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Comment: Immigration-scarce labor fallacy

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, May 3 (UPI) -- Jean-Marie Le Pen -- France's dark horse presidential contender -- is clearly emotional about the issues of immigration, crime and unemployment.

His logic is dodgy at best, and his paranoid xenophobia ill-disguised. But Le Pen and his ilk, from Carinthia to Copenhagen, have succeeded in forcing upon European mainstream discourse topics previously considered taboo. For decades, the European far right has been asking all the right questions and giving all the answers.

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Consider the sacred cow of immigration and its emaciated twin, labor scarcity, or labor shortage.

Immigrants can't be choosy. They do dirty and dangerous menial chores spurned by the native population.

At the other extreme, highly skilled and richly educated foreigners substitute for the dwindling, unmotivated, and incompetent output of crumbling indigenous education systems in the West. As sated and effete white populations decline and age, immigrants gush forth like invigorated blood into a sclerotic system.

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According to the U.N. Population Division, the European Union would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need to absorb almost 14 million new, working-age immigrants per year just to preserve a stable ratio of workers to pensioners.

Similarly hysterical predictions of labor shortages and worker scarcity abounded in each of the previous three historic economic revolutions. As agriculture developed and required increasingly more advanced skills, the extended family was brutally thrust from self-sufficiency to insufficiency. Many of its functions -- from shoemaking to education -- were farmed out to specialists.

But such experts were in very short supply. To overcome the perceived workforce deficiency, slave labor was introduced and wars were fought to maintain precious sources of "hands," skilled and unskilled alike. Labor panics engulfed Britain, and later other industrialized nations such as Germany, during the 19th century and the beginning of the 20th.

At first, industrialization seemed to be undermining the livelihood of the people and the production of "real," read: agricultural, goods. There was fear of over-population, and colonial immigration coupled with mercantilism was considered to be the solution. Yet, skill shortages erupted in the metropolitan areas, even as villages were deserted in an accelerated process of mass urbanization and overseas migration. A nascent education system tried to upgrade the skills of the newcomers and to match labor supply with demand. Later, automation usurped the place of the more expensive and fickle laborer. But for a short while scarce labor was so strong as to be able to unionize and dictate employment terms to employers the world over.

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The services and knowledge revolutions seemed to demonstrate the indispensability of immigration as an efficient market-orientated answer to shortages of skilled labor. Foreign scientists were lured and imported to form the backbone of the computer and Internet industries in countries such as the United States. Desperate German politicians cried "Kinder, nicht Inder" -- children, not Indians -- when chancellor Schroeder allowed a miserly 20,000 foreigners to immigrate to Germany on computer-related work visas.

Sporadic, skill-specific scarcities notwithstanding, all previous apocalyptic Jeremiads regarding the economic implosion of rich countries brought on by their own demographic erosion have proven spectacularly false.

Some prophets of doom fell prey to Malthusian fallacies. According to these scenarios of ruination, state pension and health obligations grow exponentially as the population grays. The number of active taxpayers -- those who underwrite these obligations -- declines as more people retire and others migrate. At a certain point in time, the graphs diverge, leaving in their wake disgruntled and cheated pensioners and rebellious workers who refuse to shoulder the inane burden much longer. The only fix is to import taxable workers from the outside.

Other doomsayers gorge on "lumping fallacies." These postulate that the quantities of all economic goods are fixed and conserved. There are immutable amounts of labor, known as the "lump of labor fallacy," of pension benefits, and of taxpayers who support the increasingly insupportable and tenuous system. Thus, any deviation from an infinitesimally fine equilibrium threatens the very foundations of the economy.

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To maintain this equilibrium, certain replacement ratios are crucial. The ratio of active workers to pensioners, for instance, must not fall below two-to-one. To maintain this ratio, many European countries and Japan need to import millions of fresh tax-paying, and legal, immigrants per year.

Either way, according to these sages, immigration is both inevitable and desirable. This squares nicely with politically correct -- yet vague -- liberal ideals and so everyone in academe is content. A conventional wisdom is born.

Yet both ideas are wrong. These are fallacies because economics deals in non-deterministic and open systems. At least nine forces countermand the gloomy prognoses aforementioned and vitiate the alleged need for immigration:

-- 1. Labor replacement. Labor is constantly being replaced by technology and automation. Even very high skilled jobs are partially supplanted by artificial intelligence, expert systems, smart agents, software authoring applications, remotely manipulated devices and the like. The need for labor inputs is not constant. It decreases as technological sophistication and penetration increases. Technology also influences the composition of the work force and the profile of skills in demand.

As productivity grows, fewer workers produce more. American agriculture is a fine example. Less than 3 percent of the population is now engaged in agriculture in the United States. Yet they produce many times the output produced a century ago by 30 percent of the population. Per capita, the rise in productivity is even more impressive.

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-- 2. Chaotic behavior. All the Malthusian and Lumping models assume that pension and health benefits adhere to some linear function with a few well-known, actuarial, variables. This is not so. The actual benefits payable are very sensitive to the assumptions and threshold conditions incorporated in the predictive mathematical models used. Even a tiny change in one of the assumptions can yield a huge difference in the quantitative forecasts.

-- 3. Incentive structure. The doomsayers often assume a static and entropic social and economic environment. That is rarely true, if ever. Governments invariably influence economic outcomes by providing incentives and disincentives and thus distorting the "ideal" and "efficient" market. The size of unemployment benefits influences the size of the workforce. A higher or lower pension age coupled with specific tax incentives or disincentives can render the most rigorous mathematical model obsolete.

-- 4. Labor force participation. At a labor force participation rate of merely 60 percent, compared to 70 percent in the United States, Europe still has an enormous reservoir of manpower to draw on. Add the unemployed -- another 8 percent of the workforce -- to these gargantuan numbers, and Europe has no shortage of labor to talk of. These workers are reluctant to work because the incentive structure is tilted against low-skilled, low-pay work. But this is a matter of policy. It can be changed. When push comes to shove, Europe will respond by adapting, not by perishing, or by flooding itself with 150 million foreigners.

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-- 5.International trade. The role of international trade -- now a pervasive phenomenon -- is often neglected. Trade allows rich countries to purchase the fruits of foreign labor without importing the laborers themselves. Moreover, according to economic theory, trade is preferable to immigration because it embodies the comparative advantages of the trading parties. These reflect local endowments.

-- 6. Virtual space. Modern economies are comprised 70 percent by services and are sustained by vast networks of telecommunications and transport. Advances in computing allow local economic activities to incorporate skilled foreign workers -- from afar. Distributed manufacturing, virtual teams, of designers or engineers or lawyers or medical doctors, of multinationals -- are all part of this growing trend. Many Indian programmers are employed by American firms without ever having crossed the ocean or making it into the immigration statistics.

-- 7. Punctuated demographic equilibrium. Demographic trends are not linear. They resemble the pattern, borrowed from evolutionary biology, and known as "punctuated equilibrium." It is a "fits and starts" affair. Baby booms follow wars or baby busts. Demographic tendencies interact with economic realities, political developments, and the environment.

-- 8. Emergent social trends. Social trends are even more important than demographic ones. Yet, because they are hard to identify, let alone quantify, they are scarcely to be found in the models used by the assorted "Cassandras" and pundits of international development agencies. Arguably, the emergence of second and third careers, second families, part-time work, flextime, work from home, telecommuting, and unisex professions have had a more decisive effect on our economic landscape than any single demographic shift, however pronounced.

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-- 9. The dismal science. Immigration may contribute to growing mutual tolerance, pluralism, multiculturalism, and peace. But there is no definitive body of evidence that links it to economic growth. It is easy to point at immigration-free periods of unparalleled prosperity in the history of nations -- or, conversely, at recessionary times coupled with a flood of immigrants.

So, is Le Pen right?

Only in stating the obvious: Europe can survive and thrive without mass immigration. The European Union may cope with its labor shortages by simply increasing labor force participation. Or it may coerce its unemployed, and women, into low-paid and "3-D" -- dirty, dangerous, and difficult -- jobs. Or it may prolong working life by postponing retirement. Or it may do all the above -- or none. But surely to present immigration as a panacea to Europe's economic ills is as grotesque a caricature as Le Pen has ever conjured.

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