The Role of Immigration in The Economics of The USA

WhatsApp. eBay. Tesla. Google. These are just a few multi-billion dollar companies. Each of these are quite different, operating in different industries, from automobile, to social networking. However, the one thing they all have in common, is that all of these successful corporations, along with thousands of more, were founded by, and rest on the backbones of immigrants.

The report on immigration, released in 2016 in the United States of America, concluded that from 1990 to 2010, immigrants collectively contributed net benefits close to $50 billion per annum. In 2016, nearly $3 trillion was added to the US economy by the 26 million foreigners in the country. Yet, despite the benefits being so large, immigration is still a topic with vastly contrasting perspectives; both, within in a country, and internationally.

The United States of America is undoubtedly the best example of how crucial immigrants are to a country’s economy, considering how they have the largest population of immigrants (around 13.5% of the total population as of 2015). They have the highest nominal GDP ($19,417.144 billion) in the world, with companies like WhatsApp, and eBay being large contributors. This is a similar case with countries like the UK, Canada, Italy, which have relatively large populations of foreigners, all of whose GDP ranking is within the top 10.

Why does this happen? What is it that immigrants bring and/or do that allows for this? First and foremost, immigrants tend to enter a country at a relatively young age, and do not draw extensively on public pensions or health care. In Italy, close to 80% of the immigrants are of working age, and those receiving pension make up less than 0.65%. It is a similar case in the UK. The European migrants are said to pay more in taxes than what they receive from benefits, valued at a surplus of around $2 billion per year.

Immigration increases the young population, prevents a shrinking number of workers and an imbalance tipping toward the side of an ageing population. In January of 2017, the Congressional Budget Office projected that for the next decade, there would be 2% economic growth per annum in the US, and without immigrants adding to the workforce, this number would be lowered by upto 0.5%. Between the 1950s and 60s, the population growth was more than twice that of the past decade, and the economy grew immensely. In Europe, the immigrants accounted for nearly 70% of the increase in the workforce in the past decade and these immigrants contribute significantly to labour market flexibility. In direct contrast is Japan, with their extremely low immigration rate and immigrant population. They’re suffering from an increasing ageing population- the highest percentage of people over 65 in the world. An increasing ageing population means increased spending on healthcare, pensions, benefits, and so on, and fewer people working to increase the country’s GDP. The government of Japan even tried monetary and fiscal policies to stimulate economic growth, but it has been unsuccessful so far.

When we talk about an increased labour force, one of the most obvious and common questions is what this would mean for the existing population. Does this increased competition mean fewer jobs for locals? In theory, yes. Immigrants tend to work for lower wages in comparison to the locals, since many of them are relatively unskilled and desperate for jobs. Also, by simple economic theory, increased supply (of labour) means lower prices (i.e. wages). However, economists believe that this is not the case. In fact, it’s the opposite that happens. Giovanni Perri, an economist at University of California, Davis, said “The average American worker is more likely to lose than to gain from immigration restrictions.” One reason is that, to put it plainly, more immigrants means higher demand for goods and services in an economy, which results in companies hiring more workers. Another reason is the fact many immigrants tend to open up their own businesses; approximately 30 percent more likely than non-immigrants, in the US, as per the according to the Small Business Administration. Google and eBay alone employ more than 87 thousand people in the US. Economist Walter Block explains this logical fallacy in his book “The Journal of Libertarian Studies”, by explaining how ‘It [this thought process] assumes that there is only so much work in a nation to be done, and that if immigrants do more of it, there will be just that much left for present occupants’. Such is definitely not the case.

Immigrants are also extremely helpful for an economy for the reason that they have more drive, more motivation, and are more hard working than most of the locals, because they know that they have to work much more to accomplish significantly less than locals. The majority of them have significantly less skills, and almost no money to begin with. As countries get developed, the tertiary sector of the economy, i.e. the white-collar jobs, become more important. However, the fundamental blue-collar, menial work, of labour-intensive manufacturing, construction, etc. is still crucial to the economies. In the US and Canada, although the primary and secondary sectors contribute only around 22-25% of each economy, they are still fundamental, and without them the country would not be able to sustain. Look at the construction industry. In the US immigrants make up nearly 22% of its labour force. Also, more immigrants and a greater population, means an increase in demand for housing, once again helping the industry. Immigrants make up nearly three-quarters of the agriculture industry, again, a crucial industry.

Not all immigrants end up working in these industries. Some are extremely successful entrepreneurs. In fact, a study conducted by the National Foundation for American Policy found that 44 out of 87 start ups valued at over $1 billion, were founded by immigrants. Together, these 44 businesses are collectively valued at $168 billion, nearly half that of the stock markets of Mexico and Russia.