Tuesday 11 August 2020

Without Immigration, Will the U.S. Economy Struggle to Grow?



The coronavirus (COVID-19) pandemic has triggered dramatic, deteriorating economic conditions across the country. At some point, however, the effects of the shock will diminish. And the buffeted U.S. economy emerging from the health crisis will face some familiar structural challenges that predated the virus—among them, the slowing growth of its workforce.
Slowing labour force growth is the product of a number of factors—the aging of the U.S. population, retiring baby boomers and declining birth rates. But another element is immigration. Immigrants and their children contributed more than one-half of workforce growth in the past two decades.
This is of particular concern because of a recent sharp drop-off in immigration from what had been typical levels. Net international migration to the U.S. declined from more than 1 million people in 2016 to just fewer than 600,000 in 2019, a 43 percent drop, according to Census Bureau estimates (Chart 1).

  
Less immigration and more foreign-born emigration have driven the recent decline. Measures of inflows include temporary and permanent immigrants, such as foreign workers and students and family members of U.S. citizens. They exclude transitory visitors, such as tourists, commuters and business travellers.
There have been previous periods of sharply declining immigration but not during economic expansions, as occurred in recent years. For example, net international migration fell by more than 40 percent between 2001 and 2010, a period that spanned two recessions. The U.S. economy expanded beginning in 2010, with growth picking up in the second half of the decade and unemployment rates reaching 50-year lows. Immigration typically accelerates when labour markets tighten, with employers turning increasingly to foreign-born workers to fill vacancies for which domestic workers are in short supply.
Data suggest that legal inflows of immigrants who are likely to remain in the country permanently account for the largest numerical declines since 2016. Specifically, from fiscal year 2016 (12 months ended Sept. 30) to fiscal 2018, new arrivals of legal permanent residents fell 14 percent (89,351 people), and refugees declined 74 percent (62,584 people) (Chart 2).

The number of refugees dropped sharply not because there are fewer refugees in the world, but because the U.S.-government-set refugee quota fell from 110,000 in fiscal 2017, to 45,000 in 2018, to 30,000 in 2019 and to 18,000 in 2020. The president, in consultation with Congress, annually sets refugee quotas, which provide a ceiling on the number of refugees resettled.
It is also possible that the desire to immigrate to the U.S. has diminished. The number of visas issued in a given category is a function of supply (visas available) and demand (applications for visas). The drop-off in the demand for visas is apparent when looking at student (F-1) visas, for example (Chart 3).


Student visa applications and issuances are both down 43 percent since 2015. However, this change cannot be readily attributed to any recent U.S. policy, process or regulatory change. The drop-off began before 2016, and visa refusal rates are actually down, not up, since that time. Other factors that affect the demand for visas include schooling costs and home-country conditions.
Meanwhile, immigrants who roughly form 15 percent of the U.S. population are responsible for about a quarter of U.S. start-ups and patents each year, and that percentage has been increasing for decades. Moreover, employment growth is faster for businesses started by immigrant entrepreneurs as opposed to those launched by the native-born over three- and six-year horizons.

America without its immigrants and their children — many of whom are today on the front lines of the battle against this pandemic — would likely be in a much worse position than it is now. The thought that America without immigrants would be on a faster path to economic recovery is absurd and a very dangerous myth to propagate.


References:
1. Without Immigration, U.S. Economy Will Struggle to Grow, Pia Orrenius and Chloe Smith, April 9, 2020
2. Suspending Immigration Would Only Hurt America’s Post-Coronavirus Recovery, Dany Bahar, April 22, 2020


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