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Immigration — What Europe Can Learn From the United States

Do the benefits of immigration outweigh the disadvantages?

February 22, 2005

Do the benefits of immigration outweigh the disadvantages?

The German Federal Office of Statistics has just published an estimation that the number of immigrants to Germany declined significantly in 2004.

Overall net immigration — that is, immigrants minus emigrants — was only 75,000. Ten years ago, the number was almost 400,000. And even between 2000 and 2003, the average was still about 200,000.

There are no comprehensive statistics available yet for all of 2004, but since Germany is the biggest country in the European Union, it is safe to assume that in Europe as a whole, the number of immigrants has come down in 2004.

Some people who think that the number of foreigners in Europe is already too high will welcome this decline. I think, however, that this is a mistake, at least from an economic point of view. Europe does not need less immigration — but more.

The reason is quite simple. If we look at international statistics, countries with a higher rate of population growth are often more successful economically.

The United States is a prominent example. There, the economy is expanding by a long-term average rate of 3.5% per year. More than one percentage point of this increase can be attributed to the increase in population.

In 2004, the number of residents in the United States increased by 2.9 million, of which 1.2 million were immigrants.

If Europe were to have the same percentage rate of population growth, then the economy would have expanded not just by 1.7% last year, but by at least 2.3%. European growth would then still have been lower than that of the United States, certainly — but not by all that much.

In the German debate, it is often argued that immigration of foreigners would further aggravate the labor market problem in Germany.

The example of the United States shows that this is not true either. Despite the high immigration rate, the country's unemployment rate — at about 5% — is significantly lower than Europe's.

The reason is that immigration not only increases the number of available employees, but also increases overall economic demand — and thus the number of jobs available.

On the one hand, this takes place through private consumption. In addition, immigrants need apartments and houses. That helps the construction industry and the real estate markets.

Increasing real estate prices, in turn, have a positive effect on the private consumption of domestic residents, because the assets of homeowners increase. Overall, economic growth thus increases more strongly than the increase in the population.

If Europe had the same immigration levels as the United States, this multiplier effect would have lifted economic growth to 2 .5 % — not all that much less than in the United States.

Another argument prevalent both in the European and U.S. debate states that immigrants are a burden, particularly on the low-wage sector, since they are willing to work for lower wages and tolerate poorer working conditions.

Hence, it is argued, they take jobs away from less-qualified workers — those who comprise one of the large groups of the unemployed. Here again, it's worth taking a look at the United States. Most of the immigrants there come from Mexico.

However, their presence does not represent any significant problems for American workers, because Mexicans and other immigrants typically fill the jobs that Americans themselves do not want.

In Germany as well, there is a labor shortage in many jobs in the low-wage sector. Consider the seasonal workers from Poland and other Eastern European countries.

Without them, the agricultural industry and the hotel and restaurant industry, for instance, could not survive in many areas.

Population growth does not only create more growth and jobs. It also helps to solve the difficult problems of paying for retirement plans. Over 60% of the immigrants are between 18 and 40 years old — still far from retirement age.

More people coming into the country and paying into social security insurance lessens the financial and demographic pressure on the pension insurance plan. Incidentally, immigration by younger workers also helps the health care system, since younger people fall sick less often.

The favorable ageing structure of the immigrants also promotes population growth overall. The higher number of births in the United States compared to the number of deaths is also attributable to the fact that so many people came into the country in the past.

Now, one should certainly not expect that immigration will be the solution to all problems. Population developments always take place over a very long period of time.

Even if many more immigrants were admitted to Germany or other EU countries today, it would no longer be possible to prevent the demographic difficulties that will emerge over the next few decades.

Even the United States will have demographic problems in pension plans and health insurance. However, the severity of the U.S. demographic challenge is not quite so pronounced as Europe's.

The biggest problems in this area, by the way, will occur in China, as a result of the "one-child policy" that bas been in force there for many years.

But when it comes to calculating the benefits of immigration, it is always necessary to also factor in the costs of integrating immigrants. This includes government infrastructure measures, such as new schools and kindergartens.

In addition, there are various other measures necessary to help along social integration, such as language courses for immigrants.

On the other hand, immigration brings with it cultural and social diversity, which in turn also has economic advantages. The great economic success of the United States over the past several decades is based not least on the competition of different cultures.

Admittedly, it is important that the structure of immigration is appropriate.

It does of course make a difference whether the people coming into the country are economic refugees who only want to profit from the favorable social system — or are highly trained computer specialists, for instance.

Considered as a whole, the American example shows that the advantages of immigration do — on balance — outweigh the disadvantages.

President Bush is planning to push for a law that would allow more guest workers — that is, immigrants with a time-limited residence permit — to enter the country.

The lesson for Europe is clear: We should not close ourselves off too strongly from immigration.

There is also another very long-term reason. If we consider the history of the migration of peoples over the millennia, then we must ask ourselves whether it is conceivable at all that one of the richest spots on earth can have a shrinking number of residents over the long term.

I suspect that this will only be possible if one were to construct a high and insurmountable wall — a European wall akin to the famous Chinese wall. That is not a realistic assumption, even on the part of anti-immigration Europeans.