Immigrants Are Key to a Job-Rich Economy

European Straits #52

Nicolas Colin

Dear all,

I’ve already discussed immigration in a of this newsletter. But in light of Donald Trump’s recent racist comments and subsequent discussions, I think it’s worth emphasizing a very simple point: educated immigrants are an easy sell, but less educated immigrants are just as critical to a nation’s prosperity—and history and economics provide us with the reasons why.

Clayton Christensen became famous following his first book, The Innovator’s Dilemma, which was published in 1997. The book is really about large dominant firms. In theory, those have everything they need to succeed and maintain their edge under any circumstances. But in practice, whenever there’s a techno-economic transition, they are always bested by new entrants using technology to impose disruptive innovation. The reason (what Christensen calls the “dilemma”) is well known: it’s almost impossible to dominate the new world if you’ve dominated the old.

The same is true for countries: techno-economic transitions reshuffle the cards between them. Those who are lagging behind can use the transition as an opportunity to leap forward. Those who previously raced ahead are in danger of being downgraded to a lesser status. Victorian Britain, the most wealthy and powerful country at the time, missed the transition to the age of steel and electricity for a simple reason: its financial industry was so prosperous (already!) that nobody in Britain saw the interest in investing in the nascent and still misunderstood technology that was the steel industry. Having missed the turn, Britain was soon overtaken by Germany, then the US, and never regained its status.

Immigration is one factor—among others—that explains why the cards can be redistributed between countries. Indeed during a techno-economic transition, the more a given country welcomes immigrants, the higher its chances of prospering in the new technological age.

A well-known explanation is that immigrants are more entrepreneurial. But another overlooked explanation is that immigrants, especially when they’re less educated, are more prone to considering the new, unattractive jobs that are always brought about by such transitions.

In the digital age, for instance, the new jobs are not those on assembly lines or behind desks like in the Fordist economy. The jobs with a brighter future in a more digital economy are those that involve frequent, direct, routine-breaking interactions with demanding customers. These are now found in food, hospitality, healthcare, childcare, personal care, education, and urban logistics. I call it all the “proximity services industry”, and it includes mostly sectors that require excellence in attention, empathy and care.

One of the major problems we have in the Western world is that workers coming from legacy industries are unlikely to even consider working in proximity services. There are practical reasons for that: jobs in those sectors tend to be concentrated in urban areas and inflict poor housing and transportation conditions on those who occupy them. There are also cultural reasons: for someone who had an initial career as a manual worker on an assembly line, becoming a coursier or a child carer simply doesn’t match their representation of what working is about—even more so because gains in productivity, quality and positioning are still lagging in such activities and thus wages are extremely low.

The mismatch between what workers expect and what employers offer has always existed during transitional periods. Every techno-economic transition brings about jobs that didn’t exist before or multiplies jobs that weren’t valued in the old economy. And because those jobs initially come without economic security and good wages, immigrants tend to be the only ones ready to take them. Thus they make it possible for entrepreneurial ventures to take off and grow at a larger scale, which creates even more jobs in the process—and with the right institutions, those jobs ultimately become more rewarding, secure, and attractive.

Mass migration explains why a country such as the US has been unusually successful since the middle of the 19th century. During every techno-economic transition since then (to the age of steel and electricity, then to the age of the automobile and mass production, then to the age of computing and networks), the US foiled the innovator’s dilemma by welcoming immigrants from other countries—especially those with less education, who took the lousy jobs brought about by the transition. For instance, when the US economy transitioned to the Fordist economy, most of the new, unattractive jobs on assembly lines weren’t taken by American workers, but rather by laborers who had just immigrated from Germany, Poland, Ireland, and Italy. We can be fairly certain that, had the US locked down its borders prior to 1924, it wouldn’t have become the core of the nascent age of the automobile and mass production. Just read this research paper: Immigration and the American Industrial Revolution From 1880 to 1920.

Oddly enough, the same is true in today’s China. It’s not that the Chinese government is particularly welcoming for immigrants from other countries. But immigration is nonetheless a massive phenomenon within China, for three reasons: it’s is a huge country; it has very disparate levels of development, especially between the coastal cities and the hinterland; above all, regulatory restrictions to workers’ mobility turn migrating from poor Yunnan to prosperous Shanghai or Hangzhou into a challenging experience comparable to emigrating from Africa to settle in Western Europe and then looking for a job—any job.

By the way, China has the same political problems as in the West, with local people in large, wealthy cities protesting the influx of immigrants from less-developed parts of the country. And yet the online commerce and urban logistics boom wouldn’t be possible without the many work-hungry, less educated workers made available by massive migration.

Interestingly enough, Europe has had a China-like advantage, with intra-EU migration having made it easier to provide large European cities with a diligent, hungry workforce to fill the new, lousy jobs of the technology-driven urban economy. You have to admire the visionary approach of British leaders when in 2004 they decided that Britain would be the first to open its borders to workers from Eastern European countries. Unfortunately, much like the US, European countries are now retreating into themselves (by exiting the EU altogether, like Britain, or closing down their borders in other manners), and could ultimately pay the price with less economic development and shattered prosperity.

With the current immigration showdown in Washington, DC, and Europe, I’ve seen many people arguing in favor of welcoming immigrants with high qualifications. Alas what I haven’t seen are arguments that do the same with less educated immigrants. Yet I’m convinced that if they pursue the current course, the US and European countries will irremediably retreat as economic powers—much like Victorian Britain in the 19th century, and to the great benefit of migration-friendly China.

It’s not too late, though, to reconsider!

Warm regards,