Monday, January 7, 2013

Exodus of Immigrants

Yesterday’s article in the FT on the departure of Chinese migrants from Italy as the Italian economy grinds to a halt is an important wake-up call about the limits to solutions to one of the most vexing demographic problems faced by the developed world. As countries get richer, they tend to have fewer children, which in the absence of mitigating forces, means that populations age. With fewer people in the labor force relative to the elderly, the dependency ratio grows and puts social welfare systems under enormous pressure. Southern Europe and East Asia are among the places with the lowest birth rates and most rapidly aging populations on the planet.

One of the typical policy prescriptions for such countries is that they need to embrace immigration to bolster their shrinking population numbers. Japan, Europe, just about everybody with their demographics falling off a cliff, are urged to get over their historical aversion to outsiders and advised that their last, best hope is a wave of newcomers.

In spite of the unease with foreigners that many attribute to the citizens of Southern Europe, countries like Spain, Italy and Greece have relatively high proportions of immigrants as part of their total populations. 12% of the Spanish population is comprised of immigrants, 8 % of Italy’s and while Greek data collection is flawed, reliable estimates put it at perhaps 10%, though it is likely that more immigrants to Greece are there in the hope of eventual transit to more prosperous economies farther north. Even assuming away a xenophobia that characterizes many of these countries, it turns out that they may not be able to continue to attract immigrants even if they wanted them.  With weak economies, immigrants are pulling up stakes and going home or moving on.

While an outflow of immigrants may in some very small measure ease the short term crush of unemployment, the situation highlights another of the ways in which the crisis has such long-term consequences. Southern Europe, without the resource of a dynamic economy of say, a Hong Kong or Singapore, to attract new workers, is likely to find that its economic problems exacerbated by its demographic ones.