Category: Economics

Lant Pritchett and rotational migration

Lant Pritchett challenges us to think radically about the global allocation of workers over the next 100 years. He wants us to think about huge numbers of temporary workers. This idea now is completely off the table in the United States. But it’s an idea whose time may be coming.

He is currently Visiting Professor at the London School of Economics in the School of Public Policy and the co-founder and Research Director of Labor Mobility Partnerships. He is a long-time advocate for easing the barriers to global mobility.

I’ve addressed the imbalance between rich and emerging country workforce demographics. Part of the picture is the rise in formal education in the emerging countries, which allows their workers to be more productive.

Among industrialized countries, production of goods and services and the financing of retirement has during the 20th century required much more working age persons as a ratio of older persons.

Rich, industrialized countries will experience shrinking labor forces and increasing elderly populations, while poorer regions, particularly in Africa and South Asia, will see substantial growth in their labor force-aged populations. ​

Pritchett sees these demographic differences as creating a massive opportunity for “age arbitrage,” where young workers from labor-abundant countries can move to labor-scarce, ageing societies through expanded legal pathways, including rotational labor mobility. ​ by 2050, there could be 130 to 300 million people working in rich countries on a rotational basis, depending on various assumptions about labor force participation and migration policies. ​

He argues that with the right legal and administrative arrangements, rotational labor mobility can be implemented in a safe, orderly, and rights-respecting way, benefiting all parties involved. ​

Per Pritchett, a “well-regulated and orderly system for rotational labor force mobility” threads the three-fold political needle facing rich societies by acknowledging three questions about who can legally reside and work in their country:

(1) Who is the “future of us”—who is to be allowed to live and work in our country on a direct expected pathway to citizenship and hence participate in the shaping of the future of “our” society and culture and politics,

(2) Who will we admit as “movers of distress”—how will our country act with respect to refugees, asylum seekers, and those fleeing intolerable conditions (a category which will expand with climate change), and

(3) Who will we allow to legally reside and work in our country on a fixed term basis, and under what terms and conditions (including restrictions on occupations, sectors, regions), in order to help us meet our labor force needs?

One aspect of very large temporary worker flows is who captures the retirement contributions of these workers, the host country or the sending country?

Some facts: From 2020 to 2050 the population 65+ in Italy will grow by 5.4 million (39%) but the population 15-64 will fall by 12.4 million (33%). The projected ratio of the labor force to those 65+ will fall to less than one worker for every person 65+. This is an extreme case of demographic change. In the United States, the demographics are relatively young due to immigration. The ratio between the 15-64 cohort and 65 + shows this trend: 1950, 7.75; 2000, 5.17; 2022, 3.82; 2050, 2.8.

Dependence on foreign-born workers

Given the restrictionist tone of the incoming administration, it is useful to look at the pinch points in the American labor market where both legal and unauthorized foreign born workers count.  I want here to look at industries not requiring a lot of formal education (such as medicine, where a quarter MDs in practice are foreign-born). I first got involved in immigration when studying and writing on injury risks of low wage immigrant workers, in about 2000.

The most obvious sectors to look at are farming and construction.  Nationwide, about 15% of the agricultural workforce are legal immigrants and 14% unauthorized. In construction, the figures are 13% and 12% (go here, and for farming indepth go here). Note that there are wide variations in estimates of the percentage of workers in an industry that is unauthorized. And, the percentages have changed over time.

The industry-wide figures don’t really help because one needs to isolate instances where foreign born labor is so critical that work will be severely disrupted and for some time for lack of replacement of labor.   In construction that might be day labor jobs in residential construction, and possibly roofing jobs.  In agriculture, the family, non-corporate diary farm industry would suffer severely because it is economically imperiled already and depends on unauthorized Hispanic workers. Also, California, the source of one third of fresh produce, has depended on foreign-born labor for 100 years. The law enforcement and employer communities there have worked out informally how to protect this workforce.

As a general rule, unauthorized workers hold non-public facing jobs – that is, they don’t work in customer service, aren’t waiters in restaurants, aren’t day care workers, in large measure due to lack of English language proficiency.  They do work in personal care. In some states like Florida and New York, well over half of personal care workers are foreign-born.

Here is one of a number of profiles you can find today about unauthorized workers.

Which countries are most dependent on remittances?

Here are 11 countries many households of which are dependent on remittances from their diaspora workforces.

In the orbit of the United States: El Salvador – 24%; Haiti – 20%, Honduras – 26%

In the orbit of Russia, with Germany also involved: Kyrgyz Republic 20%, Tajikistan – 37%

Jamaica -19% from US and UK

Somalia – 25% large share of remittances likely from U.S, and UK, many in Ethiopia, Kenya and Yemen

Gambia – 26% from U.S. and western Europe

Lebanon – 36%: diaspora widely dispersed, likely large share from Saudi Arabia and U.S:

South Sudan – 35% from Uganda, Sudan and Ethiopia

Nepal – 27%: from India, Saudi Arabia, U.S. and Malaysia

 

 

The Public Charge Determination and the Public Benefit Rule

Here are two complicated parts of immigration law which impose, in different ways, constraints on what federal public assistance programs that certain non-citizen foreign-born persons have access to. In all my readings on these standards, it became evident to me that while these standards are necessary, they are based on a core fiction: that to live in the United States, at the lowest quarter of household income, one can survive without at some time using public assistance programs.

Many U.S. households use public assistance programs proscribed for certain foreign-born persons intermittently during financial emergencies. Even more damning is the estimate by the Manhattan institute that the average resident’s lifetime impact on the federal budget is a negative $250,000.  Any legal standards on access to public assistance floats in the ether of unreality, albeit necessary some standard might be.

Let’s start with the public charge determination.  The public charge determination affects immigrants seeking green cards by evaluating their likelihood of becoming primarily dependent on government assistance. The Immigration and Nationality Act Section 212(a)(4) establishes the public charge ground of inadmissibility to green card status if an applicant who is likely to become a public charge.  I have described how the rule works here and here and addressed the Trump administration’s change to the rule, which the Biden administration rolled back.

The public benefit rule sets rules for accessing federal public assistance programs for foreigners residing here – all foreign-born persons who are not citizens, and thus even persons in their first five years with a green card are affected. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) established restrictions on noncitizen eligibility for federal public benefits.  These rules are extremely complicated, applying differently according to the person’s immigration status.

The Migration Policy Institute issued a primer on the public benefit rule. It writes, “The policy decisions made over the years leave a confusing patchwork of eligibility policies that make many groups of noncitizens eligible for some benefits but not others, while others are excluded completely.”  The arbitrariness of the rule (inevitable given its reach) affects persons whether or not they are legally eligible to work and make a living.  States have their own public assistance standards – California and Illinois are noteworthy cases.

 

The Migration Policy Institute’s primer does not describe how affected persons do actually get medical care and other necessary benefits – that would require a close inspection of what is happening to millions of people on a daily basis. For instance, federally-funded community health centers routinely offer free medical care to persons regardless of legal status.

 

 

The rise of household wealth and of global mobility

Voluntary migration, which is undertaken primarily for economic improvement, is abetted by households having enough private wealth to afford the migrate. One form of migration that is almost entirely dependent on household wealth is international education at the college and even high school level. Vacation travel abroad is almost entirely dependent on household wealth.

The chart below shows the growth of global houseold liquid assets (such as bank accounts) and home ownership since 1990. Home ownership is in part an investment with potential to fund other spending by home loans. Note the huge growth of  household assets, driven by the entrance of Asians into the middle class and the global rise of home ownership and home prices. Note that this trend greatly exceeds the trend in global gross domestic product.

The growth of household assets and GDP was interrupted by the COVID pandemic. Today, with the reduction in inflation and expected reduction in interest rates, we should expect a high rate of growth in discretionary temporary migration and demand for permanent migration (the latter severely constrained by immigration caps).

 

Japan struggles with finding workers

In the U.S, 7% of workers are 65. Or over; in the UK, 4%. But in Japan, 14% are 65 or older. (The same in Korea: 13%).  Why this huge difference?

Aging: The population of people aged 65 and over accounts for 29.3% of the country’s total population. This is expected to reach 35% by 2040. In the U.S.. they account for 18% of the population. By 2054, they 23% of the population.

Absence of a large foreign-born population: in 2000, about 1.2% of the population was foreign-born. Today, after a decade of targeted but discreetly revealed governmental policies, 3.3% of the population is foreign-born.  Immigration tends to concentrate is early-mid working age (20 – 45 years). In the U.S. foreign-born persons are 14%; in Germany, 19%. OECD countries average 10% of their population as foreign-born.

In the U.S. some 30% of the entire workforce will in the next five years be either first or second generation foreign-born. It is hard to see how this percentage in Japan will be over 5%. (I’ve posted in tbis here.)

The largest sending countries of foreign-born persons in descending order are China, Korea, Philippines and Vietnam. (There are a good number of Brazilians as well, stemming from immigration in the pre-WW 2 period; there are currently 2 million Brazilians of Japanese descent.)

According to an OECD study, eligibility conditions for permanent residency in Japan are strict. Migrants usually need to live ten years in the country to be eligible. Attracting talent is also hindered by low job mobility in the Japanese labor market.

International students are a key resource targeted by Japan’s strategy to attract and retain global talent and have been traditionally the main way for foreign-born persons to settle in the country.  But the numbers are tiny. The number of international students grew from about 140,000 in 2010 to over 300,000 today and the government aims that number to grow.   Compare 300,000 with the size of Japan’s entire workforce of 69 million. In Canada, there are one million international students and a total workforce of 22 million!

Dairy workers with no legal immigration pathway

America’s dairy workers do not fit into existing categories for legal immigration. They are year-round, rather than seasonal farm workers, and thus cannot be accommodated by H-2A seasonal work permits. These permits hav surged in use, associated the a relative decline among produce farmers to depend on unauthorized workers. Diary workers have no formal modern day skills thus will not be given employment-based green cards.  Yet they fill a gap in the farming workforce created by the decline in population in rural areas and the relatively unattractive compensation and working conditions.

In 2015, hourly wages averaged $11.54, which aligned with wages generally in farming. These wages have surged due in part to labor scarcity, and today both diary and farming in general are $18-$20 an hour. As foreign-born dairy farmers are often provided housing, the comparison with non-farming compensation is not straightforward.  It is worth noting that 31 states do not provide special authorizations for persons without formal legal status to drive a vehicle, thus housing for many may be an absolute requirement. (Go here about special drivers licenses.)

Rural exodus of the U.S. born population, poor attributes of a 24/7 work demand, and low wages compared to cleaner and safer work have created a chronic shortage of workers.

Hence the high use of unauthorized workers to fill diary jobs. 79% of of foreign-born workers in diary farms are estimated to be unauthorized. A national survey of dairy farms was conducted during Fall 2014 produced these insights:

foreign-born labor accounts for 51% of all dairy labor. Dairies that employ immigrant labor produce 79% of the U.S. milk supply. Eliminating immigrant labor would reduce the U.S. dairy herd by 2.1 million cows, milk production by 48.4 billion pounds and the number of farms by 7,011. Retail milk prices would increase by an estimated 90%.

(From Texas A & M, The Economic Impacts of Immigrant Labor on U.S. Dairy Farms, by Flynn Adcock, David Anderson, and Parr Rosson. August 2015)

Also go here.

 

 

How the Manhattan Institute looks at profit and loss from immigration

A Manhattan Institute report estimates the fiscal impact on the federal budget if a “selectionist” program of immigration were imposed. The study attempts to estimate how the lifetime of an immigrant affects the federal budget, summing some two dozen types of tax revenues and disbursements.  I have a feeling that with Republican control the federal government this study will be widely cited.

Also, the Congressional Budget Office has released a forecast of the impact on the federal budget for 2024-2034 which dramatically shows the opposite of the the Manhattan Institute study. The CBO, by taking into account the total impact on the economy including increased productivity overall by recent Biden-era surge of immigration, projects that the net effect on the federal budget during these years will be a positive $0.9 trillion.  The Manhattan Institute study ignores second effects or externalities. (For instance, in an economy with labor shortages in certain industries, by filling open jobs immigrant workers can boost total employment.)

The study ends with what might be called a Dr. Strangelove Scenario whereby we deport half of unauthorized persons who are a net drain, keep the rest as they are not a net drain, at least as much; push up the relative number of young and educated, and thereby move the total net fiscal impact to the positive. I’m not here going to analysis the steps the author takes, but rather hits the high points.

The study was prepared by a Venezuelan immigrant, Daniel Di Martino, a PhD candidate in economics at Columbia University and a graduate fellow at the Manhattan Institute. The study includes many useful facts about the formal education attainment within key classes of immigrants, by age category.

He concludes: “If all the recommendations made in this report are implemented, the U.S. could reduce the debt and grow the economy by potentially $2.4 trillion over the long run, rising by over $200 billion every year that these selectionist immigration policies remain in place. Selectionist immigration requires taking a strategic approach to immigration that prioritizes young and highly educated immigrants over older and less educated immigrants.”

The author writes that the average native-born citizen is expected to cost over $250,000 to the federal government. (All lifetime figures are net present value.) Thus we start with a situation of net fiscal drain without yet considering immigration.

Immigrants without a college education and all those who immigrate to the U.S. after age 55 are universally a net fiscal burden by up to $400,000. (Grandma coming in at age 65 has imposed a lifetime fiscal drain of $406,000). The large positive fiscal impact of young and college-educated immigrants pulls up the overall average. Each immigrant under the age of 35 with a graduate degree reduces the budget deficit by over $1 million during his lifetime. As for those coming to the U.S. to study, the fiscal impact of the average graduate degree holder who entered the U.S., aged 18–24 is outstandingly positive, which is why the author strongly favors keeping STEM students here to live.

For 18 – 24 year old immigrants without a high school degree, the lifetime net fiscal impact is negative $314,000. The author looks at the impact of a U.S. born person with the same profile and estimates negative $256,000.  This is an interesting comparison as it shows that persons with poor formal education of a fiscal net loss, regardless of birth place.

The author’s desired scenario it to reduce annual immigrant from about one million to 850,000, and to tilt every class of legal immigrant towards a young and educated profile. This includes deporting 5 million unauthorized persons who do not meet certain criteria and legalizing another 5 million. The fiscal impact of seven other changes is relatively modest, yet still substantial.  The scenario envisions doubling the share of new immigrants using economic criteria and lowering total immigration.

 

Poll on high-skilled immigration

This by the Economic Innovation Group, which supports high-skilled immigration (HSI), so the poll results need to be taken with a grain of salt. I anticipate that in the next administration there will be enacted an immigration bill which includes more high-skilled immigration, in the eontext of an explicit strategy to boost economic investment.

:Definition of HSI: “immigrants with a high level of educational achievement or specialized professional skills, such as scientists, medical doctors, computer programmers, engineers, or business finance professionals.”

Seventy-four percent of voters support “allowing more legal, high-skilled immigration to the United States,” versus only 18 percent who oppose it.

Support for HSI is overwhelmingly bipartisan: 71 percent of voters who plan to support President Trump in November and 86 percent of those who plan to vote for President Biden favor increasing HSI.

More than two-thirds of voters in every swing state (Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin) support increasing HSI.

Most Americans do not believe the U.S. immigration system is designed to benefit them. Only 37 percent agreed that “the U.S. immigration system is currently designed to benefit the U.S. economy, its workers, and its communities.”

Four-fifths of voters believe the American immigration system needs “major changes” or “a complete overhaul.”

Voters overwhelmingly see the economic and competitive advantages of HSI; 70 percent say it benefits the U.S. economy.

The voters least likely to compete with high-skilled immigrants—rural Americans with a high-school degree or less—are those most likely to oppose more HSI.