in production processes, and structural changes in labor forces have increased interdependence among the developed and developing countries. As the worldwide working age population is expected to decline from approximately 900 million people to 400 million by 2030, the U.S. must pay attention to immigration to keep a higher standard of living for its people and the economy growing. The projected average rate of global manpower growth for the coming decades is 0.9 percent per year, only half the rate for the period between 1990 and 2010. BLS estimates a 34 percent increase in job openings in science and engineering fields from 2008 to 2018. The NAM-Deloitte & Touche study reported by American Immigration Lawyers Association (2003) projected that the U.S. economy will need 10 million new skilled workers by 2020. Immigration of young people especially from developing countries provides one possible way to address changing demographics in the U.S.
Immigration policies vary from country to country. However, during the 1990s, most of the developed countries have understood the potential long-term benefit to their economies that immigrants bring, and therefore, have adopted policies to increase the number of immigrants. United Arab Emirates, Saudi Arabia, Switzerland, Australia, and Canada have higher percentages of immigrants in their population than the U.S., even though the U.S. has absolute higher numbers of immigrants coming every year.
Under current immigration policy, approximately 1.05 to 1.10 million people are granted lawful permanent residence each year in the U.S. It is based on four principles; the reunification of families; the admission of immigrants with special skills; the protection of refugees; and the diversity of admissions by country of origin. Most of these immigrants are entering on the family reunification basis and less than 10 percent of immigrants are given permanent residency based on skills. The current policies need to be modified in favor of young and skilled individuals, similar to Australia and Canada, if the U.S. wants to keep its standard of living high and also, fund health care and social security programs for its aging boomer population.
The author wishes to acknowledge helpful comments given by Paul Blackley on an earlier draft of this paper.
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Harjit K. Arora
Le Moyne College, New York
Harjit K. Arora is a Professor of Economics at Le Moyne College in Syracuse, New York. She teaches Macroeconomics, Economics of Financial Markets and Global Economics. She publishes in the areas of Macroeconomics, Financial Markets and Global Economic Issues.
Table 1 International Migrant Stock as a Percentage of Total Population in Selected Countries Country 1990 2000 2010 2013 United States 9.1 12.2 14.2 14.3 Canada 16.3 18.1 20.5 20.7 France 10.4 10.6 11.4 11.6 Germany 7.4 10.8 11.7 11.9 Spain 2.1 4.1 13.5 13.8 Sweden 9.2 11.3 14.8 15.9 Switzerland 20.9 21.9 26.5 28.9 United Kingdom & Northern Ireland 6.4 8.0 11.3 12.4 Australia 22.7 22.9 26.8 27.7 Saudi Arabia 30.8 26.1 30.9 31.4 United Arab Emirates 72.3 80.8 86.7 83.7 Source: United Nations: Trends in International Migrant Stock 2013 Table 2 Annual Rate of Change of the Migrant stock Country 1990-2000 2000-2010 2010-2013 United States 4.0 2.4 1.2 Canada 2.1 2.3 1.3 France 0.6 1.4 1.1 Germany 4.2 0.8 0.4 Spain 6.9 13.2 1.2 Sweden 2.4 3.2 3.1 Switzerland 1.2 2.8 3.9 United Kingdom & Northern Ireland 2.5 4.0 3.7 Australia 1.3 3.1 2.5 Saudi Arabia 0.5 4.7 2.4 United Arab Emirates 6.3 11.0 2.2 Source: United Nations: Trends in International Migrant Stock 2013 Table 3 Top Ten Countries of Birth for Immigrants 1960 Country Name Millions of Foreign- Born Residents Italy 1.3 Germany 1.0 Canada 1.0 United Kingdom 0.8 Poland 0.7 Soviet Union 0.7 Mexico 0.6 Ireland 0.3 Austria 0.3 Hungary 0.2 2010 Country Name Millions of Foreign- Born Residents Mexico 11.7 China 2.2 India 1.8 Philippines 1.8 Vietnam 1.2 El Salvador 1.2 Cuba 1.1 Korea 1.1 Dominican Republic 0.9 Guatemala 0.8 Source: U.S. Census Bureau, Decennial and American Community Survey Table 4 Top Emigration Countries, 2010 Rank Country Name Number of Emigrants in Millions 1 Mexico 11.9 2 India 11.4 3 Russian Federation 11.1 4 China 8.3 5 Ukraine 6.6 6 Bangladesh 5.4 7 Pakistan 4.7 8 United Kingdom 4.7 9 Philippines 4.3 10 Turkey 4.3 Rank Country Name Percentage of Population 1 West Bank & Gaza 68.3 2 Samoa 67.3 3 Grenada 65.5 4 St. Kitts & Nevis 61.0 5 Guyana 56.8 6 Monaco 56.4 7 Antigua & Barbuda 48.3 8 Tonga 45.4 9 Albania 45.4 10 Barbados 41.0 Source: The World Bank: Migration and Remittances Fact Book, 2011 Table 5 Remittances Rank Country Name Remittances in US $ Billions 1 India 71.0 2 China 60.0 3 Philippines 26.0 4 Mexico 22.0 5 Nigeria 21.0 6 Egypt, Arab Republic 20.0 7 Bangladesh 15.0 8 Pakistan 15.0 9 Vietnam 11.0 10 Ukraine 9.0 Rank Country Name Percentage of GDP 1 Tajikistan 48 2 Kyrgyz Republic 31 3 Nepal 25 4 Lesotho 25 5 Moldova 24 6 Armenia 21 7 Haiti 21 8 Samoa 21 9 Liberia 20 10 Lebanon 17 Source: The World Bank: Migration and Development Brief, 2013 Table 6 Remittances as a percent of Foreign Exchange Reserves Rank Country Name % of Foreign Reserves 1 Tajikistan 1129 2 Ecuador 227 3 Sudan 208 4 Egypt, Arab Republic 165 5 El Salvador 140 6 Pakistan 137 7 Haiti 126 Rank Country Name % of Foreign Reserves 8 Armenia 118 9 Bangladesh 117 10 Honduras 117 11 Nepal 111 12 Jamaica 108 13 Kyrgyz Republic 107 14 Dominican Republic 102 Source: IMF, World Bank Staff estimates 2013.
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|Author:||Arora, Harjit K.|
|Publication:||International Journal of Business and Economics Perspectives (IJBEP)|
|Article Type:||Statistical data|
|Date:||Sep 22, 2014|
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