Economic Crisis and Global Mobility

Anti-immigration sentiment has been rising in the U.S. and Europe as the economic slump deepens. But how has the relationship between mobility and the economy played out historically? How have economic crises affected immigration and global flows of people?

A new study by economists Timothy Hatton of the Australian National University and Harvard's Jeffrey G. Williamson takes a close look, examining changing patterns of global mobility and immigration, as well as shifts in public opinion toward immigrants in light of major economic cycles. And they find that previous economic crises in the U.S. and other advanced nations have led to sharp declines in immigration and global mobility.

[T]he rise in unemployment abroad had nearly three times the effect on emigration from the UK between 1870 and 1913 as a rise in unemployment at home. During the slump of the early 1890s, gross immigration to the US fell by half and net migration to Australia evaporated. During the Great Depression, net immigration to the US, Canada, Australia and Argentina turned negative as new immigration virtually ceased and as previous immigrants headed home ...

But how big are these effects? Where immigration policies are not too restrictive, history tells us that every 100 jobs lost in a high-immigration country results in 10 fewer immigrants. This 10% rule described countries like Canada and Australia in the Great Depression, and it worked pretty well for other periods too. During the severe 1890s depression in the US, net immigrant exits reduced the unemployment rate by about 1.6 percentage points.

The following graph from their study shows the relationship between the unemployment and the net immigration rate per thousand of the population (including illegal immigrants) for the U.S. between 1990 and 2004.

Interestingly enough, anti-immigrant sentiment in the advanced countries has been kept at bay during the current slump: Hattel and Williamson conclude that the "current world crisis will reduce immigration, and the long-run pressure to immigrate will continue to ease after it is over."

One of the most powerful, though least understood, effects of economic crises is their ability to alter global talent flows. Economic history shows that major economic crises like the current, can and frequently do produce considerable alterations in global flows of talent - particularly high-skill, highly inventive, and highly entrepreneurial immigrants. The U.S., which had previously been sending its own talent abroad for scientific and technical training, gained immeasurably from a massive inflow of high-skill immigrants during the crisis of the late 19th century and perhaps even more so in the flood of scientific, artistic, and entrepreneurial talent during the Great Depression.

The current crisis holds out the potential to again reset the flow of global talent. If so, this could have even bigger consequences than in previous times - and for an obvious reason. Economists agree that economic growth and technological innovation today revolve around human capital. We also know that innovative and entrepreneurial talent is highly mobile, highly skewed, and highly clustered geographically. Foreign-born talent composes an estimated third to half of all recent Silicon Valley high-tech start-ups, according to recent studies; and foreign-born engineers make up a huge percentage of their technical staff. The countries and regions that nurture, attract, and retain global talent gain enormous economic advantage.

We may be in the early phases of such a talent reset today. More potential immigrants appear to be choosing to stay home, as Hattel and Williamson note, partly because conditions in several of the most important emerging economies like India and China have improved, relatively speaking. And a number of countries like Canada and Australia, and some in Scandinavia and Northern Europe, have upped their own efforts to attract high-skill immigrants. The U.S. with rising anti-immigrant sentiment, homeland security restrictions, and declining economic opportunities may be seeing its talent advantage wane.

Global talent flows can shift quickly. And, the global competition for talent is a game that is played at the margins. As I outlined in Flight of the Creative Class, while no single one country has to replace America as the predominant destination for global talent, many countries appear to be improving their relative position. Say 10 or 20 percent more of China and India's top talent decided to stay put, while countries like Canada, Australia, and others up their draw by five or 10 or 20 percent. Those numbers add up quickly.

Anti-immigration stances and other measures that impede talent flows may offer some political gains, but they will only undermine long-run innovation and prosperity. Those nations and regions that maintain and expand their ability to attract global talent  will emerge as global winners when economic growth rebounds.