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September 16th, 2019

Insight

Can immigration save the U.S. from its birthrate crisis?

Megan McArdle

By Megan McArdle The Washington Post

Published Jan. 18, 2019

Can immigration save the U.S. from its birthrate crisis?
The primary asset of any society is its people. That's true in the lofty spiritual sense and in the crass financial one: Other people produce both the economic goods and the tax revenue that sustain the nation.


Like any other asset, this one needs to be replenished by continual reinvestment. A society that stops replacing itself is like a trust-fund kid dipping into the capital. The accounts empty at an accelerating pace, and a bill eventually comes due that cannot be paid.


Virtually the entire rich world is now in varying stages of that cycle. In 2000, only three rich-world countries -- the United States, New Zealand and Iceland -- averaged two or more children per woman. Today, only New Zealand is still replacing itself. The average for American women has dropped to 1.76 children, according to a new report from the National Vital Statistics System.


"Good!" a certain type of environmentalist might say. But other people may notice that the country's whole political economy assumes population growth. Whether retirements are funded through government or private accounts, the United States still needs enough productive workers to support retirees without impoverishing themselves; no matter how the health-care system is structured, it still must be funded and staffed by the able-bodied.


With a shrinking population, even seemingly unrelated areas, such as debt finance, will need rethinking. Debt implicitly assumes growing incomes, growing gross domestic product. But GDP growth is a direct function of the labor force's size. Without that growth, debts bite harder with every passing year.


Societies preparing for an aging population ought to be running surpluses to pay down debt and planning for much longer working lives. But almost no one seems ready to do that. Instead, three alternatives are generally proposed: raising birthrates through family subsidies; boosting innovation to offset workforce decline with higher productivity; and replenishing the population through immigration.


Unfortunately, there's little evidence that "family policy" has more than a marginal impact on total lifetime fertility. Sociologist Brad Wilcox, who oversees the National Marriage Project at the University of Virginia, notes that even "krybbe"-to-"grav" Nordic welfare states have failed to keep birthrates above replacement. And while technological innovation can certainly make the most of existing workers, it's unlikely to fully offset workforce decline. After a certain point, aging populations tend to innovate less, because older people are generally more risk-averse and less creative than younger ones.


That leaves immigration. Even the hardiest of immigration hard-liners might reconsider their position if the alternative were working to age 90. But the exigencies of an aging population are likely to force immigration advocates to do some rethinking, too. The idea that Social Security and Medicare can be saved by importing younger workers turns out to have some complications.


First-generation migrants typically cost the government somewhat more than they pay in taxes. That doesn't mean that migration is a bad deal for the United States, despite what restrictionists claim. By providing low-skill, labor-intensive services, migrants let native-born Americans spend more time on more productive work, boosting everyone's incomes.

But when native-born, higher-skill workers become scarcer, the equation changes. To put it another way: You can't save Social Security's finances by replacing an engineer who makes $100,000 a year with someone who had to drop out of school in eighth grade and is struggling to learn English. The way that system is structured, the math doesn't work. This limits our ability to close budget gaps through immigration.


An immigration solution to the United States' demographic challenge would probably mean a very different immigration policy, something like the points system used by countries such as Canada and Australia, which selects for migrants reasonably fluent in English and likely to be net tax contributors. Family reunification, which reinforces the United States' historical bias in favor of low-skill migration, might well have to be curtailed.


That change would be politically fraught, to say the least. And given that the United States, unlike Canada and Australia, has a long border with a significantly poorer country, it may not even be possible. Moreover, most of the countries that send migrants to the rest of the world themselves have declining birthrates. Scouring countries in demographic decline clean of their working-age populations to feed rich-world economies seems both unethical and impractical.


The good news is that demographic crises move at a glacial pace; we have years to weigh these unpalatable options. But, like glaciers, demographic crises are nearly impossible to stop once they really get going. So unless births bounce back soon, we'll probably have to choose.

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Megan McArdle is a Washington Post columnist who writes on economics, business and public policy. She is the author of "The Up Side of Down." McArdle previously wrote for Newsweek-the Daily Beast, Bloomberg View,the Atlantic and the Economist.

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