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December 9, 2013

Immigration as a Proactive, Growth-Based Economic Policy

by: David P. Weber, Associate Professor of Law, Creighton University School of Law

 The vitality of our economic model (market-based/capitalist) is generally predicated on growth. Typically we measure Gross Domestic Product (a measure of the total income of everyone in the economy; or, stated another way, the assignment of a monetary value to all finished goods and serviced produced in the defined economy) to assess in a snapshot the health of the economy. As with most economic indicators, larger numbers are better for GDP as that indicates the economy is expanding. In calculating GDP we look at four primary inputs: private consumption; government spending; investment (business fixed, residential fixed, inventory); and the country's total net exports. The U.S. Bureau of Economic Analysis provides this data on U.S. GDP (and it breaks down GDP by each of these components) for easy perusal.[i] From 1990-2000, U.S. GDP grew between 2% and 5% per year, with average annual growth over 3% (and measuring from 1992-2000, the average growth was almost 4%. In contrast, from 2000-2013, U.S. GDP had average growth of just under 2%.

While the federal government has reduced its spending and therefore its contribution to GDP, the largest component of U.S. GDP is easily personal consumption expenditures which represent slightly over two-thirds of U.S. GDP. During the Great Recession (roughly 2007-2009), personal consumption expenditures experienced a year-over-year decrease for the first time since 1938.[ii] There are generally three types of personal consumption expenditures: durable goods (such as a vehicle), nondurable goods (such as food and clothing), and services (such as health care or accounting work). However, even breaking down personal consumption expenditures by category, there are really two relatively simple inputs in consumer spending: the number of consumers and how much they spend.[iii]

While overly simplistic, all else being equal (which it never is) it follows that an increase in the number of consumers would increase total personal consumption expenditures over what it actually was in the given time period. On a micro level, we can see this phenomenon play out in reverse in the city of Detroit. Last week (the first week of December 2013), a U.S. Bankruptcy judge approved Detroit's plan to enter bankruptcy in order to restructure its debts.[iv] One of the primary problems the city faces is its declining population base. Detroit has lost over half of its population and has decreased in size from the fourth largest in the U.S. to the eighteenth largest. With the decline in population, the city has suffered a devastating decline in tax revenue. Homes have gone vacant and lost value which caused a decline in property tax receipts. Residents left and continue to leave the state causing a decline in income tax receipts for the state. As they leave, fewer people remain to shop and dine resulting in declining sales tax receipts. Worse, the loss of population itself fuels further population reduction. A declining tax base results in decreased expenditures on police, firefighters, schools, roads, public transportation, utilities, etc. The end result is that more and more are motivated to leave to find what they perceive as better economic opportunities, safer communities or better schools for their children. A declining population base can fuel a reinforcing cycle of greater population decline which in turn greatly depresses personal consumption expenditures for the area.

While Detroit is experiencing this on a municipal level, other countries are experiencing the phenomenon on a national level (e.g. Japan, Spain). Although two economists posited in a 2012 paper that economic growth and declining populations can coexist, their analysis requires increasing returns to human capital (increased productivity) and shifts in the workforce that contend positively with the decreased labor force.[v] Others have not been as optimistic that an ageing population and economic growth can coexist as peacefully (especially for developing countries).[vi] One way countries avoid a declining population, without having to alter the prevailing low birth-rates in many countries, is to import workers. In past research I have identified the entrepreneurial spirit of immigrants,[vii] and newer studies have shown that immigrants remain consistently more likely to engage in entrepreneurship than native-born individuals.[viii] Additionally, according to the U.S. Census Bureau, immigrants participate in the labor force at higher rates than natives - 67.7% versus 63.8%.

Regardless of whether the immigrant is highly skilled, increases in the population will lead to increases in personal consumption - the single largest contributing factor to GDP as every immigrant requires food, clothing and other necessities and luxuries. Immigrants typically arrive work-force ready, and as a result their benefit to the country is immediate. From a purely economic point of view then, increased numbers of immigrants should spur the U.S. economy through increased consumption. Incidentally, an increased population should also result in increased investment as the immigrants seek housing (either owned or leased). For some U.S. cities facing dramatic population declines and housing market crises (Baltimore, Cleveland, and Detroit), an increased population base could absorb some of the vacant properties, stabilize neighborhoods and rejuvenate the tax base. Expanding this concept to a macro level, it seems to follow that for an economic system whose success is predicated on growth, increasing the number of consumers is one of the relatively easy adjustments a country can make to facilitate additional growth.[ix] This should all be kept in mind for a country currently debating immigration reform while nursing its economy back to full strength.


[i] http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=5.

[ii]http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=x&911=0&903=58&904=1929&905=2013&906=a.

[iii] Of course this is hyperbolic as the total amount of consumer expenditures may and does change based on a host of factors including: the unemployment rate, compensation rates, tax rates, government benefits, consumer confidence, etc.

[iv] http://www.nytimes.com/2013/12/04/us/detroit-bankruptcy-ruling.html?_r=0.

[v] Ceyhun Elgin, Semih Tumen, Can sustained economic growth and declining population coexist?, Economic Modelling 29 (2012) 1899-1908, available at http://www.sciencedirect.com/science/article/pii/S0264999312001770#.

[vi] See, e.g., Renuga, Nagarajan, Aurora A.C. Teixeira, & Sandra Silva, The Impact of Population Ageing on Economic Growth: An In-depth Bibliometric Analysis, FEP Working Papers, ISSN: 0870-8541 (Sept. 2013) at pp. 19-23, available at http://www.fep.up.pt/investigacao/workingpapers/wp505.pdf.

[vii] Halting the Deportation of Businesses: A Pragmatic Paradigm for Dealing with Success; 23 Georgetown Immigration Law Review 766 (2009); available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1488371.

[viii] See, e.g. Catherina Rampell, Immigration and Entrepreneurship, NYTimes Economix Blogs (July 1, 2013) available at http://economix.blogs.nytimes.com/2013/07/01/immigration-and-entrepreneurship/.

[ix] A counter-point that is traditionally made is that immigrants simply come and compete with the native-born and this is unacceptable with our unemployment rates (currently 7%). However current economic studies have shown that immigrants largely complement (i.e. work in areas where they are not displacing native-born workers) rather than supplement (take the job currently held by another) resulting in net surpluses for the receiving country. See, e.g. Giovanni Peri and Chad Sparber, Task Specialization, Immigration, and Wages, American Economic Journal: Applied Economics 1(3), pp. 135?169 (2009); Giovanni Peri, The Effect of Immigration on Productivity: Evidence from U.S. States, NBER Working Paper 15507 (2009).


 

The 2040 Initiative?

By Palma Strand

The year 2040.

That’s 27 years from now—about a generation away.

*  *  *

A little over a year ago, my colleague David Weber and I were having lunch (Moroccan chicken—mine was a little underdone)…  Dave is a corporate guy who teaches contracts and M&A and who is also our immigration guru.  An odd combination, but the common thread apparently (I asked him once) is that he likes statutes.  To each their own…

Dave is also passionate, in that way that only Minnesotans can get passionate, about social justice.

I’m a bit of a jill-of-all-trades at the law school—PR, T&E, ADR (maybe I just handle the alphabet-soup classes)—with expertise in local government and a particular interest in education.

My passion is civics—not falling-asleep-boring 9th-grade Civics, but the civics of the Civil Rights Movement, the civics of coming out—and the civics of evangelicals and the NRA.  Civics, in other words, about ordinary people getting together and making things happen.

*  *  *

Anyway, there we were having lunch, and we started discussing a recent news item to the effect that for the very first time in our history, births of “minority” babies outnumber births of non-Hispanic White (“majority”) babies.
 
Extrapolating this out, the Census Bureau predicts that by 2040 the U.S. will be “majority-minority.”  (Even our language around this is going to have to change!)

Wow.  National identity crisis.  Major implications for politics (this was before the 2012 re-election of Obama with 44% of the Latino vote—up 8% from 2008).
   
We forgot our chicken as one insight followed another.

“Wouldn’t it be exciting,” said one of us finally, “to look at the intersection of this huge demographic trend with law and with politics!?”
“Absolutely!” said the other.

“Why don’t we call it The 2040 Initiative!”

“Brilliant!”

*  *  *
The more we thought about it, the more we realized that this racial/ethnic shift isn’t the only demographic wave that we’re riding.

In 2011, for example, the first of the baby-boomers—the massive post-WW II generation born 1946-1964—turned 65.   As the baby-boomers age, the number of people in the U.S. 65 and older will more than double by 2050.  

When you put just these two trends together (there are lots of others), you get a population distribution that’s young and “minority” on the one hand and old and “majority”—really let’s just be honest and say “White”—on the other.  This is already the case today, but it’s going to get more and more so in the near future.

Will these trends lead to deep social, political, legal divisions?  Are they already?  Is demography, as the old saw goes, destiny?
 
*  *  *

Interested as Dave and I are in sociology, demographics, and policy, we’re just a couple of law types.  We called in the social science reinforcements.

Our Political Science colleague Sue Crawford not only has academic cred, she is a newly-elected member of the Nebraska State Legislature (for those of you who never got this because you were asleep in your 9th-grade Civics class, Nebraska has a unicameral [one-house] state legislature).  Sue agreed that this “2040” idea sounded interesting and signed on to be part of our inter-disciplinary group.

Our Sociology colleague Rebecca Murray, chair of her department, has a particular interest in policing and crime, especially in the urban context.  And she has a depth of familiarity with data, data sources, and data analysis that are indispensable in any initiative involving demographics.  Rebecca also jumped on board.

*  *  *

This fall, the four of us will be co-teaching an interdisciplinary law seminar that will fold in some undergraduates.  After an introduction to the basics of data and politics and law to get everyone on the same page, we’ll plunge in to the work of looking at how demographic trends—past as well future—affect politics as well as existing laws and future laws.

Our agenda is ambitious: health care, immigration, education, criminal justice, family care, redistricting, and tax policy—and more.
 
In addition to the class, we’re initiating this blog.  There will be contributions from the four of us, from the students, and we hope from others who are interested.

*  *  *

The 2040 Initiative is designed to provide a forum for perspectives that will help us address the challenging issues that face our nation as we move forward—and to contribute to facing them together.

Welcome!