Changing Places:

The Economics Of Immigration

By John Schroder - February 10,2016 

The top immigration story from 2015 (rolling over into 2016) is of course the issue involving refugees from Syria (and elsewhere in the Middle East) flooding into Europe.  But there is another immigration trend that has gone virtually unnoticed that we think is more profound and involves the world's more solvent populations voluntarily migrating out of economic survival (and not war).  However, before we get into that, there are two very important points to be said in general about individual nations and their own respective immigration policies.

Number one, all nations have the right to protect their own borders, economy and populations.  I do realize that there are those that might disagree, or at least view this statement as somewhat callous or even narrow minded.  However, while the UN and other organizations might offer so-called politically correct lip service to the idea of human rights for refugees of various kinds (I recently read a news item whereby a journalist bristles at the use of the term refugee, but semantics alone will not change the issue), all too often it is criticism not rooted in economic reality nor backed up with aid or assistance to address the problem.  How easy and convenient is it to chastise the migration policies of a country while such very same talking heads distance themselves far removed from the local populations having to deal with such problems in person?  If the UN and other organizations really want to help they can certainly donate money and or other kinds of resources to the nation or nations under stress in terms of such migration issues.  They can issue UN passports to all the displaced, undocumented and downtrodden.  Of course they do not.  That would involve a great expense, a great deal of work and a serious responsibility.  Talk is cheap and even free, but of course the opening up of the wallet a whole other matter altogether.  And there in lies the problem – does it not?  The IFO Institute for economic research based out of Munich Germany estimates the Germans will end up footing a bill of 21 Billion Euros (that is Billion, with a B) for the housing, food and education costs of the new arrivals (to use a more polite term other than refugees).  That is a whole lot of bratwurst my friends and that is the tab just for one country out of many.  Who is going to pay for it all and how?

Secondly, people escaping bullets and bombs aside, human migration is rooted in economics and it always has been.  Early man migrated from place to place seeking out better hunting grounds and more plentiful food supplies.  In more modern times, when the complexity of society evolved and man obtained his subsistence by working for wages, it was (and still is) a case of poor economic conditions (as opposed to scarcity of game animals) that drives people to seek out a better life someplace else.  However, just as we have the problem of any country coping with the mechanics of handling a large influx of people displaced by disasters of various kinds (both man made and natural) so also there is a stress and difficulty for modern nations to absorb the foreign unemployed into their own respective economies as well.  We can look at current day Germany once again as an example.  The youth unemployment rate in Germany is presently calculated out at about 7 percent (and by youth we mean anyone under the age of 30 as the cohort being referenced).  By contrast, the youth unemployment rates in Italy and Spain are estimated to range from 40 to 50 percent.  So, what we have seen taking place is a migration of young and often well educated Italians and Spaniards attempting to live and work in Germany as a result.  BUT, can Germany absorb such people without negatively effecting the unemployment numbers for local native born citizens?  While a 7 percent unemployment number is certainly exponentially more attractive (economically speaking) than 40 or 50 percent, it still means that there are still a notable number of German university graduates that cannot find jobs.  It is not as if there are more jobs than eligible job candidates right now in Germany, so what is fair and just in such a situation?

The IMF, via a recent update to it's World Economic Outlook report has opined that: In Europe, where the tide of refugees is presenting major challenges to the absorptive capacity of European Union labour markets and testing political systems, policy actions to support the integration of migrants into the labour force are critical to allay concerns about social exclusion and long-term fiscal costs, and unlock the potential long-term economic benefits of the refugee inflow (end of quote).  In other words, basically the same thing we have just said albeit with more literary flourish and opaque economic language typical of bureaucrats and economists on a government payroll.  


Migration, Social Welfare & Free Riding

Many people dislike the topic of economics because they think it is a case of reviewing boring numbers and complicated mathematical theorems.  In fact this is the fault of academics and economists that might refer to spin some mysticism and aura of complication on what they do.  However, economics involve the study of human nature more so than anything else.  And while human nature can be a bit unpredictable at times, it is not so difficult to understand the basic nature of people and what they may or may not do as it relates to a number of things.  And one specific topic regarding economics and human nature involves the issue of free riding, which universally is disliked by anyone putting in the effort or expense only to find someone else perceived to be benefiting unjustly.  Your next question of course is: what the heck does this have to do with migration issues?  Everything.  If one group or one nation makes the necessary sacrifices economically, politically or both which results is a better economic situation for themselves, then is it fair and just that someone else or some other nation benefits from the work or sacrifice of another?  The Utopian Socialists and related schools of thought might suggest we should all simply just open our hearts and our wallets for the betterment of mankind.  It is a nice idea and one that would be wonderful if everyone collectively lived and behaved that way.  But it is unrealistic and an affront to basic human nature.  We as human beings are motivated by our own self interest and potential benefits.  This includes equally the migrants that want to get into the country that is better off economically (entering legally or illegally) and the country that wants to put a proverbial wall up to stop the number of inbound migrants placing burdens on the respective social welfare systems of the so-called developed or wealthier nations.

The Immigration Trend Not Talked About

The previous paradigm that still certainly exists is the migration of those from so-called Third World or Developing Nations to the First World or Developed Nations.  The recent statistics regarding this still indicate that North America (United States and Canada) and Europe (Western Europe principally) are the recipients of the bulk of migrants attempting relocation for better economic opportunity.  Again, simply put, migration from poorer nations to wealthier for the purpose or goal of the migrant's own economic betterment.  But this is an illusion or better said a fantasy perpetuated and still believed by the poor and uneducated in many developing nations.  Anemic GDP growth, loss of manufacturing and industry to lower wage cost nations, recent banking and financial sector problems still making themselves known in the financial markets, unprecedented levels of government, corporate and consumer debt do not make for an economic miracle.  The EU and the US are in a very bad way economically speaking, although the aspiring newcomers still do not know that yet.  However, the people currently living there certainly do, which leads us to the next immigration trend of the solvent attempting to escape.

In other words, there is a trend of the wealthy and middle class from Europe and North America attempting to obtain a better economic situation albeit one that involves escape from high taxation, high cost of living and both foolish economic and migration policies by the politicians in these developed nations.  One statistic we can point to in this regard, or to support this thesis, is the ever increasing number of US citizens that are renouncing or relinquishing citizenship each year.  In fact, the number of people doing this has increased dramatically over the past few years and a new record was now set in 2015 in terms of US Citizens renouncing or relinquishing citizenship AND holders of permanent residency in the US (green card holders) also voluntarily terminating their US residency(see news link below).  So, in summary, we still have the working poor trying to pile into the so-called developed nations and the middle class or wealthier segments of the developed nations trying to get out.  Where are they going?  In many cases to the very same developing  nations or emerging markets that the poor are leaving from.  However, the new foreign immigrants from the developed nations going to Latin America, Asia and elsewhere are solvent and usually better educated.  This is the material difference and one that should not be overlooked in terms of how this will effect the both the developed and developing nations going forward.  Such refugees from the high tax social welfare states are not seeking social welfare (this isn't any or certainly not even remotely on the scale offered in North America and Europe), they have financial resources at their disposal, and they might be vitalizing the economy of their new country via real estate investments and or new businesses.  In contrast, HB-1 visa issues and the in the US aside, the migrating working poor entering the US and Europe come in most cases with empty pockets and a desire to work.  All quite noble and a idea that was mutually beneficial when the US and Europe was undergoing rapid industrialization.  Today, incoming lower skilled migrants are competing with unemployed native born young people, many with university educations, that cannot find work.  A recipe for social conflict and one the politicians in these respective so-called modern wealthy developed nations do not seem to grasp.     

In addition or as part of a subset, we also have the baby boomer generation heading for or already in retirement attempting to survive.  US$2,000 per month (or it's equivalent in Euros or Pounds) does not take you very far in London, Paris, Rome, New York, Miami, Los Angeles and a number of other jurisdictions.  But, when you consider the cost of living can be half in say the Dominican Republic, The Philippines, Ecuador and other locales, the attraction to retire to one of these destinations is not so difficult to understand.  Looking at rents as just one example, a typical middle class apartment rental in a economically solvent area of New York, Washington D.C., or Miami might cost anywhere from US$2,500 to US$3,000 per month (and that is not even an extremely high end accommodation).  On the other hand, the same kind of apartment rental in Santo Domingo might cost you about US$600 per month in a building with a door man and maybe even a gym or swimming pool for the tenants.  So, the point to be made is that cost of living is lower outside of the US and the EU even though locals in the emerging or developing markets still complain and do not believe that they actually have it better in a number of ways. 

The Emerging Markets Unemployment Concern

Using the Dominican Republic as a real world example, one of the blatant results of high unemployment in Europe (Spain and Italy especially) coupled with economic and unemployment problems in Central and South America has been a tremendous influx of such unemployed persons into a number of developing or emerging market nations.  In terms of the Dominican Republic specifically, this has meant Spaniards and Italians showing up as tourists but with illegal immigration and employment on their minds.  Likewise, the Dominican Republic has been flooded with Colombians, Venezuelans and people from the Central American nations basically with the same intent.

In order to be very clear about this from the local perspective, one must understand that the Dominican Republic was always a destination for tourism.  Which is to say their previous experience was foreigners coming for a short visit for vacation (or holiday as they would say in the UK), spending their money and then leaving.  What has shocked the Dominican Government has been the case that such foreigners did not leave and were not interested in tourism per say but rather work.  It had become such a problem that the Dominican Government wanted to deport a very large number of Spaniards back to Spain and of course the Spanish Government threw a sissy fit.  Can you imagine, your own government does not want you back because you are now unemployed (even though you may have paid into the social welfare system your entire adult life previously)? 

This paradigm has pretty much been the case in a number of other Latin American countries as well.  So, as a result of this, more difficult requirements and processes have been put in place for residency and immigration.  There still are plenty of tourists in the Dominican Republic and in fact they had a banner year for tourism in 2015, so there are no changes at all to the visa free tourism visit by the foreigner.  However, coming to work and possible take work away from a local is another matter altogether, and the residency process has changed.  But, one should note that if you are a pensioner, investor or someone that can demonstrate you have an independent income then you are welcome with some added benefits of a quicker citizenship application process as well.

The problem with just about all of the emerging or developing markets is the same.  While they are still experiencing growth rates (with a few exceptions of course) above the anemic growth rates of the EU and US, and while unemployment may have come down from previous higher levels, there still is unemployment and a very large number of up and coming young people that need work.  The challenge then is provide jobs of that very large cohort of young people on the back end.  The last thing any developing market wants or needs is the unemployed from other countries flooding into their country.  It is logical, common sense and simple rooted in basic economics (and not xenophobia).  But any foreigner with self sufficient means that is not threatening the job opportunities of a native born local is still gladly accepted.

Additional Reading and References: