The immigration solution

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Barataria has noted before that there are three great forces weighing on the economy today: business cycles, globalization, and demographics (the retirement of the Baby Boom, already starting). Business cycles don’t last forever, and this particularly destructive one should end about the same time the heart of the Baby Boom starts to retire in 2018. The latter is a genuinely double-edged sword, providing opportunities for young people to fill the jobs that open as the burden of retirees on public assistance grows. There is still the potential for a great period of economic expansion in the 2020s if we can manage the downside effectively.

As with everything in economics, a growing economy makes everything easier. But how can we grow the economy through this period if there is a shortage of workers? The missing part of this Managed Depression is, as always, the important policy changes that will set us up for the next economy once this phase of the business cycle is over. One part of this pending in Congress, held up by partisanship, is immigration reform.

In other words, the challenges of globalism present one solution to the challenges of demographics.

There are really only three ways to grow an economy. They are natural population growth (births), immigration, and productivity gains. The latter has its own problems since, as noted before, yesterday’s productivity gains are today’s unemployment. Growth through technology is realized as productivity gains and digesting the changes we’ve already seen is going to be very important. That will come naturally.

But population growth is going to be a lot trickier. Birth rates have declined dramatically in these hard times as young families are less financially secure – and may be making permanent, social choices that will give us a birthrate below replacement. The only reasonable alternative is a solution that got us out of the last Depression like this one, the Long Depression of the 1880s. That period ended with a wave of immigration that moved the nation erratically into a genuine boomtime by the turn of the 20th Century.

Can it happen again? The short answer is that, at least in many places, it’s actually more likely this time. According to a study by the Brookings Institution, as of 2009 many cities in the US saw more skilled workers arriving from foreign lands than unskilled. Here in the Twin Cities of St Paul and Minneapolis, for every 100 unskilled workers that arrived 125 were highly skilled – possessing a college degree or better.

If that trend continues, and there is no reason to believe that it won’t, immigration will be the logical way that companies will find the skills that they cannot among the native born population. That’s why the Minnesota Chamber of Commerce has formed a partnership called the “Minnesota Business Immigration Coalition” to encourage the passage of immigration reform. They can see the shortage of skilled workers in the future.

Naturally, making sure that our own population develops needed skills has to be the top priority of any policy. Many people are naturally going to be suspicious of a Chamber of Commerce call for more immigration, believing it to be a hunt for cheap labor at the expense of developing our own talent. We can’t allow that to happen, so immigration policy alone cannot be the only solution. But talent from abroad will certainly be important in the next 10 years no matter what.

This does not go against the assertion by Barataria that labor is at a disadvantage in a global economy because it cannot move at internet speed around the globe the way money can. But those barriers are likely to fall as the economy picks up and the shortage of jobs is filled by retirement in the next few years.

Economic growth is going to remain important, despite predictions that it will necessarily be lower in the future. If nothing else, it’s the most likely way we will deal with the tremendous public debt that has accumulated. But despite the great challenges of demographic change, there is reason to believe that there are very real solutions to be found in both improving access to education, for kids and mid-career adults, as well as simply importing the talent we need.

As the political landscape changes in Minnesota to include elected leadership by foreign-born and younger people we can see this already happening. The only real hold-up is at the Federal level – as we have come to expect. But immigration is indeed one solution to the problem of managing our changing demographics and reform is absolutely necessary to restructuring our economy for the new era ahead.