What a weird question! As is well known, most European countries (with the exception of UK and France) are suffering from shrinking populations. A shortfall of young contributors threatens public pension schemes burdened with ageing baby boomers. A new kind of old age poverty is looming; young people are being told that they will never achieve their parents' standard of living.

   Germany has launched an immigration campaign comparable to Israel's and attracted 1.1 million migrants in 2015 alone.Slaves for Germany's industry” called them France's Marine Le Pen. Economists see them as future taxpayers expected to fill gaping holes among the German work force.

   In this context, immigration is interpreted as beneficial as mother's milk, not only in Europe.

   Time magazine said: “... the vast majority of the economic literature argues that a more liberal immigration policy would be good for the U.S. economy as a whole.” Ronald Reagan told the Republicans: “Whatever happens, don't stop immigration!”

 

The Cleveland mystery

   Cleveland OH is at the bottom of the ranking for job growth potential among 66 large American cities, only four steps above Camden NJ, the monument of de-industrialization and crime.

"Cleveland is dying," says Jim Russell. "Not only has the per-capita income gone up in Cleveland as the population has declined, it is growing at a faster rate than in Columbus where the population is on the upswing."  

cleveland

    Although Columbus OH enjoys a middle-level ranking for job growth, it has been overtaken by Cleveland in per capita income.   From 2003-12, the Cleveland metro's total personal income increased by about $20 million. 

"Another example of how population growth is outdated as an important economic metric," says Jim Russell. "Population a good number for 1950s economies, a fine measure of manufacturing's dominance. Manufacturing isn't dominant anymore. Neither is population growth. Today, fewer people are needed to produce more goods. The old numbers are out of touch with the economic transformation."

  "For example, the region's rate of educational attainment appears less-than-competitive in a knowledge economy. About 28 percent of adults in the Cleveland metropolitan area hold a college degree, compared to 35 percent in metro Columbus... Younger newcomers are fueling the brain gain. The number of college-educated 25 to 34 year olds in Greater Cleveland grew by 23 percent from 2006 to 2012.

   The skill level of Cleveland's young adult workforce is world class. It ranks 7th nationally, ahead of San Francisco, Chicago, Seattle and Austin, for professional and graduate degrees."

 

The Japan mystery

   Japan's population is ageing and shrinking. Yet, the country stubbornly refuses to accept more than a tiny trickle of immigrants.

"Opinion polls show the Japanese public to be increasingly worried about the effects of the declining population. However, when asked what should be done to secure the labor supply, the top two answers in an April Yomiuri poll were to increase the rate of working women and encourage more elderly to work. Only 37 percent said more foreign workers should be accepted, and only 10 percent of those said manual workers should be brought in."

   International media, especially American ones, have for years described Japan as a depressed economy suffering from two decades of stagnation. Yet, the opposite holds true. 

Japan

japan3

    Production of goods and services is based on three inputs: labor force, capital and total factor productivity (TFP). A declining labor force will raise the capital stock per caput and increase productivity (unless the investment has become obsolete, e.g. a wastewater plant in an abandoned village). Reduced fertility permits more investment in fewer children, resulting in a better educated generation, Better education leads to more R&D investment, hence higher TFP.  In this way, GDP of a shrinking population will rise*), at least per capita, as shown by Japan. 

 Tim Worstall says: When we look at ...things from the point of view of the life experienced by people ...Japan is the third best performing country of those measured.   Even after two “lost decades” life in Japan... is still getting better. Rather better than it has in either the US or UK over the past decade too.

 

japan

   Actually, if we look at the decade from 2005 to 2014 and compare the long term top performer Australia with Japan, we get a different picture. Measured in purchasing power parity (PPP) US dollars, Australia's per capita GDP increased from 38.900 to 43.200, i.e. by 11.3 percent. Japan's per capita GDP rose from 30.200 to 37.400, or by 23.8 percent. 

Australia

australia

Japanjapan2

   No doubt, Japan continues to be a star performer -- without immigration. How did the Japanese achieve this surprising performance?

    There are several possible explanations. Often mentioned is Japan's world leading role in robotization not only at the factory level. Outsourcing of menial tasks to other Asian countries. 'Brain gain' by improving human capital**). Longer working years, later retirement age. Clever use of investments financed by the public sovereign debt which is at the world's highest level. 

   Nothing miraculous, however. Nothing which demographically shrinking European countries could not emulate, if they wished. In fact, an increasing number of countries have opted for no or only limited immigration: Denmark and Hungary, Slovakia, Poland and the Czech Republic, as well as Italy, Spain, Portugal and France. 

   There is no economic reason***) to criticize them for this policy. At the human level, that is of course a different story.

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*)The second and most devastating bubonic plague in Europe which started in 1347 and killed off one third of the population is thought by historians to have reduced the level of malnutrition of the remaining population and permitted a more affluent lifestyle which ushered in the Renaissance period of modernization. 

**) Countries characterized by stagnant or shrinking populations appear more creative than those with growing populations. Japan and Europe are granted more patents and gain more science and economy relevantNobel prizes than India, China, the Moslem countries and Sub-Saharan Africa. The population of the United States, another creative country, continues rising mainly because of legal and illegal immigration.

patents

Source: European Patent Office

***)    Jean-Laurent Cassely of  Le Monde says in Slate: Let's stop justifying immigration with economic and demographic arguments. He explains that migrants entering France don't care for the country's requirements. The migrants do not arrive to repair gaps in the age pyramid. He quotes the demographer François Héran who says that in any case the French population will see its share of old-age people double by 2060 because of the growth of life expectancy. "The contribution of migrants to repairing the pension systems is necessarily limited because ageing is first of all resulting from increased longevity."

"Ninety percent of the migration streams do not respond to our needs but to the rights of the migrants. The social scientists's job is neither to assuage nor to alarm the public about the effects of immigration but to provide a more objective view on the phenomenon."

Also of interest:

 

Jan van Ours 

Age, wage, and productivity

"Ageing populations are a concern for many developed countries, with increasing dependence on the working population expected. Despite this, there is relatively little research on how productivity changes with age. This column argues that while older people do not run as fast, there is no evidence of a mental productivity decline and little evidence of an increasing pay-productivity gap. The negative effects of ageing on productivity should not be exaggerated.."

 

 

 

 

The German Case

For decades after World War II, Germany did not engage in demographic research because of the historical role of this science as a tool of Nazi imperialism and racism. However, when the baby boomer years ended and the prospect of a shrinking population was looming, demography once again became a matter of naional concern. Years of alarmist predictions and projections paved the way for broad popular acceptance of immigration as an unavotdable requirement for maintaining a stable labor force needed to ensure Germany's role as a major economy. The enthusiasm with which Germany in 2015 welcomed a sudden massive influx of refugees and migrants was motivated by empathy as well as by a broad recognition that immigration was necessary and beneficial for Germany.

During the following years, many Germans -- especially in the eastern provinces liberated in 1989 -- had second thoughts about the benefits of immigration. The government responded to popular concern by attempting to reduce immigration -- in lockstep with other European countries -- from a stream to a trickle.

While the monster of uncontrolled immigration was at least temporarily tamed, the objective of maintaining a stable labor force fell by the wayside. Also, doubts arose whether these immigrants from Asia and Africa were linguistically and professionally qualified to fill vacancies offered by the German economy. Only their children raised in Germany were considered fully qualified, involving a generation's time lag until the economy would reap the full benefits from the current model of immigration.

A rather uncomfortable situation which portrays immigration as a very long term investment of considerable public funds yielding limited direct benefits and not resolving the labor market problems. A situation which pleases neither the population at large nor the economy, and favors xenophobe, sovranistic movements and parties.

At this point, a government institute for demographic research issued an amazing study which contradicted the popular assumption that Germany's economy was doomed unless immigration filled the  labor force gaps. Analyzing medium term prospects until 2030, the study concluded that Germany itself was at least partly able to fill the gaps by itself, with its own population.

The study proposes a panoply of reasons why the German population would be able and eager to fill the gaps.

  • The number of economically active people is in itself no criterion; it is the level of qualification and the number of hours worked which determine the supply side of the labor market
  • While the baby boomers will be leaving the labor market, women and people over 55 will  bolster the labor force and "to a large extent fill the gaps", the study concludes
  • Improved health and longevity will extend the working years per person; decades of better education are resulting in higher qualification and with it to more hours worked since the best qualified are also the hardest working group. 

It is, of course, a moot point to ask if the study was perhaps influenced by political considerations, being isued by a government authority. Still, the research seems to support the Japanese experience that growth is possible with a shrinking labor force.  However, to fill the generational gaps, two major policy changes are required

  • a comprehensive and sustained effort to facilitate more and better participation of women in the labor force by alleviating women's traditional family and household chores, and by encouraging girls to opt for "typically male" professions and jobs;
  • abolish all pension age and compulsory retirement regulations (ageism), letting people work as long as they like it und feel fit. Fully active octogenarians should become as commonplace as in they are in the United States. Taxation should be tuned to encourage rather than punish work after passing the retirement threshold. Retirees kept inactive by law or/and tax rules constitute a colossal waste of labor, considering that in countries such as Germany close to a fifth or a quarter of the population is over 65 years old.

 

The Italian Case

Italy has the fastest shrinking population in Europe. Every year deaths ( 633.133) exceed births (439.747) by some 200,000 units.  With 1,32 births per woman, Italy's current birth rate is the lowest since the Kingdom of Italy was established in 1871 Only immigration prevented a more spectacular decline of the population. Some 100,000 foreigners (mostly Albanians and Moroccans) are naturalized per year; about 4 million immigrants are registered as foreign residents in Italy. In addition there is an unknown number (probably millions) of illegal residents. Like in Germany, U.K. and  France, the share of foreigners in the total population could be well above 10 percent.

Few of these foreigners are refugees in the proper sense because Italy's support to immigrants is very limited. Almost all of them are -- by necessity -- economically active. Pictures of young foreigners wasting time by circling inner cities on bicycle are absent. Everyone has a job, and be it begging or petty crime. The Senegalese specialize in fake luxury goods; the Chinese are operating their maquiladora factories producing Chinese goods "Made in Italy". Each nationality cultivates its own sector. With all this "imported" activity, Italy's economy should be booming, according to traditional economics. But Italy is no Malta:  its economy is stagnating since 2009.

Contrary to Germany, for instance, Italy's labor market does not suffer from a generational gap: to the contrary there are more young people looking for jobs than the economy is willing to absorb. In fact, one of the reasons for Italy's low current fertility is the lack of promising prospects. The "father-mother-child" family model is increasingly replaced by a "father-mother-dog" model and by singles. Contrary to Germany, the fertility of Italians continues to decline.

In terms of the labor market, reducing fertility is probably an adequate response to the endemic economic stagnation. Less jobs, less Italians, more brain drain. More immigrants who are tough enough to  reap a living in a deteriorating economy -- Italy is going in Third World directions.

Does Italy need immigration? Perhaps yes, to paper over the demographic decline. To some extent, Italy needs foreigners to perform menial work refused by Italian youngsters who prefer to remain jobless. Women? Their participation in the labor force is rising but still abysmally low. Old age activity? By necessity, pension agers are either continuing in their jobs blocking vacancies allegedly needed by youngsters or finding other legal or illegal ways to continue working.  The persistent youth unemployment is a mirror image of the rising share of the old-age occupation. Both are a result of stagnation. Pensioners are often said to be better qualified and more disciplined than the current generation of youngsters.

This trend is likely to continue as long as Italy is not able and willing to introduce the sweeping reforms, also in education, it has been postponing for decades. Meanwhile, Italy's accelerating brain drain is a boon for better-off countries such as the U.S., U.K, and Germany.

An old mockery expressed by Italy's northern citizens (derogatorily called polentoni -- polenta-eaters) considers all of Italy south of Florence (inhabited by terroni -- earth eaters) a part of Africa (Rome included !) No joke anymore: all of Italy nowadays experiences a migration similar to Africa's. The best educated, the most daring among its youth are leaving the Italy in droves in search of a job, a decent life, a career. Contrary to African migrants they don't have to cross a dangerous sea; all they require is a work visa or, in the case of  EU countries, no permit at all. No Frontex, no border control chases them; no Brussels summit is concerned by their migration, nobody calls them refugees: they are "white Africans" for whom all doors are wide open.

Small wonder that they don't hesitate to abandon the belpaese. Once they have established themselves abroad they will send remittances to their families at home. Many of them will help other relatives to join them, de facto establishing a new family in the new country. This wave of migration is in lack of a better term still belittled as brain drain when in reality it is a growing trend bleeding the country: a threat lurking behind doors waiting for an economic crisis to happen -- for instance Italy reneging on its sovereign debt -- to become a mass phenomenon.

The arguably most useful part of an education in Italy todays is to learn a foreign language. English language schools are booming all over Italy. While the great migration of Romanians and Albanians to Italy is slowing because these countries have emptied themselves, Italy's migration is waiting to happen.

Heinrich von Loesch

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