Although many politicians will never admit it,
the US economy is currently performing far better than most analysts expected.
We are still adding jobs at a rapid clip; while inflation remains unacceptably
high, it is probably coming down. How are we pulling this off?
اضافة اعلان
There are surely multiple reasons. But you
may not have heard about one ingredient in the economy’s special sauce: a
sudden, salutary rebound in net immigration, which soared in 2022 to more than
1 million people, its highest level since 2017. We do not know whether this
rebound will last, but it has been really helpful. It is an exaggeration, but
one with some truth, to say that immigrants are saving the US economy.
About that economy: Despite sharply rising
interest rates, the American labor market remains stubbornly strong, adding 236,000
jobs last month. Not only has employment bounced back with stunning speed from
the COVID recession, it is actually running above pre-COVID projections. In its
2020 Budget and Economic Outlook, released just before COVID struck, the
Congressional Budget Office predicted that the US economy would add 2 million
jobs over the next three years. In fact, we have added more than 3 million.
In today’s topsy-turvy policy environment,
good news is often considered bad news. The Fed is trying to slow the economy,
maybe even generate a recession, to slow inflation. So strong employment
numbers arguably should be worrisome, a harbinger of worse inflation to come.
Despite sharply rising interest rates, the American labor market remains stubbornly strong, adding 236,000 jobs last month.
But this does not seem to be happening. The
debate among economists picking over the entrails of wage and price data,
seeking auguries for the future, is mind-numbing even for those of us who are
supposed to do this stuff for a living. Overall, however, it looks as if
inflation is, if anything, subsiding despite torrid job creation.
The pandemic and ‘missing workers’
How is this possible?Let us take a bird’s eye view of the US
economy over the past three years. The story goes like this: Faced with a
pandemic that temporarily shut down a large part of the economy, the federal
government responded with huge aid programs to help laid-off workers, troubled
businesses, and more.
These programs greatly alleviated what
could have been severe economic hardship, but they also maintained or enhanced
the public’s ability to buy goods and services at a time when the economy’s
ability to supply these goods and services was reduced by pandemic-related
disruptions. The result was inflation.
The debate among economists picking over the entrails of wage and price data… is mind-numbing even for those of us who are supposed to do this stuff for a living. Overall, however, it looks as if inflation is, if anything, subsiding despite torrid job creation.
Now, many of those pandemic disruptions
have been resolved; the kinks in the supply chain have mostly been straightened
out. And the big aid packages are receding in the rearview mirror. But until
very recently many people were arguing that the pandemic had done long-term
damage to the US economy’s productive capacity, largely by reducing potential
labor supply.
For example, back in November Jerome
Powell, the Fed chair, gave a speech in which he argued that there were still
millions of “missing workers” relative to pre-COVID expectations. COVID had
directly reduced labor supply, killing off around 400,000 potential workers;
the symptoms of long COVID may be keeping many more from working. Powell also
argued that the pandemic had led to millions of early retirements by older
workers who were unlikely to come back. Finally, he emphasized a sharp drop-off
in net immigration.
Just a few months later, many though not
all of Powell’s concerns appear to have been misplaced. Tales of early
retirement are not supported by the data: labor force participation for
Americans between 55 and 64 is fully back to pre-COVID levels.
Working immigrantsAnd as I said, immigration has really
rebounded. Recent immigrants are overwhelmingly working-age adults; according
to census data, 79 percent of foreign-born residents who arrived after 2010 are
between the ages of 18 and 64, compared with only 61 percent for the population
at large. So the immigration surge has probably been a significant contributor
to the economy’s ability to continue rapid job growth without runaway
inflation.
Basically, new immigrants pay into the system, but they will not be drawing much in the way of benefits for many years to come.
Immigration, then, has helped limit the
short-run adverse effects of high pandemic spending. What about the long run?
There the case for increased immigration is
even stronger. Long-run concerns about US finances are largely driven by a
rising old-age dependency ratio, which considers the growing percentage of
seniors relative to people of working age. If we define working age as running
from 18 to 64, the overall US old-age dependency ratio — calculated from the
same census data — is 27.5 percent. For foreign-born residents who arrived
after 2010, the ratio is only 5.8 percent. Basically, new immigrants pay into
the system, but they will not be drawing much in the way of benefits for many
years to come.
So the resurgence of immigration is, from
an economic point of view, a good thing all around. And a rational political
system, one that was not being misled by false claims about immigration and
crime, would welcome a sustained immigration revival.
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