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Fed Official: Immigrants ‘Missing Ingredient’ to Growth

14 Oct

Though the Census Bureau estimates America holds more than 324 million citizens and is among the most populous countries in the world, one of the biggest problems with the U.S. economy is simply a lack of workers.

That’s according to Philadelphia Federal Reserve Bank President Patrick Harker, who in a speech Thursday bemoaned the country’s lackluster labor force participation – which measures the percentage of working-age Americans who are either employed or actively looking for work.

Americans’ participation in the workforce has fallen demonstrably since the late 1990s. And with more people sitting on the sidelines, productivity metrics – and, ultimately, economic growth – suffer. Harker said in his speech before the World Affairs Council of Philadelphia that skilled workers, in particular, could serve as the “missing ingredient” that would turn sluggish economic growth around.

But how does the country go about drumming up more capable employees? One of the most promising options, according to Harker, would be an uptick in high-skill immigration.

“The bottom line is that a larger and more highly skilled labor force fuels economic growth, something we will need to meet the demands of demography,” Harker said, suggesting that immigration “is a source of immense potential for economic growth.”

The regional Fed president’s answer may come as a surprise to those who subscribe to the theory that skilled immigrants take jobs away from natural-born Americans. But Harker said there is “scant evidence to support the anxiety, especially where skilled immigrants are concerned.”

A study published earlier this year by the National Foundation for American Policy, for example, highlighted 87 privately held startups valued at $1 billion or more in the U.S. that were either founded or co-founded by immigrants. On average, these companies created roughly 760 jobs apiece.

Another lengthy report published last month by the National Academies of Sciences, Engineering and Medicine found that the “inflow of labor supply” associated with immigration “has helped the United States avoid problems facing other economies that have stagnated as a result of unfavorable demographics, particularly the effects of an aging workforce and reduced consumption by older residents.”

The U.S. is among a host of developed economies that are gradually getting older. And with more citizens retiring, participation naturally sinks. In conjunction with lower fertility rates and longer life expectancies, Harker noted that the U.S. has “more economic pressures to contend with” than it did when it was a younger nation. Government support programs have been strained by the country’s aging population, and services like Social Security are widely expected to be diminished or dried up by the time today’s millennials reach retirement age.

But thanks in part to America’s appeal to skilled workers overseas and its H-1B visa system, the U.S. economy hasn’t floundered nearly as much as other aging nations in Europe and beyond. Continuing to introduce young, skilled immigrants into the system, Harker said, could help boost the country’s pool of consumers and taxpayers even further while stimulating domestic productivity.

“I don’t want to get into a debate about immigration or the questions of documented or undocumented residents. I want to talk about the numbers and the data and their potential effect on the U.S. economy,” Harker said. “Our economy needs a boost and immigration could be the stimulant. I’m not directing anyone which path to go down, but I am saying that we need to take one.”

It’s worth noting that there have been highly publicized examples of companies gaming the American visa system and displacing existing employees with immigrants who will work for less money – in some cases requiring current employees to effectively train their replacements.

The National Academies of Sciences, Engineering and Medicine report also found that immigrants received between $43 billion and $300 billion more in government support than they paid in taxes based on 2012 dollar calculations – though that upper range is more of a worst-case scenario. But on net, Harker said, research suggests skilled immigration is a positive force for the domestic economy and the labor market.

“[T]he truth is that much of the flow of immigration over the past 15 years has been highly skilled and well educated. Over that period, the college-educated immigrant population grew from 5.9 million to 10.5 million,” he said. “The native-born college-educated population also grew but at a much slower pace. Most important, immigrants tend to have a higher participation rate – something we need.”

But Harker finds himself limited in his ability to enact change at the federal level. His role at the Fed doesn’t give him the opportunity to directly adjust U.S. immigration practices. That didn’t stop him from pointing out “the economic benefits” of immigration trends that have been often demonized in the political arena. To jump-start underwhelming economic growth, he said, many in the country may need to get over their aversion to skilled immigration.

“One of the comparative advantages of the United States, since our inception, has been our ability to assimilate immigrants from all over. It built both the greatest economic power on the planet and the American dream that defines it,” he said. “We’re good at this. We’re arguably better than anyone else on earth. So let’s play to our strengths. It’s in our own economic interest.”