by Mesay Berhanu Gemechu
A recent article published online by Nilakantan RS strongly argues against GDP growth that can be
achieved through population increase, indicating that it cannot be considered growth in real terms.
Highlighting the Japanese experience as exemplary, the author pinpoints the prosperous society of the East Asian nation that has managed to maintain over half a century despite the fact that it has been continuously experiencing a declining Total Fertility Rate, TFR, well below the replacement threshold of 2.1.
TFR in Japan fell for the first time below this threshold in 1961 and has continued to decline since then,
reaching 1.37 in 2024. Having the second oldest population on the globe with more than one in ten
being 80 years or older, the population of Japan already reached its peak of 128 million in 2008. The
nation is now heading to a shrinking of the working age group by 19 million between 2013 and 2050,
resulting in an increasing burden of pension, healthcare, and social security costs.
The government’s effort to provide incentives to promote TFR by introducing “baby bonuses” of 100,000 yen (USD 670) has not been effective.
According to the author mentioned above, the argument for increasing TFR in any of the countries
facing declining birth rates is indeed both “bad physics and bad ethics.” Instead, he points out that in
critical situations where there may be a pressing demand for labor supplies, the situations are apparently not sufficiently addressed by increasingly advancing technological progress. There are many people in other parts of the globe who can readily be tapped to address chronic labor shortages.
Still, the author argues Japan has achieved a rather stable though quite lower GDP growth rate through
an increasing rate of technology adoption, not through increasing population or immigration. Highlighting whether the Japanese are being racist or doing okay without allowing a greater influx of
immigrants or maybe both, he still applauds the way Japan has effectively dealt with the population
conundrum as an appropriate strategy against the backdrop of high emissions rate resulting from the
overpopulation of more than eight billion people on the planet.
Immigration for Economic Growth and Productivity
A study published in the April 2020 World Economic Outlook indicates the positive outcome of migration in supporting economic growth through increasing output and productivity, particularly in the advanced economies both in the short and medium terms. According to the study, a one percentage point increase in immigration relative to total employment results in a corresponding increase in output by almost one percent by the fifth year.
The diverse skill sets the immigrant workers have brought are largely found complementary to those of
the native workers benefiting the average income of natives even from a modest increase in productivity that is resulted from immigration. However, the same study noted that such effects are not necessarily readily visible in the case of emerging markets and developing economies.
Not only does immigration bring big gains to the recipient countries, but it also apparently provides an
opportunity for the migrants themselves to help boost their living standards. Despite such positive
outcomes of immigration, it is noted that it may still have certain distributional impacts on native
workers in specific market segments.
A report from the US National Academies of Sciences, Engineering, and Medicine covering a period of
10 years notes a very small impact of immigration on the wages of native-born workers. According to
the report, the negative impacts are largely limited to prior immigrants or native-born workers who
have not completed high school. It is also observed that there are positive wage effects of skilled
immigrants for some subgroups of native-born workers, in addition to the overall positive impact of
immigration on the long-term economic growth in the US
The report also highlights the fiscal impacts of immigration where first-generation immigrants are found
to be more costly than the native-born, while second-generation immigrants are making the strongest
contributions both economically and fiscally. Generally, more positive fiscal impacts are observed at the
federal level despite some notable variations across the states.
Even though another study conducted in Norway acknowledges the possible negative impacts of immigration on productivity in the long term, it also highlights the positive impacts of increased
immigration in terms of lowering unemployment while there is no negative effect observed on public
finances. The authors, Furlanetto and Robstad, point out that the long-term social, economic, and fiscal
benefits would outweigh the initial high cost of refugee integration, by increasing the ratio of economically active segments of the population to those who are inactive, eventually addressing
demographic challenges in the EU.
Employing appropriate fiscal and labor market policies that are geared toward supporting the income
and retraining of natives who are facing labor market difficulties provides the remedies to ease the
undesirable impacts of immigration. On the other hand, fostering the integration of immigrants through
such programs as language training and those intended to make validation of professional titles easier
are suggested to result in better outcomes in the host nations.
Even though there are research findings that indicate that an increase in labor supply related to
immigration results in a decline in wage and employment as a short-term impact, such effects have not
been observed in the long run. Experts in the field indicate that the change may depend on the relative
strength of competition and complementarity or productivity effects associated with immigration trends
across various geographic areas which can be better observed during a longer time span.
Accordingly, a study conducted over four decades between 1970 and 2010, covering different
geographical areas and skill groups in the US, found no negative or significant effects of immigration on
native labor demands. According to the findings of this study, such correlations between immigrant
labor supply and native wages are either positive or null. Hence, it is reasonable to conclude that
immigrants have either zero or positive changes in the demand for native workers across different
geographic areas, for individual skill levels as well as in both the aggregate and for employment and
wages in particular.
This effect is possibly explained by the fact that immigrants and natives do different types of work,
complementing each other to a certain degree. The authors also note that changes in efficiency induced
by immigration may also encompass associated changes in specialization and technology adoption by
native firms resulting in positive outcomes for all workers. As generally immigrants have a comparative
advantage in manual tasks relative to language ones, natives tend to engage in communication-intensive
jobs while immigrants dominate manual types of tasks.
In the case of skilled labor, highly educated immigrants exert positive external effects as they contribute
to innovation and generate new ideas. Hence, it is found that the most important contribution of skilled
immigrants is reflected in the more varied and better ideas that benefit the US economy, resulting in positive effects on native productivity and economic growth.
Another study from the IMF explains on the economic advantages of immigration despite its highly
controversial nature politically. Both high and low-skilled migrant workers are instrumental in increasing income per person and living standards in the long term. As highly skilled workers bring diverse talent and expertise, the contributions of low-skilled migrants in filling labor gaps where native workers are in short supply would also help the natives move up to higher-skilled occupations.
The case for migration restrictions articulated by Clemens and Pritchett in 2016 posits that it is desirable
to impose restrictions on migration for such restrictions would have positive outcomes not only in terms
of redistribution but also for efficiency at a global scale. According to the authors, the imposition of tight
restrictions on migration would help prevent the transmission of low productivity from poor countries to
rich economies. Their argument for efficiency-enhancing restrictions on labor mobility, however, goes
against the existing restrictions on labor mobility, as dynamically efficient policy implies relaxations on
current restrictions, which does not necessarily translate into an open borders policy framework.
It is the migrant-sending countries that should be concerned with the economic impacts of migration as 74 percent of all the immigrants in 2017, for instance, were found to be in the working-age population group. As an article on the Conversation published five years back noted, it is migrant-receiving countries like the US that economically benefited from the phenomenon instead of those source countries such as Italy and Ireland which lost the productive segments of their population.
Referring to Vivek Wadhwa, migration and tech researcher, who warns against the danger of putting up
barriers to immigration, the author Melissa Tandiwe Myambo, a Research Associate at the Center for
Indian Studies in Africa and Honorary Research Fellow at Wits City Institute at the University of the
Witwatersrand, South Africa points out that the US, with more than half of its one-billion-dollar startup
companies having at least one immigrant founder, could possibly lose out its innovative, technological
and economic edge. Hence, the author asserts, “The country with the most open immigration policy will
be best positioned to succeed in the global economy.”
Immigration Trends and Projections in Japan
To maintain its target of an annual economic growth rate of 1.24, Japan needs 6.74 million foreign
workers by 2040, four times higher than the number it had by 2020. The implementation of strict
immigration policies of the 1952 Immigration Control and Refugee Act kept the share of foreign residents below 0.7 until 1990.
A study conducted in Japan, including 16 other countries and regions such as the US the EU, and China, shows that permanent immigration of at least 150,000 immigrants annually is required to improve the Japanese economy and the welfare of current and future generations and, to alleviate the burden of pension tax on the productive segment of the population, thereby reducing the need for future fiscal reforms. According to the authors of the study, Manabu Shimasawa, Associate Professor at Akita University, and Kazumasa Oguro, Associate Professor at Hitotsubashi University, and a Consulting fellow at the Research Institute of Economy, Trade and Industry, “the positive effects are greater if the immigration is permanent rather than temporary, larger in volume, and implemented sooner rather than later, ….”
The recommendation of their study is fairly closely aligned with the proposal made by the Liberal
Democratic Party (LDP) intended to receive 10 million immigrants with an average intake of 200,000
annual flows over the coming 50 years, a marked increase from the 68,054 net flow in 2007. Recently,
the number of foreign nationals in Japan rose by 11 percent from 2022 to 2023 reaching 3.4 million
comprising 2.7 percent of the population as of 2023.
Over several decades the past, Technical Intern Training Program (TITP) has been implemented to allow for the employment of short-term foreign workers by providing training on business and technical skills.
However, recognizing the ever-growing unmet need to fill the employment gaps in the healthcare and
construction sectors in particular, the government has taken such measures to expand the maximum
residency period of immigrant workers from three to five years.
The government also aims at increasing the number of foreign students from 297,274 as of May 2023 to
400,00 students by 2033 to address the labor shortages by allowing them to fill in part-time positions.
Other programs such as Specified Skilled Worker (SSW) and High Skilled Foreign Professionals (HSFP) are also being initiated to fill in the labor shortages in the construction, agriculture, nursing, and food
service sectors. Accordingly, Japan is increasingly opening up to accept 820.00 foreign SSW workers over the coming five years. The TITP abolished on March 15, 2024, motivated in part by human rights
concerns is expected to be replaced by the New Skill Developing Program intended to be implemented
by 2027.
Even though Japanese society may have often been characterized as homogeneous and xenophobic,
they have displayed minimal backlash to the ongoing demographic shifts, despite such sentiments still
reflected quite prominently among older generations. According to the 2018 Pew Research Survey, 58
percent of respondents indicated that they would allow the same number of immigrants while 23 percent
were found comfortable with even a greater number of immigrants coming to the country. It was only 13
percent of respondents noted to willingly admit fewer immigrants, while a mere five percent were
found completely antagonistic to the presence of any immigrant in their homeland.
Overall, the economic rationale for increasing the flow of immigrants into a recipient country like Japan
outweighs the negative political consequences driven by nativist or right-wing populist arguments
strongly reflected in other parts of the globe.
While admitting the apparent difficulties in maintaining a broadly “liberal” approach towards
immigration, Jonathan Portes, a fellow at the Department of Political Economy at King’s College of
London, the author of Capitalism:50 Ideas You Really Need to Know, published in 2016, affirms that
economists and social scientists alike should maintain their ground in support of the overwhelming
evidence demonstrating the positive impacts of the free flow of labor and people, as they are
empirically well attested in a wide range of research findings from around the world.
********************
Mesay Berhanu Gemechu is a graduate of Hankuk University of Foreign Studies (HUFS), Seoul, South Korea in the area of international development studies focusing on Africa. He served as deputy editor-in-chief of Addis Fortune, the largest English weekly in Ethiopia. He was also the 2023 African Correspondent for Korea-Africa Foundation representing his home country. Mesay currently lives in Seoul, South Korea. The writer can be reached at: gmesayb24@gmail.com
