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IE Financial Talks

Migration is A Win-Win

By IE Business School Professor Gayle Allard

Migration is a win-win. Macroeconomic theory suggests that as immigrants join the native labor force, the aggregate labor supply curve in the host country shifts right, GDP grows, and depending on labor supply, both inflation and unemployment may fall. Research shows that countries with large immigrant populations tend to be more dynamic, innovative, and entrepreneurial- and generally have low unemployment rates.  Meanwhile, when people migrate, this can help reduce poverty in their home countries, as wages can go up and families can receive remittances. in a world where developed country populations are aging and shrinking, migration is needed to maintain a strong workforce and add to pensions systems. Migrants are normally younger than the native population, so they can help on both fronts.

Yet opposition to immigration is rising.  Populist parties with anti-immigration platforms, who in Europe took only 8.5% of the vote in 2000, won more than 24% in 2017.  Even tolerant Sweden and Spain now have rising anti-immigrant parties.  In the United States, where a clear majority favor immigration, furor has been whipped up over visions of foreign hordes rushing the border.  Where does this come from, and what can governments do to reap the economic benefits of migration without dividing society?

 

There are myriad reasons to oppose immigration, and not all of them are economic.  Possibly the deep crisis of 2009 and the slow recovery heightened resentment of the foreign “other” who allegedly took the jobs and lowered the wages of low-skilled natives (who tend to vote in larger numbers for populists).  Automation, which has eliminated jobs particularly for the low skilled, might have done the same.  It is easy for those who have been displaced by crisis, automation, or globalization to believe that those who hurt them were not anonymous forces, but rather people who look or speak differently.

 

In European countries with ample welfare benefits, many natives believe that they pay too much to provide nonwork benefits to refugees and other immigrants.  During the 2015 refugee crisis, 1.25 million asylum seekers descended mainly on Italy and Greece, overwhelming local registration and social support systems.  When they made their way from there into the rest of Europe, many struggled to integrate into the societies, like Germany and France, that accepted them.  In Sweden, refugees go through a two-year job and language readiness program, but still take an average of 7-8 years from arrival to find a job.  Across Europe, the unemployment rates of refugees are higher than those of the native-born (the opposite is true in the United States).  This imposes a burden on social welfare systems.

 

In some regions, however, the anti-immigrant sentiment is difficult to understand.  Eurobarometer polls show that the countries in Europe where (non-EU) anti-immigrant sentiment has risen most since 2015 are Romania and Poland, which have much lower rates of immigration than the EU average and which have seen 6-7 million of their citizens emigrate to other EU countries—an irony which apparently escapes most voters.

 

What can governments do to stem the hostility toward immigrants and allow a much-needed labor force to enter and take up vacant jobs?  Some of the work begins at home, as countries like the United States and the UK have done a poorer job than other developed countries at supporting native workers whose jobs or wages have suffered from globalization, automation, or immigration.  The U.S. in particular spends very little on retraining and relocation assistance for workers.  A better safety net should dampen opposition to immigration and help natives hold their own in the job market.

 

In Europe, natives complain about how much refugees and other immigrants cost them as they take up welfare benefits.  To address this problem, there are two options:  to be stricter with nonwork benefits for natives and non-natives alike, or to exclude immigrants from some benefits during their first years.  Germany, the Netherlands, and some others have taken steps in both directions. Sweden also does not permit foreigners to enter the country without a job offer (political refugees, however, who arrived in Sweden in the tens of thousands in 2015, must be admitted under EU agreements).

 

Some experts recommend that countries create a “migration impacts fund” to help both natives and foreigners through the transition. This could be used to provide job training for those displaced from their jobs by immigrants, and to support immigrants’ incomes and relocation.  Where would the money come from?  Here’s where more radical immigration-regulating measures come to the fore.  U.S. Nobel laureate Gary Becker years ago recommended that a tax be levied on immigrants upon arrival (alternatively, a surcharge could be placed on their earnings after they come in). These proposals would be criticized as discriminatory or unfair by some, but they tackle several problems at once.

 

First, they would make the migration process at once more transparent and less treacherous, eliminating people trafficking.  Migrants currently pay traffickers large sums of money with no guarantee that they will reach their destinations; and they pay additional amounts for false paperwork.  With an “immigration tariff”, they would pay a fee to the host government in exchange for certainty that the country will allow them across its borders and provide them with legal papers.  Second, a tax of this kind would be a way of illustrating to natives that immigration also benefits them.  The money could be remitted to natives, or it could be placed in a fund to pay for labor market transitions for migrants, or it could be used transparently to retire national debt.  In every case it could help address opposition from those who believe that immigration costs taxpayers money. While no developed country currently imposes a general immigration tariff, there are countries that give residency in exchange for large investments – Spain and Portugal´s Golden Visa programs, for instance, or the U.S. EB-5 visa program — which are accessible only to wealthy foreigners.

 

Surveys show that anti-immigrant sentiment recedes when the new arrivals assimilate successfully.  To do this they need to speak the language, find work, and participate in society.  More efficient national employment databases, like the European-wide Eures, could help both immigrants and natives to find jobs. And wage subsidies, which Sweden has experimented with, might help bring low incomes up to the average for their jobs, making hiring immigrants more popular among companies.  If done transparently, measures like these could form part of a rational package to regulate immigration and integrate the new arrivals successfully into society.

 

To truly get a handle on immigration and anti-immigrant sentiment, the inflows need to be legal.  The government can step in here by cracking down on companies that hire illegal immigrants.  Efforts to detect illegal employment and fine companies who use it would stem much of the illegal flow.

 

Labor, the world´s most valuable commodity, is needed throughout the developed world for growth to be sustained.  Rather than engaging in emotional debates, governments should look for sensible ways to bring labor where it is needed safely, rationally, and yes, even profitably.