Without immigration, the U.S. economy looks like sclerotic Old Europe

March 5, 2014: 1:34 PM ET

Immigration boosts economic growth and makes inequality more bearable.


FORTUNE -- As the 2014 midterm elections draw nearer, the issue of immigration reform will be used as a wedge to pressure vulnerable Republicans into either angering their base and supporting reform, or alienating key demographics.

The politics of immigration are complicated, as are the economics. Researchers are split over whether immigration brings down the wages of low-skilled workers in the U.S. But with respect to other questions, like whether immigration promotes overall economic growth, the data is clear. It overwhelmingly does.

MORE: How France learned to hate capitalism

One way to highlight this is to compare economic growth over the past 30 years in the U.S. to other wealthy countries like France, the U.K., and Japan. A stylized fact often thrown about is that the United States, over the 80 or so years in which we've measured this sort of thing, has consistently grown faster than other countries due to its more enthusiastic adherence to classic capitalistic principals. Check out the graph below, which shows nominal yearly GDP growth from 1982 to 2012:

US GDP Growth Chart

As you can see, the U.S. consistently beats out its wealthy peers. Over this period, nominal GDP growth in the U.S. has averaged 5.4%, compared with 1.8% in France, 2.4% in the U.K., and 1.9% in Japan.

But one fact that often gets overlooked is that the U.S. population has been and continues to grow at a faster rate than its industrialized peers. Take a look now at GDP growth over that same period, this time on a per capita basis:

US GDP per Capita Growth Chart

US GDP per Capita Growth data by YCharts

Here, the competition is much closer. In fact, the U.S. doesn't even win. On a per capita basis, these countries grow at:

  • 2.0% in the U.K.
  • 1.8% in the U.S.
  • 1.6% in Japan
  • and 1.2% in France.

Take away America's faster population growth, and there's a lot less of a difference between its economic growth compared to its wealthy nation peers. This puts into perspective, for instance, the current debate over health care reform in the U.S. Britain has socialized medicine, a fact that pushes the share of yearly GDP spent by the government close to 50%, yet it has managed to grow its economy faster than the U.S. on a per-capita basis, for which government spending represents a smaller share of GDP.

So, population growth is good for economic growth. This seems intuitive -- more people means more economic activity. And in the U.S., population growth is increasingly reliant on immigration. Sure, birth rates are higher in the U.S. than in other wealthy countries, but they are on the decline, and the Census bureau estimates that immigration will be the main driver of population growth within 30 years.

MORE: Russia's laughable economic threats against the U.S.

Thomas Piketty, the French economist responsible for compiling much of the data driving today's debate over growing wealth and income inequality, raises this issue in his forthcoming book, Capital in the 21st CenturyHe points out that immigration is also the primary reason the U.S. has, for much of its history, avoided the large and unequal concentrations of private wealth that developed in Europe. He writes:

[Immigration] was the great contribution of the United States to global redistribution: the country grew from a population of barely 3 million at the time of the Revolutionary War to more than 300 million, largely thanks to successive waves of immigration. That is why the United States is still a long way from becoming the new Old Europe ... immigration is the mortar that holds the United States together, the stabilizing force that makes increasingly large inequalities of labor income politically and socially bearable ... for a fair proportion of Americans in the in the bottom 50 percent of income, these inequalities are of secondary importance for the very simple reason that they were born in a less wealthy country and see themselves as being on an upward trajectory.

In other words, not only does immigration boost growth, it also combats the kind of concentration of wealth that has fueled political unrest across the developed world. Population growth doesn't make the rich any poorer, but it does diminish the power of wealth. A million dollars is going to be a much more valuable thing to have in a country in which the population and economy are shrinking than in a country where the population and economy are growing.

  • How France learned to hate capitalism

    And why it actually kind of loves it again.

    FORTUNE -- As government balance sheets and national debt grow each year, some are fretting that government activism is stifling global capitalism. But look closer and you see that it's quite the opposite.

    Thomas Piketty, the French economist whose work informs much of the public debate over income and wealth inequality in the developed world, will release the English translation of his groundbreaking MORE

    - Feb 26, 2014 9:14 AM ET
  • Why Paul Krugman is wrong about France

    The New York Times columnist argues that the country's leaders have charted a brave path to prosperity. But the very policies he praises are hobbling the French economy.

    FORTUNE -- While living in Paris as Fortune's bureau chief for eight years in the 1980s, I wrote a piece on a prominent CEO (or PDG en Francais) who liked to skewer his nation's philosophy of business. "The British had the industrial revolution," quipped MORE

    - Nov 12, 2013 12:24 PM ET
  • Has Europe given up?

    By saying it's officially OK to skirt debt ceilings, Europe is abandoning austerity and reigniting the risk of another sovereign debt crisis.

    By Cyrus Sanati

    FORTUNE -- Europe's largest economies shouldn't be able to skirt European Union debt ceilings rules just because it's "too hard" or "unpopular." To do so would not only be hypocritical, as they have insisted on crippling austerity measures in much smaller and more vulnerable EU member MORE

    Jun 3, 2013 5:00 AM ET
  • Are the French really that lazy?

    A U.S. manufacturing executive ignited a firestorm after calling the French economy uncompetitive due to its unproductive labor force. He has a point.

    By Cyrus Sanati

    FORTUNE -- The explosive reaction in France to a letter penned by a little-known U.S. tire executive, which questioned the productivity of French workers, has quickly gone from comical to troubling. Instead of opening a discussion in the country as to the possible merits of MORE

    Feb 22, 2013 11:16 AM ET
  • Behind the UK's hemming and hawing over the EU

    From the outset, Britain viewed membership in the European Union as a means to access wealthy consumers, and not much else. Now that the payoff is lower, the UK is getting cold feet.

    By Mohamed El-Erian

    FORTUNE -- In one big lunge, UK Prime Minister Cameron's promise of an in/out referendum on membership of the European Union has made explicit a number of simmering issues that are both complex and  consequential -- MORE

    Jan 29, 2013 9:32 AM ET
  • The euro crisis no one is talking about: France is in free fall

    The euro zone's second-largest economy is suffering more than any other member from a shocking deterioration in competitiveness. And it's doing nothing to stop it.

    FORTUNE -- Given investors' confidence in its sovereign debt, and its image as Germany's principal partner in the sturdy, sensible "northern" eurozone, you'd think that France endures as the co-guardian of the endangered single currency. Indeed, the rate on France's ten-year government bonds stands at just MORE

    - Jan 9, 2013 9:26 AM ET
    Posted in: ,
  • To retire in France

    The nation's new president wants to roll the retirement age back to pre-Sarkozy days. Bon chance.

    By Vivienne Walt, contributor

    FORTUNE -- Though François Hollande has just unpacked his bags in the presidential palace since being voted into office, he might want to start planning for his life after. At 57, he is just shy of the retirement age he promised to implement. Generous public pensions have long been a French MORE

    Jul 18, 2012 5:00 AM ET
  • Millionaire taxes hurt the masses, from Newark to Paris

    Leaders around the world want the rich to keep giving. But when the wealthy get tired of getting tapped, guess who gets stuck with the tab?

    By Nina Easton, senior editor-at-large

    FORTUNE -- When New Jersey governor Chris Christie heard British Prime Minister David Cameron invite France's wealthy to decamp to England to escape a proposed 75% tax rate, he felt something akin to déjà vu. Every day top executives of MORE

    Jul 17, 2012 5:00 AM ET
  • How to save the euro

    The new leaders in France and Greece should reassure the markets that they're willing to work within the existing framework of agreements and that they're committed to the euro.

    By Cyrus Sanati

    FORTUNE -- The elections in France and Greece over the weekend have created a crisis of confidence that could eventually drown the euro and push the continent into a deeper recession. Talk of tearing up past agreements and a MORE

    May 9, 2012 10:05 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.