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Immigration: Good for Business?

Good-b announces a new Good Business Economics feature: Breaking Barriers penned by Blogger – Sterling Wong who hails originally from Singapore and is a legal resident of the U.S. and New York.  After studying economics at Oxford, Sterling graduated from Sarah Lawrence College in New York with a degree in Economics & Political Science.  Fluent in Mandarin Chinese and immersed in Asian and American culture, Sterling brings an innovative international view in the world of finance to Good-b. We welcome him aboard.

Breaking Barriers by Sterling Wong

It’s one of the most contentious political topics this side of healthcare reform, especially given the depressing state of the U.S. labor market where, as figures released last week indicated, unemployment remains persistently stuck at a high 9.1%. And just like healthcare reform, there’s a reason why the issue of immigration reform resonates so strongly with Americans: What’s at stake, it seems, are the livelihoods of American workers and their families.

One aspect of immigration that has been the subject of intense scrutiny in recent years has been that of illegal immigration, which often widens to include all immigration. Politicians and citizens ask, “So many Americans are out of work and you want to bring in foreigners to compete for jobs?”

I would argue that legal immigration is good for the economy, which is why the Department of Homeland Security’s efforts to smooth the process for qualified foreign workers are a step in the right direction.

Illegal aliens don’t pay taxes. But the U.S.’s byzantine immigration regulations often times works out such that it’s harder to find work here legally than illegally. Realizing this, the DHS has made a series of tweaks to the Customs and Immigrations rule.

One significant change, for example, is that “foreign workers with advanced degrees and individuals of exceptional ability in the arts, sciences, or business” no longer require a job offer or have to go through a drawn-out process to get a Department of Labor certification to obtain an EB-2 permanent residency visa, as long as they can demonstrate that their business will serve the national interest of the U.S. This means that someone like Google co-founder Sergey Brin would have an easier time setting up business ventures.

One obvious benefit of immigration is the brain drain effect. The U.S. has traditionally been the No. 1 tertiary education destination for international students, and some 690, 923 international students enrolled in American universities and colleges in the 2009/10 academic year.

Universities like Harvard and Princeton have need-blind international admissions policies because they recognize the virtuous circle created by having the best and brightest minds globally. Thus, they spend a large amount of money and time training them. Wouldn’t the wise thing to do be to loosen the restrictions for these students to find jobs when they graduate and get our return on investment, instead of creating a reverse brain drain situation where foreign students who have been educated on U.S. resources bring their knowledge back to their home countries?

According to a Kaufman Foundation study, 25.6% of international patent applications in 2006 were filed by foreign nationals residing in the U.S., which was an increase of 7.6% from 1998, thus highlighting the importance of immigrants to American innovation.

StuartAnderson, executive director of the National Foundation for American Policy states, “Given the innovations and productivity increases that can come from skilled professionals, foreign-born scientists and engineers are likely to complement the skills of Americans and increase employment opportunities.”

Taking Anderson’s statistic that foreign students make up 65% of PhDs in computer science further, if the Indian or Chinese computer science graduate is unable to land a job here because of visa issues, she will simply go home with her skill sets and now she becomes a competitor to the US, rather than contributing here.

Another often overlooked issue legal immigration helps to resolve is the looming demographic challenge the country faces. Because of a decline in fertility rate, U.S. population growth has slowed dramatically. Historically, U.S. economic growth has come from increases in two sources: productivity and labor inputs.

Labor inputs increased rapidly when the post-war baby boomers came of age and women began to enter the workforce. However, baby boomers are now retiring and women’s participation in the workforce has reached a plateau. According to a 2011 McKinsey US demography study, U.S. productivity would have to increase by 34% from rates we’ve seen in the past two decades to maintain historical GDP growth rates.

This is where immigrants would come in! Immigration contributes to continued labor force increments even as U.S. fertility rates fall below replacement rates, thus ensuring that the economy can continue to grow without the pressure of achieving impossibly high productivity growth rates.

The ‘inverted pyramid’ or aging population problem is one also faced by Western Europe and Japan. Even China faces the same conundrum in the coming decades as issues related to the one-child policy rears its ugly head – the relatively smaller population of children will have to support their retiring parents. With an open legal immigration policy, the U.S. will be able to remain economically vibrant, especially in contrast to its European and Asian competitors.

Immigration has historically always been intrinsically linked to the development and growth of the U.S. Chinese immigrant workers who in the 19th century labored as miners and were integral to the completion of the transcontinental railroad, for example. And there is a litany of successful immigrants who have contributed to improving national welfare. A recent figure that comes to mind is Goodwin Liu, the young liberal legal superstar who was just appointed as Associate Justice of the Supreme Court of California. Liu’s parents emigrated here from Taiwan in the late 1960s when foreign doctors were sought after to work in underserved markets.

In the short run, limiting work visas and legal immigration may save some American jobs, but in the long run may actually do more harm than good. Companies that operate based on bottom lines will simply outsource an entire division or production line.

The long-standing American tradition where great innovators and pioneers come to the land of the free to pursue the American Dream has been one of the key factors for the nation’s prosperity, and will continue to be in the future, if the public can see the forest for the trees.

 

About Sterling Wong

 

 Sterling is a New York City transplant from Singapore who studied economics and politics at Sarah Lawrence and Oxford. Having been exposed to both heterodox, liberal economics and orthodox classical economics, he is most fascinated by the differing perspectives each school of thought offers. At Good-b, he aims to explore these two contrasting outlooks on business issues, in particular the Chinese relationship with the U.S.