For Economic Growth, America Needs Both Immigrants and Productivity Gains

In this weekend’s New York Times, Ruchir Sharma argues, “To be great again, America needs immigrants.”  Sharma correctly points out that the only way the U.S. workforce can grow while baby boomers are retiring in droves is by welcoming immigrants. And as long as productivity growth remains slow, then a growing workforce is the only way to grow the economy.

But Sharma is too quick to discount the importance of productivity. Productivity growth is essential if we want rising incomes along with economic growth. It’s not overall GDP growth that is most important, but GDP per capita and median income that indicates whether we have a rising standard of living that reaches the average person. Yet Sharma takes per capita income as a given and argues that the global convergence of productivity means that there’s not much you can do about it. However, there is a compelling case to be made that the U.S. lost its productivity advantage because we stopped investing in education and infrastructure while other nations caught up.

This is not to say that immigration and labor force growth isn’t important. It is. It’s hard to sustain increasing incomes without overall economic growth, and it’s hard to sustain an expanding economy without a growing workforce. But the bigger advantage is that an open economy and immigration brings in a larger range of skills and ideas that help both economic growth and productivity, just as improved transit access expands not just the size of a region’s workforce, but also improves productivity and opportunity by giving both employers and workers a wider range of choices.

The downside also has to be acknowledged. A larger labor pool can depress wages, particularly for less skilled workers. That’s why income support and retraining, along with infrastructure and education, has to be part of the solution.


Photo: Thomas De Los Santos

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