Saturday, April 27, 2013

Migration As Economic Stimulus

Migration, international or domestic, is economic development. However, we can debate how greater geographic mobility enhances growth. Atlantic Canada is dying:

It turns out that 80% of more of the employment in a local community is actually based on the economic activity (and population) in that community – nurses, electricians, hairdressers, waiters, plumbers, taxi drivers, teachers, etc.

Therefore, if we reduce the population by 11,000, we reduce the overall local economy by a significant amount leading to widespread losses in the 80% of the economy that was hurt by the loss of those 11,000. ...

... The other deeply flawed assumption regarding the ‘rightsizing’ of communities is the linearity of public services and public infrastructure costs. If you drop the population by 20%, the theory goes, you will reduce the cost of these services by 20%. This turns out not to be the case. In fact, you could argue that public spending goes up – particularly in the area of income transfers – where EI, social assistance and even workers’ compensation costs rise. The insurance firms will quietly tell you the number of homes that burn down also rises as economic prospects fall.

Shrinking New Brunswick gets hit with a double whammy. The demand for local services wanes with net outmigration. The smaller local population is still on the hook for legacy costs meant for a larger number of people. It looks like a death spiral for the community.

In fairness to Rust Belt cities such as Cleveland, the obsession with demographic decline is rational. Mayor Frank Jackson's "bold prediction":

"I will guarantee you that, with a good education system and the policies that we have in place, when they take the next census, we will have population growth."

Net inmigration benefits the city, a place. Simply growing the population (more births than deaths) will do the trick. More people demanding goods and services will act as a stimulus.

The more efficient allocation of labor is also part of conventional wisdom. Move to where the jobs are located. On a larger scale (national instead of local), economic migration spurs growth. Again, the framework of analysis is place-centric.

A different framework of analysis for economic development is focusing on talent instead of place. For some reason, US immigrants tend to be more entrepreneurial than the general population. It stands to reason that more immigrants will spur job creation. Attracting migrants isn't about growing the population. The goal is to prime the pump of the regional economy. The quality of the migrants matters more than the quantity.

Well, why are immigrants more entrepreneurial? When a person moves, that individual economically develops. People develop, not places:

What if there was a program that would cost nothing, improve the lives of millions of people from poorer nations, and double world GDP? At least one economist says that increased mobility of people is by far the biggest missed opportunity in development. And an informally aligned group of advocates is doing its best to make the world aware of the "open borders" movement, which suggests that individuals should be able to move between countries at will.

Vipul Naik is the face, or at least the voice, of open borders on the Internet. In March 2012, he launched Open Borders: The Case, a website dedicated to the idea. Naik, a Ph.D. candidate in mathematics at the University of Chicago, is striving for "a world where there is a strong presumption in favor of allowing people to migrate and where this presumption can be overridden or curtailed only under exceptional circumstances." Naik and his two primary co-writers, Nathan Smith and John Lee, parse research into immigration impacts, answering claims by those they call "restrictionists"--people who argue against open borders--and deconstructing writings on migration by economists, politicians, journalists, and philosophers. ...

... To prove the economic power of open borders, supporters often turn to the work of Michael Clemens, a development economist and one of the strongest voices for loosening border restrictions. Clemens is not an open borders advocate, but his research and writings make it very clear that movement of people across international borders should be a much higher priority than it is now. He is, he told me, "in favor of a vastly more sensible way of regulating movement," if not "a utopia of completely free movement." Based out of the Center for Global Development, a think tank in D.C., he has spent much of the past half-decade compiling international labor mobility statistics that are, as he says, "gasp-inducing."

Barriers to emigration may--according to Clemens's paper--"place one of the fattest of all wedges between humankind's current welfare and its potential welfare." Though he affirms that the research on migration's effects is far from complete, what Clemens has found "suggests that the gains from reducing emigration restrictions are likely to be enormous, measured in tens of trillions of dollars." Remove all remaining barriers to trade, says Clemens, and all remaining barriers to capital flow, and it still wouldn't compensate for the inefficiencies created by current global labor mobility restrictions. His research indicates that allowing free movement of all people across international borders could double world GDP.

According to Clemens, we are all victims of an epic intuition fail. "Development is about people, not places," he has said many times over, and often the best way to make a person richer is by allowing them to move to another place. We don't really care about helping poverty-stricken Liberia, we care about helping poverty-stricken Liberians. It sounds almost too simple at first: A very large percentage of people who have gone from extreme poverty to relative financial stability have done so by moving across borders. So why don't we just let more people move?

To plug the brain drain, even if doing so bolsters the population numbers, undermines economic development. Talent retention is a drag on growth. We are more concerned about place than people.

"What about state sovereignty," you might ask.

What about prosperity?

Migration is an entrepreneurial act. Moving from one place to another is an economic stimulus. People leaving Cleveland promotes growth.

As more of the world demographically converges, the focus on talent is of greater importance. Winners and losers won't be defined by population, but by connectivity and churn. Those in Cleveland clamoring for a better Census result are barking up the wrong tree.


Dave said...

"People leaving Cleveland promotes growth." Right, but to have churn, you also need a near-equal number coming in, or if not a near-equal number, a lesser number that are of "high quality" (meaning either skilled, or entrepreneurial, or at least highly motivated) moving in, yes?

Are you making the argument that people simply leaving Cleveland and "making a connection between two places" by itself is enough to improve the Cleveland economy?

Jim Russell said...

Are you making the argument that people simply leaving Cleveland and "making a connection between two places" by itself is enough to improve the Cleveland economy?

To provide a short answer, yes. When someone leaves Cleveland for someplace else, that's economic development. If we focus just on place, then we overlook those gains.

Places know how to derive benefits from inmigration. Few places know how to derive benefits from outmigration. We should understand any move as benefiting two places, not harming one and benefiting another.