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Demographics and growth
The role of migration
Dr Amlan Roy
Investment Partner
Immigration is a complex and highly contentious topic. In the ageing world of advanced countries facing worker shortages, immigration is a policy measure that may help alleviate ageing related burdens (fiscal, social, inter-generational and political).
However, current headlines are dominated by geopolitics, wars, supply chains, upcoming elections and inflation. Over 1980-2010, immigration into rich countries was increasing and encouraged, but in the aftermath of the Global Financial Crisis (GFC), it has encountered headwinds of protectionism and heavy criticism from populists or right-wing factions.
Permanent-type migration was higher in 2022 than in any of the previous 15 years in Canada and New Zealand, and in many OECD European countries.
GDP dynamics
From a macro-accounting perspective, GDP growth can be decomposed into working age population growth and labour productivity growth, both of which have been influenced positively by immigration into developed countries. Taking in immigrants of working age added to the overall population of working age, and ensured that native skilled workers could pass on semi-skilled or low-skilled jobs to the incoming immigrants focusing on higher, more productive jobs.
Indeed, during the Covid period post 2020, especially the 2020 and 2021 calendar years, travel restrictions on account of health-warranted concerns led to fewer immigrants (both skilled and unskilled) resulting in 0.5% to 1% lower growth in some advanced countries. While this trend has reversed in some countries in terms of total number of immigrants, it has changed in terms of component types, skills of immigrants and numbers of temporary student immigrants. Net immigration contributes to growth rates of GDP as well as GDP per capita (living standard). That in turn, affects both overall prosperity and living standards which mostly go hand in hand with quality of life, assuming good national and public sector governance.
We document here some recent global migratory trends and reiterate a call made in 2000 advocating that selective immigration based on skills needs may alleviate the pressures of ageing populations that tend to lead to lower growth rates. Also, while many try to think of immigration as a homogenous policy practised uniformly by developed countries, immigration is implemented differently by country as attitudes towards immigrants and asylum seekers differ.
The OECD’s Migration Outlook 2023 documents the largest inflows in 2022 of 6 million new permanent immigrants, excluding Ukrainian refugees, to the OECD area.
Permanent type migration
Source: OECD
Permanent-type migration was higher in 2022 than in any of the previous 15 years. This was the case in Canada and New Zealand, and in many OECD European countries (eg Belgium, Denmark, Finland, France, Ireland, Luxembourg, the Netherlands, Spain, Switzerland and the United Kingdom).
Permanent type migration
Source: OECD
The chart above shows the various categories of migrants as per OECD classifications.
Migration and population growth
Net migration (immigration less emigration) has contributed towards offsetting labour shortages and negative natural population change (births minus deaths) owing to lower fertility and birth rates in Germany, Japan and Italy. Were it not for net migration contributing to working age population growth in the 1980s and 1990s, these countries would have seen much lower growth rates. Future growth could be adversely affected by potentially low net migration rates. The solutions then lie in gender equality and utilising a young skilled labour force with technology harnessed by AI, Machine Learning and Big Data.
Population Decomposed: Net migration vs. Natural change
Source: OECD
The Population Decomposed chart below illustrates that the US is the only country with a balanced population change for 2021. There is negative or near zero natural population change in the other five countries therefore selective immigration may be needed to offset lower fertility rates and higher mortality due to deaths among older cohorts.
National data for Germany showed that the population did not grow in 2020 for the first time in a decade due to decline in immigration and similarly higher net migration outflows than inflows. This led to the lowest German population growth in more than a century.
G6 Population Change Decomposed ('000s): 2021
Source: OECD
Migrant employment rates are at their highest levels in over two decades
In the US, all migrant groups had higher average employment rates than the native-born population in 2022. In Canada, most immigrant groups were above the native-born in terms of their employment rates. Within the EU27, intra-EU migrants continued to show the highest employment rates, at 75%. In the UK, 83% of EU-born migrants of working-age were employed. In Japan, migrant employment rates ranged from 94% (Vietnam origin) to 69% (China origin), while native-born employment was at 77%.
The labour market participation rate of migrant women between 2021 and 2022 has increased in most of the OECD countries whilst the rate for migrant men also increased, but in a smaller number of countries and to a lesser degree.
Asylum seeker profile
The gender dimension of asylum seekers and refugees has changed post the Russia-Ukraine war with women now representing 70% of refugees - they possibly face a dual-handicap while integrating into labour forces as a woman and then as an immigrant. The OECD state that “reducing the immigrant gender gap in employment to that of the native-born in OECD countries would bring an additional 5.8 million immigrant women into employment”. This could be accomplished by having more gender focused and family targeted policies. The World Bank President Ajay Banga stressed women empowerment as the single most critical factor for a better future world.
Why should investors care?
The Canadian and Australian models of selective immigration are praised and exemplified by many countries. A Bank of Canada study (2022) found that migration boosted consumption and increased the non-inflationary growth rate of the economy by increasing labour supply. However, there was an increase in housing demand leading to price increases due to residential real estate supply shortages.
Both investments and businesses in advanced countries operate within an ecosystem where consumption and work preferences of immigrants make a difference. Globalisation has changed but continues to have an expanding global impact across 200+ countries on areas such as investments, education, information, health and climate change awareness. Immigrants connect with their native countries through remittances, information and knowledge exchanges which contribute to human capital enhancements.
Savings preferences and expenditure patterns impact inflation and national savings too. Consumer and worker preferences are typically different for natives versus immigrants – at least for the first decade. Further, it takes some time for immigrants to be productive, and the policies of the country play an important role in terms of how contributing an individual is.
This has implications for growth, inflation and government policy, all of which impact investment decisions.
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