Home Alone?

Lots of people are worried about immigration. Is this realistic?

The assumption is that immigrants take jobs and push down wages in the receiving country. In fact, because of the law of comparative advantage, total income in the receiving area often rises rather than falls, even if wages in some fields, like construction, do come under pressure.

This is little-known fact is consistent with economic theory: specialization leads to increased productivity. Immigrants who aren’t fluent in the receiving country’s language might focus on manual or technical labor, and allow other workers to focus on communication or management. The entire economy is better off, because increased labor allows the entire economic pie to grow, and improved productivity allows it to grow faster. Several empirical studies by the San Francisco Fed have given evidence of this.

But what about the donor countries? Do they suffer a “brain-drain?” Again, the answer might surprise you. Because of cell phones and Skype, people stay in touch with their families far more regularly than they used to. Also, remittances back to the sending country are significant. When you’re sending a chunk of your paycheck back to Mom and Dad, you tend to stay in touch.

So what countries are the principal beneficiaries of remittances? Again, it’s not what you’d think. The country whose economy is most dependent on these flows is—Tajikistan–then Tonga, Lesotho, Moldova, and Nepal. Latin American countries don’t show up until number 8. The US is important in discussions about global immigration–just not that important.

There’s a lot of “common sense” about immigration that is just wrong. In general, when people work where they want to, it helps the economy grow.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T10:53:19+00:00 August 24th, 2011|Global Market Update|0 Comments

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