fbpx

Latest Posts

Home

Facebook

Twitter

Search
About

Can immigration boost per capita GDP growth?

Minnesota, like much of the developed world, is forecast to have a shrinking share of its population working over the next couple of decades. This could slow the growth of GDP per capita in the state. GDP per capita, after all, is just GDP divided by the population. If a smaller share of that population is working to produce GDP, there will be less GDP to divide among the population.

A commonly proposed solution is increased immigration. But, as I’ve written before, this relies on two assumptions.

The first is that the new arrivals will have a labor force participation rate at least as high as that of the population already here. If they do not, they actually will lower the labor force participation rate, exacerbating the very problem they are proposed to solve. There is good news here. According to U.S. Census Bureau data, the labor force participation rate among Minnesota’s foreign-born population was 72.7 percent in 2016, above that for native-born Minnesotans.

The second assumption depends on the new arrivals being at least as productive as the workers already here. Remember, the key measure of economic well-being is GDP per person, and immigrant workers add to the denominator (population) as well as the numerator (GDP). If these workers increase the population by a greater percentage than they increase GDP, they will lower GDP per head.

Economic theory offers another way that increased immigration can help grow per incomes. Here, we assume that research and development (R&D) activity leads to new technologies which, in turn, lead to higher GDP growth. And, as the economist David N. Weil explains,

If two countries devote the same fractions of their labor force to inventing new technologies, then the country with more people will have more workers doing R&D. It stands to reason that more people doing R&D should be able to come up with more inventions, so the more populous country should have faster technological progress. 

That is the theory. In practice, as Weil writes,

This finding would suggest that, over time, countries with more people should have higher levels of technology, and thus should be richer, than countries with fewer people. Yet this prediction does not hold true in the data: There is no evidence that countries with more people either grow faster economically or are systematically richer than countries with few people. 

In terms of per capita incomes, what matters is productivity. Immigration will help boost per capita GDP to the extent that it boosts productivity. From an economic standpoint, we want more skilled immigrants in Minnesota. Policies which will reduce this, such as the administration’s attempts to restrict the H-1B visa scheme for highly skilled workers, should be opposed. But neither should we fall for the mistaken belief that increasing immigration per se will sustain per capita incomes in the future.

John Phelan is an economist at the Center of the American Experiment. 

Comments

Subscribe

Categories

Upcoming Events

  • Lunch Forum with Amity Shlaes

    Location: Hyatt Regency Minneapolis 1300 Nicollet Mall Minneapolis, MN 55403

    Buy tickets HERE. About This Event: Enjoy our Early Bird Ticket Special through February 23rd! After this date, ticket price will increase to $30. Doors open at 11:30 AM, program and lunch begin at Noon. In Great Society, the New York Times bestselling author of The Forgotten Man and Coolidgeoffers a stunning revision of our last great period of idealism, the 1960s, with burning relevance for our contemporary challenges. Today, a battle rages in our country. Many Americans are attracted to socialism and economic redistribution while opponents of those ideas argue for purer capitalism. In the 1960s, Americans sought the…

    Register Now
  • Morning in Minnesota Breakfast Series: Moorhead

    Location: Moorhead Country Club 2101 North River Drive, Moorhead, MN, 56560

    Join Center of the American Experiment Friday, February 21 at the Moorhead Country Club for a FREE breakfast with policy fellow Isaac Orr.

    Register Now
  • 2020 Annual Dinner Featuring Sarah Huckabee Sanders

    Location: Minneapolis Convention Center Ballroom 1301 2nd Ave S Minneapolis, MN 55403

    American President: The Unorthodox Approach to Politics that Changed the World. Sarah Huckabee Sanders served as White House Press Secretary for President Donald J. Trump from 2017 to 2019. A trusted confidant of the President, Sanders advised him on everything from press and communications strategy to personnel and policy. For two and a half years, Sanders was at the President’s side, battling with the media, working with lawmakers and CEOs, and staffing the President on every foreign trip, including dozens of meetings with foreign leaders. Sanders is only the third woman and the first mother to hold the job of…

    Register Now