Europe’s refugee crisis and the American political cycle have kept immigration a fixture in the public discourse for the past few months.
But economically, most researchers believe immigrants could help boost the slowing economies of developed countries.
James Pomeroy at HSBC noted that the net effect of immigration could boost OECD countries’ GDP by over 0.5%.
Pomeroy also noted that much of the potential depends on integrating immigrant populations and finding the right places to relocate.
While Europe faces a number of issues that may make the prospect more difficult, the US’s unique combination of traits may make it a more sensible destination.
According to Michael Saunders at Citi, some OECD countries, such as the “Anglo-Saxon economies” — US, UK, Canada, Australia, New Zealand — and some EU accession countries, especially Hungary and the Czech Republic, are good at employing immigrants.
In those nations, the gap between native and immigrant unemployment is under 2%, on average, Saunders said in a note to clients. In the US, Hungary, and Slovakia, the rate for immigrants is lower than that of native-born workers.
On the other hand, OECD countries in the eurozone have much higher gaps between native and immigrant unemployment. The contrast is stark, said Saunders; in Spain and Belgium, it’s over 10% and the average in the Scandinavian countries is 5%.
Much of that discrepancy comes down to four factors, said Saunders:
- Relatively deregulated labour markets, as shown by the country’s place on OECD’s index of labour-market regulation.
- The gap between the share of migrants and nationals with tertiary-level education.
- A wide dispersion of pay levels, as evidenced by the ratio of earnings for the ninth decile to the first decile.
- Low levels of public social spending, shown by the level of public social spending as a share of GDP
According to Saunders, these four factors help explain 75% of the discrepancies in the employment gaps.
The issue in Europe, for Saunders, is that those countries with smaller gaps between native-born and immigrant unemployment, especially in Europe, are less open to integration outside of the economy.
“It is striking that these relative unemployment rates of migrants are particularly high in countries that often are deemed to be relatively welcoming to migrants. For example, on the Migrant Integration Policy Index (MIPEX), the EU countries with the highest (i.e., most favourable) scores are Portugal, Norway, Sweden and Finland,” wrote Saunders.
According to the MIPEX, which measures migrant integrations through things such as labour-market mobility and reunification with family, Portugal and Sweden are tied for the most accommodative countries in the world with a score of 80, and Norway and Finland are in the top 10.
This inverse relationship holds up on the other end in Europe as well. Low-gap countries like Slovakia, Hungary, and the Czech Republic are 24th or below in the rankings.
What sets the US apart, however, is that it has both the hallmarks of what makes economic integration successful, and also has accommodative policies that allow for broader integration.
America ranks 10th in the MIPEX rankings, and while Europe has dealt with higher rates of immigrant crime, which politicians have blamed on the inability to integrate the populations, US immigrants have a lower crime rate than the native-born population.
Additionally, said Saunders, immigrants in the US help to boost the country’s innovation.
“Homogeneous societies may be more comfortable but less innovative than societies with a large number of (educated) immigrants, with abundant evidence in the US that migrants are more likely to start a new business or obtain a patent than the native-born population,” he said.
Using immigration to kick-start the economy may be promising, but only under the right conditions. And while they may not exist in Europe, it seems the US has all the right pieces in place.
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