Jobs, Employment:

The Real Middle Class Immigration Issue For 2016

By John Schroder - August 2, 2016 

With the developed world facing some very negative economic fundamentals and social issues as well in 2016, many people would certainly ask if there are any sane options left in the world.  In other words, the old adage was that in a global environment no country could escape contagion of one sort or another.  And certainly there is some element of truth to that.  However, the issue is what decree of contagion will be felt by each nation individually.  In addition, is the old saying about the United States catching cold and the rest of the world catching pneumonia still true – or is it the other way around now?

This issue of contagion or knock off off effect can clearly be seen with immigration issues, but not in the way you might think.  The number one issue effecting migration FROM the so-called developed market countries of North America and the European Union to the emerging markets involves employment.  Interestingly enough and in contrast, migration for employment and better personal economic prospects historically involved migration of the poorer segments of society from the emerging or developing market TO the developed world.  But with many of the emerging markets doing better economically than their developed counterparts and with the some developed countries facing double digit unemployment, there is an interesting trend taking place (unemployment in European nations such as Spain and Italy is reported to still hover around 20 percent and is even higher for the younger Millennial generation, in the United States statisticians such as Mr. John Williams of the Shadowstats service calculates US unemployment at 20 percent right now in 2016, despite all the US Government information to the contrary).  Stated more plainly, the unemployed well educated and middle class from the developed countries are leaving to find jobs in the very places that are still growing economically, which are some of the emerging markets.  This in turn creates an unexpected problem for those emerging markets that are in some cases also tourist destinations.  How do you continue to attract the tourists but weed out foreigners coming from the developed countries with employment on their minds and not tourism?  With local unemployment still at levels many developing nation governments want to see reduced, allowing in foreigners to compete with locals for jobs continues to be a concern (and this has also been reflected in newer immigration policies as a result, which we see as another new trend).

All this is a separate and distinct issue involving refugees that have poured into Europe looking to escape war and other disruptive social problems (political power vacuums resulting from Arab Spring movements and similar disruptions of the previously existing government structures).  Our main focus in on the migration for jobs issue and current economic state of affairs in the developed world versus the emerging markets, but refugee migration is another major concern and issue effecting Europe specifically.  So, it is worth mentioning because this is yet another factor effecting employment pressures and government social welfare expenditures as well, further motivating the exodus of the well educated middle class.

  

An Economic Recession Is When Your Neighbor Loses His



Job, A Depression Is When You Lose Yours - Anonymous





Some Problems Are Hard Wired, Some Are Not


About twenty years ago we started looking at the demographics and arrived at the conclusion that a coming wave of retired members of the baby boom generation, a smaller up and coming generation behind them and the failure of governments to financially prepare would lead to one set of clearly foreseeable problems.  Namely, that the younger up and coming generation would be saddled with higher and higher taxes and resentment as a result of it.  What has been a surprise (although we probably should never be surprised at the stupidity of governments) was the continued exponential increases in borrowing and government debt levels when the politicians knew all too well they would be faced with revenue imbalances in the various social welfare programs going forward.  Add on the result of job outsourcing, increased legal and illegal immigration and foolish monetary policies of some central banks and we have a mess both of epic proportions and also one that could have been avoided.  To be sure there are the so-called black swan events that can be difficult to know or predict that far out into the future, but demographics are not one of these things.

In terms of the various government retirement pension programs for the general public, they could have (and should have) taken those excess funds they had previously to invest in income producing infrastructure projects.  Airports, railway stations, bus depots, port facilities, bridges, tunnels and highways are all examples of such projects that could have been funded for cash without the need for additional government bond issuance or borrowing.  And the various tolls and user fees generated could have gone back into the government pension funds as a permanent on going annuity to offset some of the revenue imbalances taken from taxation.  But alas, that was not to be and instead the politicos have spent it all, leaving an IOU in it's place that current and future taxpayers now need to pay back, on top of the or in addition to the probable increased social welfare tax payments.  And the US budget deficits keep growing.  Mr. Martin Feldstein, professor of economics at Harvard University, outlines some of the issues we already mentioned quite clearly with a recent July 26, 2016 article here: https://www.weforum.org/agenda/2016/07/martin-feldstein-america-s-exploding-deficit
 
And of course we now have severely deteriorated developed world government balance sheets, including the financial condition of many of the world's central banks, that are the result of extremely foolish monetary and fiscal policies during the past few years (and decades as well).  In addition, in the US especially, we have the added problem of manipulated government statistics (I should be blunt and call them outright lies) regarding things like unemployment, GDP growth (or lack thereof) and inflation.  The inflation reporting is very interesting because recipients of US social security retirement payments are supposed to have their payments indexed to inflation so they can keep up with any cost of living increases.  However, if the government can selectively and obtusely interpret and report the data to their own benefit, by claiming inflation is zero percent or close to zero, then that saves them a tidy sum in terms of NOT increasing social security payments (and have the false narrative ready as the reason why).  But, as we have mentioned many times before, Mr. John Williams of the Shadowstats service does give us the real numbers.  Annual inflation in the US has not gone below 5 percent for the past 16 years and in fact at one point hit about 14 percent in 2009 (http://www.shadowstats.com/alternate_data/inflation-charts).  Now in 2016 it has been reported that inflation in monthly rental payments are a new problem with such rent inflation in New York City hitting 8 percent last year.  Mr. Charles Hugh Smith, via his simple but seemingly accurate burrito inflation index, opines that the inflation rate in the US from 2001 through 2016 has actually been 160 percent during those 15 years.  He also compares some university tuition costs whereby he concludes such costs have gone up 145 percent between 2004 and 2016.



Middle Class Immigration As A Trend To Watch



Mr. Khalid Koser, Executive Director, Interim Secretariat of the Global Community Engagement and Resilience Fund wrote an interesting article about immigration trends that is worth taking note of (https://www.weforum.org/agenda/2015/12/10-migration-trends-to-look-out-for-in-2016/).  Some items that Mr. Koser wrote that caught our attention are:  1.  Migrants will send home more money than ever before The continued growth of international migration, a structural reliance on migrant labor, and the continued recovery of the global economy, will combine to fuel migrant transfers or remittances of at least $500 billion. As a result migration will continue to rise on the development agenda.  2.  The global war for talent will intensify Continued retrenchment in Europe will place even greater emphasis on employing the best and brightest, but Europe will face growing completion from new skills magnets like Brazil and China. Expect aging, conservative, and increasingly xenophobic Europe to lose out in this competition.

While we can agree with Mr. Koser that the education levels in many of the emerging markets have improved to such an extent as to provide competition (India and computer programming comes to mind) we think the xenophobia comment to be over simplified and incorrect.  In other words, with unemployment rates in the double digits in some European countries the recent issue has been employment for Europe's young people graduating university.  Couple that with the idea with an estimated three million new refugees flooding in (some well educated, some not) and you have a negative economic and social problem on your hands.  Aside from the job competition aspect, these refugees have to become acclimated, learn the local language and somehow be supported economically.  Who is going to pay for that if not the state, and what additional budget restraints will that create on state governments already stressed?

In terms of the US, a September 2015 report by Mr. Steven A. Camarota of the Center For Immigration Studies indicates that 51 percent of immigrant households in the US receive at least one kind of social welfare benefit, including Medicaid, food stamps, school lunches and housing assistance.  This is compared to 30 percent of native born Americans tapping into such programs: http://cis.org/Welfare-Use-Immigrant-Native-Households  So, it is not xenophobia but rather simple economics.  In short, under the umbrella or auspices of the social welfare state, newly arrived immigrants can present a burden on state finances and in any country faced with current economic difficulties, this is an aggravating problem.  To be fair about it, native born citizens previously thought of as middle class have been forced onto the rolls of those taking social welfare benefits as well, so we are not trying to convey the idea it is only immigrants taking benefits, see the following:

http://www.alternet.org/i-had-middle-class-job-and-i-still-ended-food-stamps-60.
 
One thing we can conclude is that not only are the emerging or developing markets possibly poised to do better than their developed world counterparts in terms of overall economic growth on their own, they are also getting inbound cash flows both from the diaspora and newly arrived solvent migrants from the US or EU possibly investing (or receiving pension monies from the US and EU).  Plainly put, the money will be flowing OUT of the developed markets and into the Emerging or Developing markets thus helping to enhance growth and prosperity.  All the while, these very same emerging markets attempting to RESTRICT immigration if they think it for employment purposes (investors and retirees remain welcome).

For some perspective on how these migration flows have changed, in 1900 about 90 percent of foreign born people coming to the US were from Europe (Italy and Germany the top two nations migrants were leaving from).  In 2015, less than 10 percent of migrants to the US are coming from Western Europe.  So, these migrants flows are very interesting and in short we think our previous hypothesis from 15 years ago holds: the poor and unemployed from some of the emerging or developing nations will continue to attempt migration to the US and EU (these people do not read financial news and still believe the myth of the economic prosperity that they think they will find there) and the solvent middle class from Europe and the US are going to some of these very same emerging markets for tax, cost of living and other kinds of relief (from social strife). 
 

Dominican Republic Immigration: New Policy



In terms of expatriation or migration issues, the Dominican Republic is an interesting case.  The country finished up 2015 with positive GDP of 7 percent and is predicted to finish up 2016 with a positive 6 percent GDP growth number as well.  The banking sector is quite healthy, central bank policies are sensible (no zero or negative interest rates), there is no QE or related nonsense and foreign companies have been increasing their investment into the country as well over the past few years (many new malls and foreign retail stores chains have opened up).  However, with all that said, just as in the case in many of the emerging or developing markets the demographics indicate very large percentages of young people in the population and very small percentages of the aged (whereas in the US, the ratio of the Baby Boom generation is equal to the Millennial generation and in many parts of Europe the baby boom generation outnumber the young people 4 to 1).  So, the challenge is job growth and job creation for all these younger people in these emerging or developing markets.  And to be honest about it, the younger Millennial Generation in the US and Europe are not finding the future so bright they need to wear sunglasses either.  In short, jobs and job growth is the main issue all the way around.

The Dominican Government, realizing the issue quite clearly, has tightened up immigration requirements in the past few years and is favoring investors, pensioners and those with independent non local source income over all other kinds of immigrants (those people migrating to look for work).  Why?  Quite simply job competition.  With unemployment rates in the Dominican Republic still not as low as the government would prefer, to admit a large number of unemployed foreigners is not going to help bring down local unemployment.  It certainly could be true that many foreigners have higher education levels or higher skill sets, but the issue is protecting the local citizenry in terms of jobs.  So, which government policy is better for it's citizens? 

In contrast to this, we have unchecked refugee migration into the European Union creating all kinds of problems.  In the United States there has been tremendous abuse going on with the H1B work visa program.  In fact, there has been quite a bit a criticism as US companies claim they cannot find sufficient local talent to fill job slots (but let us also remember Mr. Williams 20 percent US unemployment calculation) and thus have been pushing for even more H1B visa allocations.  However, one would suspect the real reason is to obtain talented foreign labor on the cheap as such employees usually are not paid the same rate as a native domestic employee might be.  Reverse outsourcing if you will.

In summary, we continue to be amazed at the economic, monetary, fiscal and budgetary policies enacted by developed nation governments and their respective central banks.  While these policies have wrecked the finances and the economy in their respective home countries, such contagion has NOT effected the emerging markets.  On the contrary, many emerging or developing markets have been doing better in terms of annual GDP growth and seem posed to continue that trajectory.  The real contagion or common issue effecting both the developed nations and the developing nations is the jobs or employment factor, but for different reasons.  The developed world has attempted to solve their low growth population demographics by freely admitting foreign immigrants of various forms.  But, with a down turned economy, such immigration places additional stresses on such countries.  In the emerging or developing markets, we see a trend of trying to restrict inbound foreign immigration to alleviate local job competition from foreigners.  A seemingly opposite or counter approach.  However, it is true that Europe especially is moving towards an attitude of restriction as well, but we must realize they are getting a different kind of immigrant than the emerging or developing markets are getting.  Mr. Khalid Koser, mentioned above, calls such restriction on immigration foolish xenophobia.  We call it economics 101 and an attempt by governments to address a tightened local job market.  It's that simple.