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Wednesday, September 27, 2023

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A new wave of large-scale immigration has begun

largelast year 1.2 million people moved to the UK – almost certainly the most ever. Australia’s net migration (i.e. migration minus immigration) is now twice what it was before the covid-19 pandemic. The equivalent figure for Spain hit a record high recently. Nearly 1.4 million net people are expected to immigrate to the United States this year, a third more than before the pandemic. In 2022, Canada will see more than double the amount of net immigration previously recorded. In Germany, the figure was even higher than during the 2015 “migrant crisis”. The entire rich world is in the midst of an unprecedented immigration boom. Its foreign-born population is growing faster than at any point in history (see Figure 1).

What does this mean for the global economy? Not so long ago, it seemed that many rich countries were firmly opposed to mass immigration. In 2016, Britons voted for Brexit, and then Americans voted for Donald Trump—both political projects with strong anti-immigration leanings. In the ensuing wave of global populism, politicians from Australia to Hungary have pledged to crack down on immigration. Then covid closed the borders. Immigration has stalled, or even reversed, as people decide to return home. Between 2019 and 2021, the populations of Kuwait and Singapore, two countries that typically receive large numbers of immigrants, fell by 4%. In 2021, the number of immigrants to Australia will exceed the number of immigrants for the first time since the 1940s.

In some places, the surge in immigration has brought a sense of normalcy. Singapore’s foreign workforce has recently returned to pre-pandemic levels. Elsewhere, it feels like a huge change. Take Newfoundland and Labrador, Canada’s second least populous province. Long home to descendants of Irish Catholics — whose accents match — the province has seen net migration more than 20 times its pre-pandemic norm. The capital, St. John’s, was once fairly homogeneous, but it feels more like Toronto every time I visit. Heart’s Delight is a small village that now houses a Ukrainian bakery, Borsch. The provincial government is setting up an office in Bangalore to help recruit nurses.

Newfoundland’s newcomers are a microcosm of the rest of the wealthy world. Hundreds of Ukrainians have arrived on the island – a fraction of the millions who left the country after the Russian invasion. Indians and Nigerians also seem to be migrating in large numbers. Many people speak English. Many already have relatives in rich countries, notably the UK and Canada.

Part of the surge in immigration is because people are making up for lost time. Many migrants were granted visas in 2020 or 2021 but only started traveling when covid restrictions eased. However, the foreign-born population in rich countries (well over 100 million) is now higher than the pre-crisis trend, suggesting that something else is going on.

The nature of the post-pandemic economy is a big explanation. Unemployment in the developed world, at 4.8%, has not been this low in decades. Bosses are desperate for workers, and job vacancies are near an all-time high. Therefore, people from abroad have every reason to travel. Currency movements could be another factor. 1 British pound is worth more than 100 Indian rupees, compared to 90 rupees in 2019. Since the beginning of 2021, emerging market currencies have depreciated by about 4% against the dollar on average. This enables migrants to send more money home than before.

Many governments are also trying to attract more people. Canada has a stated goal of welcoming 1.5 million new residents in 2023-25. Germany and India recently signed an agreement to allow more Indians to work and study in Germany. Australia is increasing the time some students can work after graduation from two to four years. Britain welcomes Hong Kongers hoping to escape Chinese oppression – more than 100,000 have already arrived in the UK. Many countries already make it easy for Ukrainians to enter. Even countries that have hitherto been hostile to immigration, including Japan and South Korea, are favoring outsiders as they seek to offset the effects of aging populations.

Economies that welcome large numbers of immigrants tend to benefit in the long run. Just look at America. Foreigners bring new ideas. According to a recent paper by Pierre Azoulay of the Massachusetts Institute of Technology and colleagues, immigrants in the United States are 80 percent more likely to start companies than native-born people. Research shows that immigrants also help create trade and investment links between home and receiving countries. A large pool of young workers also helps generate more tax revenue.

your people are my people

Some economists also hope that there will be more immediate benefits from the immigration wave. “A lot of immigration helps the Fed because it’s trying to cool the labor market and slow inflation,” said Torsten Slok of asset manager Apollo Global Management, expressing a shared view. Such an argument may be a little too optimistic. Having more people does increase the labor supply, which lowers wage growth, all else being equal. But the effect is small. There is little sign that the countries that host the most immigrants have the loosest labor markets. In Canada, for example, salaries are still up about 5% year-over-year (see Figure 2).

Immigration also increases demand for goods and services, which drives up inflation. In Britain, new arrivals appear to be driving up rents in London, where housing supply is already constrained. A similar effect is evident in Australia. Estimates published by Goldman Sachs suggest Australia’s current annualized net migration rate of 500,000 people is raising rents by around 5 per cent. Higher rents lead to higher overall consumer prices. Immigrant demand could also explain why house prices have not fallen much in many rich countries despite higher mortgage rates.

Over the next year or so, immigration is likely to decrease somewhat. The post-pandemic ‘catch-up’ will be over; the rich world’s labor market is slowly relaxing. However, there is reason to believe that the historically high levels of new arrivals will remain elevated for some time. More popular government policies are a factor. What’s more, today’s immigration begets tomorrow’s immigration, as newcomers bring children and partners. Before long, the rich world’s anti-immigration turn in the late 2010s will look like an anomaly.

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