The following is a guest post from intern Tim Marr, a superstar undergrad on loan from Cornell, a well-deserved opportunity on his last day at HUDSON:
At face value, Japan and America appear to share few demographic commonalities. Japan is a largely homogenous nation, composed of a 98.5% ethnically Japanese population. America is a nation built on immigrants, representing nearly every ethnicity on the planet. Yet, despite fundamentally different ethnic constructions, the Japanese experience offers a hyperbolic lesson for American immigration reform.
Following the miracle growth of the Japanese economy in the 1970s and 80s, the economy’s last 23 years have been marked with insufficient demand and nagging deflation. Coupled with an aging population that threatens to decline to two-thirds of the current level by 2050, the Japanese workforce is in dire need of increased labor. Is immigration the answer?
In its defense, Japan has made strides addressing its labor shortage. The government has allowed an increasing number of skilled immigrants in the healthcare sector, which is predicted to be short one million workers by 2025. But the experience has been far from successful: more than 85% of immigrant nurses were forced to return to their home country after failing a qualifying test. Granted, Japan faces a language hurdle significantly greater than that in America. Yet, there must be a tradeoff between minimum assimilation requirements and feasible attainment rates to encourage successful immigrant economic contribution.
The stagnation of an aging Japan provides serious lessons to America. Retirement of our own baby boomers increasingly burdens subsequent generations, and threatens to continue as the U.S. birth rate sits 25% below the replacement rate. Economies need workers to grow, and countries need to look for labor on the world market when domestic supply becomes insufficient. That’s not to say America should swing open the gates to any and all that wish to enter. Rather, the failure of strict immigration policy and government micromanagement in Japan suggests that immigration should be led by industry demand. Efficient immigration policy allows employers to find necessary skilled and unskilled labor on the open market and keeps government resources focused on security measures, not economic planning. To paraphrase an expression spoken by Alex Nowrasteh at the Cato Institute’s Congressional briefing on April 24th, governments don’t cap the amount of foreign investment in domestic industries – why should they cap the amount of foreign labor?
Without swaying too far from a country comparison, it’s interesting to briefly examine parallels between capital and labor markets. Does foreign capital dilute the investment market? Or simply put, does a Canadian investment of 1$ billion in Google hurt an American family’s returns? The short answer, I believe, is no. Firms reinvest foreign and domestic capital to continue growth and innovation, resulting in greater returns for all. Can we extrapolate a similar argument for foreign labor – That an influx of foreign labor may initially dilute wages in a particular industry, but these laborers’ consumption across industries creates a net increase in domestic wages.. Though I can’t claim to definitely answer that, I hope politicians keep the general equilibrium in mind when considering immigration reform.