Debunking the Immigration Causes Economic Growth Myth

Ask any liberal economist and they will say that immigration grows the economy.  This is true, but it also mischaracterizes the debate: a bigger economy means little if Americans themselves are poorer.  Instead, what matters is economic growth per capita, and in this regard immigration is (at best) a neutral variable.  This is because real growth is predicated upon productivity improvements.  Allow me to explain:

Economic growth occurs when, and only when, we make more stuff or better stuff.  For example, supposing everything else remains equal, America’s economy grows when it manufactures more cars or more valuable cars (perhaps they are faster or safer).  This applies to all types of production, whether goods or services.  So how do we make more stuff?  The obvious solution is to work more.  Want more wheat?  Plant more fields.  Need more legal research?  Work overtime.  In any case the common denominator is adding labor.  This model of economic growth is called the archaic growth paradigm, and it boils down to the simple maxim: more input, more output. 

Unsurprisingly this is how ancient peoples understood economics.  For example: if Athens needed more amphorae they could either trade for them or employ additional potters.  Trade happened, but the gains from trade are necessarily finite.  Athens was greedy, so they also added labor.  This displaced labor from less valuable parts of the economy, causing a cascade of labor scarcity.  To end this scarcity, Athens (like most ancient societies) waged war to capture slaves bullion with which to buy more stuff.  This is why Athens conquered Ionia—they needed slaves and tributary states to produce mundane goods so that they could build more pottery, weapons, and ships.  Additional labor made the Athenians richer—at their Empire’s expense.  The problem with the archaic growth paradigm is that labor is a finite resource, and therefore wealth is zero-sum: when Athens gets richer, Ionia gets poorer.

A better way to grow the economy is to improve its productivity—make more stuff in the same amount of time.  This makes everyone richer at no one’s expense.  How do we improve productivity?  In the short run more trade and better infrastructure can improve it, but in the long run it comes down to technology: better technology means more and better stuff.  Technologically-driven growth is called the industrial growth paradigm, and it is the real reason countries get rich.  Why?  Because technology snaps the link between population and production, enabling exponential economic growth.

The Industrial Revolution provides the perfect example: in 1785 Edmund Cartwright invented the power loom, which made British textile workers forty-times more productive.  By the 1820s, after power looms were widely adopted in British mills, Britain produced as much cloth as the rest of Europe combined.  Not only did this invention make the British exceedingly rich on a per-capita basis, but it also changed the way people thought about economic growth: the paradigm switched from being population-driven to productivity-driven.  This remains true today.

 Debunking the Immigration Causes Economic Growth Myth

Tying this back to the question at hand: the economic justification behind immigration essentially boils down to the tautology more immigrants means more people, and thus more production.  This is true: immigration makes the economy bigger—but who cares?  What matters is whether they make it more productive.  By and large, they don’t, as the evidence below shows.

Research Shows Mass Immigration Impoverishes the West

A recent, and extremely comprehensive study produced by the National Academies of Sciences, Engineering, and Medicine looked at the impact of mass immigration on America’s economy.  The study is important for two reasons.  First, it found that immigration has negatively impacted wages and employment opportunities for American citizens—especially those in lower income brackets.  Of course, this is not surprising for anyone familiar with the economic principle of supply and demand, but it does come as a major shock to liberals who are now being forced to choose between their traditional voter base (blue collar workers and ethnic minorities) and recent immigrants.

Second, the study shows that not all immigrants are equal in terms of their economic value.  Although the researchers concluded that immigration has historically provided a (minor) net economic benefit to America, it also found that nearly 100 percent of immigration-driven economic growth accrued to the immigrants themselves—the pie got bigger, the slices did not.

Likewise, the researchers found that nearly half of all immigrants were a net drain on the economy, and were balanced out by the other half.  Specifically, most of those who arrived to America via the process of chain migration, as well as asylum seekers, cost a net present value of $170,000.  Net present value simply means how much money the government would need to invest today, at a yield of inflation plus three percent, to pay for said immigrant’s tax deficit over the course of their lifetime.

 Debunking the Immigration Causes Economic Growth Myth

Of course, the government does not do this—it spends only as it receives.  Therefore, net present value generates an artificially low estimate.  According to the Heritage Foundation, each non-economic immigrant more realistically costs a net of $476,000 in welfare payouts.  This means that at current immigration levels, the next ten year’s worth of low-skilled immigrants will cost American taxpayers a net $1.9 trillion (in constant 2012 dollars) over their lifetime.

Other studies from around the world point to the same conclusion.

For example, a public study conducted by Denmark’s Ministry of Finance recently found that immigrants, particularly those from beyond Europe, were a net drain on the nation’s economy.  In fact, non-European immigrants, and their descendants, consumed 59 percent of the tax surplus collected from native Danes. This is not surprising, since some 84 percent of all welfare recipients in Denmark are immigrants, or their descendants.  The bottom line: immigration is a net burden on Denmark.

Yet another study conducted by Canada’s Fraser Institute found that mass immigration costs Canadian taxpayers some $24 billion per year—and this was using data from nearly a decade ago.  The number has since increased significantly, as Canada has one of the highest per capita immigration rates in the world.

The final study worth discussing comes from the UK, and was conducted by the University College of London.  The report found that the value of immigration to Britain’s economy was contingent upon where said immigrants came from.  This may not be politically correct (few facts are), but it conforms to the data from America and Denmark.

The study looked at the Labour government’s mass immigration push between 1995 and 2011.  They found that immigrants from the European Economic Area made a small, but positive net contribution to the British economy of £4.4 billion during that period.  However, during the same period non-European immigrants (primarily from South Asia, the Middle East, and Africa) cost the British economy a net £120 billion.

The economic contributions differ between immigrant origin locations for the same reasons they differ in America: European immigrants left their extended families at home, where they were cared for by their respective welfare state.  Meanwhile, immigrants from poor regions brought their families over to take advantage of the UK’s generous welfare state.

Taken together, these studies show that open borders is not an economic panacea—and it is not “racist” to point this out.

*Note: this article has been excerpted from a longer piece originally published on the National Economics Editorial.