In response to President Donald Trump’s moves to curb immigration, economists and pundits have spilled a lot of ink on the topic of whether immigration hurts the native-born.
But one thing relatively few do is to make a positive economic case for immigration. Immigrants aren’t a danger, but are they an economic necessity? That’s an important question to ask, because legal immigration to the U.S. has slowed down.
The standard economic case for immigration is based on population aging. U.S. fertility rates are below replacement level, and the native-born population is aging steadily. That means that if native-born Americans are going to retire comfortably, the country needs immigrants, especially those with skills. Taxes paid by immigrants help support health care and social services for native-born Americans. Immigrants increase the pool of buyers for houses and stocks owned by old people. This saves many of the native-born from struggling in their golden years.
A second case relies on the innovation and entrepreneurship that immigrants generate. Newcomers to the U.S. tend to be highly entrepreneurial – something we sorely need in a time when the country is creating fewer startup businesses.
But is there a really inescapable economic reason why immigrants are so essential to the country’s economic future?
There might be. That reason is agglomeration – the tendency of economic activity to cluster in highly productive cities.
This is why immigrants are so vital. With a growing population, agglomeration effects work their magic. With a steady influx of new people, new businesses form to take advantage of local labor and local demand, while creating high-value products to sell to the rest of the world. But when population shrinks, the virtuous cycle can become a vicious one – businesses don’t want to invest in a place where the labor supply and the demand for their products are going to shrink.
Economists such as Sari Pekkala and William Kerr have studied whether skilled immigrants create virtuous cycles of agglomeration, and so far the evidence points to yes.
Unless the U.S. population continues to grow, particularly with skilled, highly productive workers, it could find itself slowly regressing.
So continued immigration isn’t just safe for the U.S.; it is an economic imperative.
Noah Smith is a Bloomberg View columnist.
