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Immigration is a hot political topic right now. But to one chief investment officer, immigration policy isn't a matter of political debate — it's an economic nonnegotiable.
Chris Brightman, CEO and chief investment officer of the $147 billion investment manager Research Affiliates, believes immigration reform is long overdue — and billions of dollars are at stake if no action is taken.
With an aging population and declining birthrate posing a significant economic risk in coming years, the US must take the necessary steps to boost immigration and economic productivity, Brightman wrote in a research note.
Declining birth rates are causing a drag on many of the world's biggest economies, and the US is no exception.
Fertility rates in the US are hovering around 1.6 children per woman, well below the replacement rate of 2.1, which means that natural US population growth is stagnating.
According to Brightman, this is a big threat to US economic health. A declining population brings with it a declining labor force. With few workers and an increasingly aging population, programs like Social Security and Medicare become strained.
Government initiatives to boost declining fertility rates aren't the answer, Brightman argues. Financial incentives in Japan, Korea, and Taiwan haven't raised fertility rates. Benefits offered by European countries such as paid parental leave and subsidized childcare have also failed to raise fertility rates.
As seen in the graph below, US population growth is projected to trend negative in the coming years without additional inflows from immigration.
Research Affiliates
Brightman points out that immigrants have a long track record of driving productivity and innovation in the US economy. Immigrants have won 40% of all Nobel Prizes awarded to Americans since 2000 and originated a disproportionate number of US patents. Over half of US unicorns, or startups valued at over $1 billion, are founded by immigrants.
Beyond these accomplishments, immigrants are necessary to bolster the US labor market. As baby boomers enter retirement, they're leaving behind unfilled job openings — a trend that began in 2010 and has only continued to worsen. There are currently more job openings than unemployed workers.
Research Affiliates
With a declining population growth rate and an increase of workers aging out of the workforce, increased skilled immigration is the ideal solution to prevent economic decline, in Brightman's view.
Brightman sees the need for more friendly immigration policies such as providing permanent residency to immigrants who graduate from US universities.
Admitting more computer scientists, engineers, doctors, accountants, educators, and other skilled professionals would greatly help the US labor shortage. Brightman highlights that the economy especially needs more healthcare workers and skilled tradespeople.
Countries like Canada, New Zealand, and Australia use a point system with selection criteria such as education, professional skills, and language. Brightman believes the US can emulate this immigration model.
One popular reform proposed by policymakers is to exempt immigrants with advanced STEM degrees from statutory limits on the number of green cards granted per year. According to an analysis by the Penn Wharton Budget Model (PWBM), such a proposal would boost the US population by 825,000 in the next 10 years and by over 2.5 million in the next 20 years.
This proposal will not only fill gaps in the labor market but also significantly reduce the federal deficit in the next two decades, according to PWBM.
An increased number of immigrants leads to increased tax revenues. PWBM estimates that if green card limits were lifted for immigrants with STEM degrees, the US government would see an extra $133 billion in revenues with only a $4 billion increase in outlays for a net deficit reduction of $129 billion.
The effect would be even more dramatic by 2044, with $708 billion in tax revenue and $74 billion in outlays for a $634 billion reduction in the deficit.
Immigration has a reputation for being a polarizing topic, but Brightman sees such a proposal as a necessary policy that'll tackle one of the biggest challenges facing the US economy.
