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Home Publications Blogs Beat the Press Ezra Klein Strikes Out Big on Immigration and Demographics (link fixed)

Ezra Klein Strikes Out Big on Immigration and Demographics (link fixed)

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Saturday, 02 February 2013 08:17

Ezra Klein usually can be counted on for good insights on politics and the economy, however today's piece on immigration is the sort of thing that could have been on a press release from Fix the Debt. The basic point is to tout the virtues of immigration. While there are benefits of immigration that Klein rightly highlights, much of the piece veers off into the sort of pablum readers expect from the non-Klein portions of the Post.

This is especially the case where Klein dives off into demographics.

"The economic case for immigration is best made by way of analogy. Everyone agrees that aging economies with low birth rates are in trouble; this, for example, is a thoroughly conventional view of Japan. It’s even conventional wisdom about the U.S. The retirement of the baby boomers is correctly understood as an economic challenge. The ratio of working Americans to retirees will fall from 5 to 1 today to  3 to 1 in 2050. Fewer workers and more retirees is tough on any economy."

Klein then adds, "there’s nothing controversial about that analysis."

Actually everything about that analysis is controversial, including the basic facts. (Actually, these are just wrong.) The current ratio of workers to retirees is 2.8 to 1, it hasn't been 5 to 1 since the early 1960s. It is projected to fall to 2.0 to 1 by the mid 2030s.

This is not just a gottcha, it shows the fallacy of Klein's basic point. We have already seen a sharp decline in the ratio of workers to retirees, yet even people who follow the economy and economic policy closely, like Klein, were apparently not even aware of this fact. Since this decline is never cited as factor causing our current economic problems, why would we think the comparatively mild decline in this ratio projected for future decades will be a large burden?

The reality is that the benefits from even modest productivity growth swamp the negative impact of a declining ratio of workers to retirees. This graph compares the benefits of productivity growth to the negative impact of the projected demographic change over the next two decades. 

 

alt                                Source: Author's calculations.

These calculations assume that retirees benefits are equal to 85 percent of the average wage, an amount that is much higher than is actually the case in the United States. It is also worth noting that 2035 is the worst possible year for demographics, since after that date the ratio of workers to retirees stabilizes for the rest of the century. On the other hand productivity keeps growing.

Even in this worst year, in the worst case scenario where productivity growth averages just 1.0 percent (roughly the rate during the 1973-1995 slowdown), the gains from productivity growth between now and 2035 will be more than three times as large as the burden from the decline in the ratio of workers to retirees. In the case of 1.5 percent productivity growth, which is closer to what we have actually been seeing, the ratio of benefits to burden is 5 to 1. And, if we got back to our 2.0 percent golden age rate of productivity growth the ratio of benefits to burden would be over 7 to 1. In short, the arithmetic doesn't support the demographic disaster story.

There is a deeper issue on this one that just reflects a bizarre worldview. Many of us have noticed global warming and other ways in which the planet is straining from the impact of humans. As a general rule, fewer people will mean less strain. Why should we be troubled by a stagnant or declining population? It is especially bizarre that people claim this is a problem for Japan, which is a very densely populated country. 

It's true that a declining population means that labor will be in shorter supply. That means that the least productive jobs will go unfilled. That is the way economies develop and the reason that half of our workforce is no longer employed in agriculture. In the U.S. this would mean that we might have fewer restaurants and the convenience stores won't be open all night. In Japan, perhaps they won't be able to find workers to shove people into the subway cars in Tokyo. What's the problem?

Klein is correct that the arguments he lays out tend not to be controversial in Washington policy circles. But this is not a very thoughtful group of people. Remember these are the people who could not see an $8 trillion housing bubble. They have not gotten any more curious or creative in their thinking in the last 5 years.

This is not to argue against immigration or immigration reform. The way we treat people who came to this country to work, in accordance with policy (sorry, the folks in Washington knew we had immigrants working in the country off the books -- this was policy) is an outrage and is bad for the economy. However readers deserve a more serious discussion of the issues involved.

Some immigration to the country undoubtedly provides economic benefits. However in nearly all cases there will be winners and losers. For example, a large flow of immigrants at the low-end of the labor force will hurt the people who have recently immigrated to the country. Some of us may not consider that a good thing. On the other hand, a large flow of very highly educated immigrants, such as doctors, can get the wages of these workers more in line with the wages of professionals in other wealthy countries and provide large savings in areas like health care. (This is a great way to go for people who are worried about those long-term deficit projections.)

 

Comments (28)Add Comment
...
written by JDM, February 02, 2013 8:52
The ratio of working Americans to retirees will fall from 5 to 1 today

Anyone know where this bogus number comes from? Isn't this the same bogus number a lot of guys use?
What happens with a topic that is actually complex
written by Jennifer, February 02, 2013 9:01
If something relatively simple like Social Security can be so manipulated by the media and the "experts" good luck on immigration reporting. Immigration is a complex topic--obviously employers versus employees will look at it differently but also low-skilled workers versus high-skilled workers and issues between immigration groups themselves. On top of that you have a person's personal experience and prejudices--most people do not have such sharp opinions on budget numbers. I think that most people want to be fair but not at the expense of their own well-being, and reporting on data and well-designed studies would be very helpful.
True Colors
written by Jeffrey Stewart, February 02, 2013 9:17
Well, since people, including Paul Krugman think Mr. Klein is such a smart guy, what's he up to here? Is he carrying the water for the Fix the Debt crowd? It seems that when push comes to shove that Mr. Klein is on the side of the rich, powerful and well connected. He seems to value his job more than the truth.

Oh, please don't wait for a mea culpa either. It will be sixty five degrees in January in the midwest before that happens. Oh wait.
The link to Klein's piece...
written by Roger Vance, February 02, 2013 9:56
...took me to the Washington Post but I think it should have taken me to Bloomberg. The piece under discussion can be found at http://tinyurl.com/at629pq
5-to-1 v. 3-to-1
written by Ellen1910, February 02, 2013 10:17
Maybe, Ezra should be reading our favorite bête noire http://www.commercialappeal.co...d/?print=1

Unusually, he seems to have gotten it right.
THE RATIO TO USE IS WORKERS TO NON-WORKERS
written by Blissex, February 02, 2013 10:21
«Actually everything about that analysis is controversial, including the basic facts. (Actually, these are just wrong.) The current ratio of workers to retirees is 2.8 to 1, it hasn't been 5 to 1 since the early 1960s. It is projected to fall to 2.0 to 1 by the mid 2030s.»

There is a large fallacy in this very point, which is what matters is the ratio of workers to non-workers (dependents) rather than to pensioners.

Because young people are dependents too, non-workers for the first 16-25 years, perhaps longer than most people are on pensions.

So if the worker-pensioner ratios goes down because of decreasing natality, that also makes the worker-child ration go up, so that the worker to non-worker ratio does not change a lot. Also, if women start working formally instead of home-making, that also changes the worker to non-worker ratio.

Indeed graphs of the percentage of the US population working shows a huge increase some decades ago, a plateau, and then a decrease that is not as large as the increase, and mostly caused by unemployment rather than a massive increase in the pensioner population.

So far at least.
HTML coding
written by Ellen1910, February 02, 2013 10:25
Is there a way to use html coding to generate links in the "Comment" section of this blog?

That is -- Link text
HIGHER POPULATION DENSITY BOOSTS ASSET PRICES
written by Blissex, February 02, 2013 10:30
«As a general rule, fewer people will mean less strain. Why should we be troubled by a stagnant or declining population?»

It is the same reason for the obsession for absolute GNP instead of (median) GNP per head...

More people and bigger GNP means that property assets and productive assets become more valuable. If the USA population were to grow from 300 million to 600 million even if the median standard of living were significantly lower most property prices would go up a lot, because the property/people ratio would be much more favourable to incumbent owners.

Most of the Usians, or at least most of the politically active Usians, believe themselves to be property (stocks, houses, businesses, ...) investors, and can only welcome higher population that would drive up property prices in general and would drive down the wages of everybody else.

Most USA media report economic news purely from the point of view of the interests of the property investor, so more people, lower wages are good news, especially if this involves are non-voting immigrants.
Further on "5-to-1"
written by Ellen1910, February 02, 2013 10:36
JDM's interesting question --

Apparently, the "bogus number" is what the U.S. Census Bureau calls the "dependency ratio" -- i.e., 100-to-22 in 2010. The Census Bureau estimates the ratio at 100-to-37 in 2050. http://www.census.gov/newsroom...10-72.html
...
written by liberal, February 02, 2013 10:46
blissex wrote,
Most of the Usians, or at least most of the politically active Usians, believe themselves to be property (stocks, houses, businesses, ...) investors, and can only welcome higher population that would drive up property prices in general and would drive down the wages of everybody else.


Which is why high immigration in the context of low land taxes is criminal.
...
written by dick c, February 02, 2013 10:50
Perhaps "they" have already come up with a new distribution list for the benefits of future productivity growth... and we just aren't on it.
...
written by watermelonpunch, February 02, 2013 12:30
These calculations assume that retirees benefits are equal to 85 percent of the average wage, an amount that is much higher than is actually the case in the United States.

What is the actual case in the U.S.?
Why should we be troubled by a stagnant or declining population? It is especially bizarre that people claim this is a problem for Japan, which is a very densely populated country.

THANK YOU!
I have been wondering this every time that's mentioned or the innuendo.

The house (single family) I live in is around 900sqft, and I constantly hear that I live in a very small house.
900sqft size dwellings are at the high end for a lot of Japanese people, I think.

There's a reason for that.

And you can figure out the logic playing Tropico. ha ha ha

At some point density of population must have diminishing returns for the benefits, right?

Just ask the people who live at 120squarefeet.com if they'd be as happy living in their tiny house if it was in a densely packed neighborhood of 1,000 120sqft houses spaced 3ft apart.
Enough said.

This is not to argue against immigration or immigration reform. The way we treat people who came to this country to work, in accordance with policy (sorry, the folks in Washington knew we had immigrants working in the country off the books -- this was policy) is an outrage and is bad for the economy. However readers deserve a more serious discussion of the issues involved.

I agree. As an ordinary citizen, and the grandchild of immigrants who doesn't begrudge the newer generation on principle -- I don't think many, if any, of the popular discussions about immigration, for years, ever address the salient points of the topic.

And as I look at the popular discussions on the topic, and find out the actual issues involved, I'm convinced more & more of slight-of-hand distracting from truly relevant issues.
Note: I say this maybe being influenced by the fact that where I live, my representative in Congress is Lou Barletta. ha ha :o( !
apologies for the double post - discovered more interesting comments upon reload. :o)
written by watermelonpunch, February 02, 2013 12:42

@ Ellen1910 - it's BBcode rather than HTML.
Click on the little earth icon after highlighting the URL, to wrap the code around it.
(Something I consistently forget to do here!)

@ Blissex - Your comment seems to argue that wealthy people would like a Soylent Green world. :o(

@ JDM & Ellen1910 - wouldn't using the dependency rate, kind of be egregious misuse of data when arguing a point about aging populations & retirees?
...
written by skeptonomist, February 02, 2013 12:45
Plots of working-age versus total population are here:

http://www.skeptometrics.org/RealDemographics.html

The percentage of working age has varied within narrow limits - about 56% to 63% - and it will be about the same in 2035 as in 1900.

This does not take account of unemployment, or of the considerable increase of the actual workforce because of the entry of women in the second half of the 20th century, which has now apparently slowed. But even the actual employment/population ratio (FRED: EMRATIO) has only varied between 55 and 65% since 1947. This ratio is just not going to vary anywhere near as much as the retired/population ratio. The way these real demographics are so often ignored shows how much public debate about economic matters is dominated by silly myths instead of facts.
Klein knows the plan, just won't mention it
written by Matt, February 02, 2013 1:01
The above analysis makes sense, but I suspect the reason Klein's ignoring it is that he's accepted the "new reality" where the 1% will hoover up all the gains from productivity (simultaneously avoiding Social Security tax via the caps) leaving the rest of us to pay an increasing bill for retirees while real wages stay flat / continue to decline.

Of course, actually *mentioning* such a thing is verboten at WaPo, so we get incoherent reportage instead.
And none of these editorials mention capital investment per worker now and in the future
written by John Wright, February 02, 2013 3:29
These editorials seem to have a bias toward maintaining and/or increasing one factor, that being USA population.

But one should also look at the capital base per worker as man the tool user has always leveraged his output via tools/machines.

California spends 9.375K per student/yearly in K-12 so even 35th in the nation California spends 13 x 9.375K = 122K to produce a high school graduate.

Perhaps a smaller student population would free up capital for improved infrastructure, basic research, or additions to manufacturing machinery.

Some editorial writers appear to be of a split nature, concerned about climate change but still pushing for an increased high consumption American population that will likely make the climate change problem more difficult to solve.

And if these writers are expecting technology to solve climate change, than maybe technology can also solve their feared upcoming human labor shortage.

I see the population split into various labor interest groups, pure labor suppliers (lower middle and poor) and pure labor purchasers (the idle well-off).

Our government policy in immigration is to cater to the well-off to keep their purchased labor cost low.

Productivity vs Taxable Wages
written by Tom, February 02, 2013 3:42
I want to echo/enhance Matt's point at 2:01. Seems to me (I'm not an economist by a long shot!) that Dean's analysis only works if there's some pretty good correspondence between rising productivity and funds that reach the dependent. Since most of those funds come from FICA taxes, the rich don't really contribute a fair share of those relative to the siphoning up of productivity gains that they do. Thus productivity gains in and of themselves may not be the help he's indicating.
Productivity share allocation ...
written by David, February 02, 2013 9:02
... will likely correct within the next 20-30 years once the golden-egg-laying goose has been strangled to within an inch of its life and the gated communities hear in the valley the echo of plowshares being sharpened into swords.
Thanks Ellen1910
written by JDM, February 02, 2013 9:28
JDM & Ellen1910 - wouldn't using the dependency rate, kind of be egregious misuse of data when arguing a point about aging populations & retirees?

Yes, otherwise known as a lie. Ezra should know -- ie. no doubt does know -- that "Americans of working age" does not mean anything near "workers". The former obviously includes members of families where one adult does not work outside the home, those disabled to the extemnt they cannot work, and of course the unemployed (who we happily accept should "naturally" be a very large number of people).

mr
written by Dean, February 02, 2013 10:33
Klein is wrong about everything except “Washington mistakes the federal budget for the economy."
Most business startups by migrants cater to migrant workers and add little to the above ground economy. Klein probably can't see that from Washington. If there is little dispute about the effect migrant workers have on the wages of low income Americans, as Klein says, it is because a huge majority of people know that migrant workers lower the wages and take the jobs otherwise held by Americans. People know that friends or relatives had been replaced on the job by migrant workers. Whatever economists, reporters, and politicians say to the contrary won't change the reality that people know.
Klein says "immigration is essentially the importation of new workers. It's akin to raising the birth rate, only easier, because most of the newcomers are old enough to work.” That's the problem, they're old enough to work, and spend most of their wages to support their kids ( here or in the old country) leaving the kids of the American worker they displaced with unemployed parents. If history is a guide a majority of the people Klein refers to as immigrants will go back to the old country once they have made a bankroll. He is also badly mistaken about Social Security and the deficit. If you're worried about deficits, he says, "more young healthy workers paying into Social Security and Medicare are an obvious boon." Obviously not. Two young workers (migrant or native born) making $10 an hour pay less into Social Security & medicare than a 30-65 year-old making $25 an hour. And as everyone should know by now Social Security is fully funded and doesn't add a penny to the deficit.
The awful offal coming out of Washington about immigration sounds a lot like the baloney about the glories of free trade, which outsourced 5.3 million manufacturing jobs 2001-2009. Assuming those workers made only $30,000 a year, social security lost $19.7 billion in 2009.
The illegal aliens and migrant workers have a president, business, most of the left, most of the right, too many politicians, and most of the media on their side. The people who are really in the shadows are the american workers displaced by illegal migrant workers, H1-B workers, etc. The outsourced and displaced american workers don’t have a president working for them or much representation in congress.
Can the ‘open borders, path to citizenship crowd’ come up with something that will fool at least some of the people some of the time? Congress should cut immigration to 50,000 a year for a decade or so.
mr
written by Dean, February 02, 2013 10:46
here is the link to the 5.3 million job loss
http://www.epi.org/temp727/WorkingPaper289-2.pdf
need: 2nd category of immigration vs. protectionism
written by ProNewerDeal, February 03, 2013 5:02
Dr. Baker, imho you should add a 2nd Category of labor market supply addition via immigration vs. protectionism, to your 1st category of worker skill.

On 1 end of the spectrum there's mass addition of workers via immigration, whether it's low skill guest farm workers, or high skill STEM professionals via the H-1B visa (including PhDs). On the other spectrum end there's hyper-protectionism of a few high-skill occupations, for example physicians via their (probably world's most effective) union the AMA that ensures ~2X+ pay of other rich nation physicians & low unemployment.

For example, a PhD biochemist working in an innovative area such as genomics, is of higher skill (& productivity, innovation, etc) than 99-100% of physicians, but that biochemist is subject to lower wages & higher unemployment risk due to their employer's option to use the H1-B, whereas the generic median physician doesn't face similar threats.
Excellent Post
written by LSTB, February 03, 2013 7:31
...And comments too.

The only thing I'd add is that I'm tired of these justifications for immigration based on the accounts of wildly successful immigrants in Silicon Valley. Open migration advocates want immigrants without much education or skills. There is a humanitarian argument for doing so, but the economic case is thin.
...
written by ken melvin, February 03, 2013 7:55
Who benefits from immigration? It's sure as hell not whee the people.
legal Mexicans still won't pay taxes
written by jack trent, February 03, 2013 9:51
I live in New Mexico. Even the legal Mexicans live off the government. They work for low wages, get free emergency health care, and the EARNED INCOME TAX REFUND - subsidizes their paychecks each April.

Most Americans don't understand the tax code for the working poor. WE PAY them - so the 1% doesn't have to.

With GE, and the other multinationals paying ZERO taxes... you and me will subsidize 11 million more at the bottom of the economy... through the earned income tax credit.

DOPES!!
Pointer to a nearly 20year old article on immigration effects on African Americans
written by John Wright, February 03, 2013 10:30
http://www.thesocialcontract.c...llivan.pdf

I suggest any immigration reform will not include effective employer immigration law enforcement. While there may be "enforcement" words in the legislation, actual enforcement will be crippled, as a gift to businesses, in such a way to make it non-existent.

And legalizing illegal workers should have the consequence of making them more valuable to other employers, increasing their demanded wages. This will lead to more business pressure to allow more lower cost guest or illegal workers into the country.

The most prominent losers in the USA immigration policy are the less educated Black Americans who see their wages drop or are displaced in the workforce by the new supply of immigrant labor.

The winners are the business owners whose businesses require low wage workers, high wage Americans that heavily use domestic help, investors that see higher profits due to lower cost workers, and the military that has an easier time recruiting unemployed citizen youth.
...
written by watermelonpunch, February 03, 2013 1:14
On 1 end of the spectrum there's mass addition of workers via immigration, whether it's low skill guest farm workers, or high skill STEM professionals via the H-1B visa (including PhDs). On the other spectrum end there's hyper-protectionism of a few high-skill occupations, for example physicians via their (probably world's most effective) union the AMA that ensures ~2X+ pay of other rich nation physicians & low unemployment.

For example, a PhD biochemist working in an innovative area such as genomics, is of higher skill (& productivity, innovation, etc) than 99-100% of physicians, but that biochemist is subject to lower wages & higher unemployment risk due to their employer's option to use the H1-B, whereas the generic median physician doesn't face similar threats.


I agree with the point here.

I guess I didn't see immigrant doctors as a possible solution to physicians' wages being so much higher than in other countries, because of the fact that it never crossed my mind that foreign doctors had trouble coming to the U.S. to practice. Maybe because myself & most people I've known, have been patients of so many foreign born doctors.

My concern is that the h1b visa system has been a sneaky way to outsource. It also seems to me that the way it works, it favours huge corporations, and is of little use to small businesses. While also providing temptations toward unfair hiring process practices.
...
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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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