Europe’s immigration ‘problem’ has dominated headlines in recent weeks. Regardless of where you look, the consensus is the same. It’s a mess, and it needs cleaning. The mainstream portrayal of it would lead you to believe one of two things.
The first is that immigration is fundamentally bad. Without it, we’d all be better off, or so they say.
The second is that economies simply can’t sustain new migrants.
Neither of those two things is true. Yet scour through pages of opinion pieces and comments, and you’d come away convinced of it.
Are people right to fear migration? Well, it’s not so much a matter of whether it’s right or wrong. Whatever you think of immigration, there are facts which aren’t up for debate.
Take for example the effects migrants have on economies. The popular theory is that they steal jobs from locals. Furthermore, many people believe migrants are a burden on state coffers. But that couldn’t be further from the truth.
Migrants, on the whole, add to economic growth. In the worst case scenario, they can delay economic decline.
Europe needs migrants, and it needs them badly. Policymakers won’t admit this in public. But the current influx of Syrian migrants is vital to Europe’s future. Why?
The Western world is caught up in demographic decline. We’re living older, and we’re not having children like we used to. The effects of this are weighing on economic growth. The worst affected are countries resistant to immigration. On the other hand, you have nations that open their doors to migrants.
Australia, Canada, the US; these are all countries with open border policies. There are some in Europe too, like Germany and the UK. But beyond that, most European states are migrant sceptics. Unless this changes, Europe’s economic situation will never improve. It will enter a cycle of permanent decline, from which there is no escape.
Europe must embrace migrants from the Middle East and Africa. Anything less will spell doom for the Old Continent.
Demography is destiny
There’s a common phrase that makes the rounds in demography circles. Demography is destiny. It’s a very simple concept. It describes how a nation’s population can determine its fortune.
A favourable demography can lead to rampant economic growth. A poor demography on the other hand can send economies into a spiral of decline. Demographics play an equal role to economic success as education and natural resources do.
To illustrate how this works, let’s look at the European Union’s demography. It provides an example of demographics gone wrong.
Above is what your typical demographic pyramid in the developed world. It shows the population spread across all age brackets. This particular chart covers the EU’s 27 member states. It doesn’t look like much of a pyramid, does it? Now take a look at the pyramid below.
That’s what a healthy population spread looks like. It’s an extreme case, found mostly in African nations today. But you get the picture. Every age group is bigger than the one above it.
As we rise up through the age brackets, they get smaller and smaller. You’re left with a nation where young people vastly outnumber older ones.
If you look at the EU’s chart again, you’ll see something’s not right. It resembles a Christmas tree, not a pyramid. The EU’s biggest population bulge is between the ages of 25 and 55. Below that, there are relatively fewer kids coming up the pipeline.
For an economy, this is disastrous. I’ll expand on this in a moment. But I want to address a common misconception first.
There are many people who believe that fewer people are a good thing. With less people, those that remain have a bigger pie to share. They usually argue that it leaves more jobs for everyone else.
This is a simplistic view that completely misses the point.
Children below working age are unproductive today. But they’re tomorrow’s consumer base. More importantly, they’re future taxpayers.
If a nation isn’t producing enough children, it’s got a problem on its hand. But it can lessen the impact through immigration. How?
Immigration tends to bring in the right kind of people. Contrary to popular belief, every migrant is a good migrant. People see poor migrants from Syria as a problem. They argue Europe needs the right kind of migrant. Presumably, they’re looking for educated, middle class migrants.
While that might be ideal, it’s not realistic. Large movements of people take place for many reasons. Above all, migrants flee political, economic and social strife. War is often the tipping point for many. These people are often less educated, but not always. In fact, it’s usually middle classes that drive migration. They’re often the ones with enough money to fund travel costs. That could mean money for plane tickets, or risky boat trips.
But the point remains: all migrants are potentially beneficial to ageing nations.
Why Europe needs younger families
Migrants tend to fall into particular stereotypes. More often than not, young families make up a large proportion of immigration. You’ll find the majority are aged between 15 and 40.
I mentioned already that Europe needs children. It needs to replace its population to remain economically stable. But there is an alternative too.
By importing young families, Europe is delaying its need for new births. Why? Well, migrants are the finished article, aren’t they? They’re arrive productive, so to speak. A new baby needs 18 years before reaching the same stage. Think of migrants then as a quick fix.
For Europe this is especially important. As an ageing continent, Europe needs unskilled migrants. Even language isn’t important when it comes down to it.
Think about it. These are potentially tomorrow’s carers for Europe’s elderly. And Europe will need plenty of carers in the future. Someone’s got to look after them, don’t they? Rich countries have enough trouble as it is finding nurses.
Doing nothing isn’t an option. There’ll be too few young people for every older person. This is commonly referred to as the dependency ratio.
A high dependency ratio is a major problem for any nation. It forces governments to spend more on health and welfare. There’s more people to take care of, and less people to tax.
It means less funding for schools, hospitals, pensions and aged care homes. And for the EU, this is potentially life threatening.
Its dependency ratio will climb to 49.4 by 2050. At present, the EU has a dependency ratio of 28.8. Simply put, there’ll be far fewer productive participants in the economy. The burden on the young will grow. There will be less spending, and in all likelihood higher taxes.
That’s where immigration can provide a solution.
Can’t Europe just start having more babies? It isn’t that simple.
The average total fertility rate (TFR) in the EU is 1.6 children per woman. The TFR needed, just to keep its population stable, is 2.1. Europe’s TFR varies from state to state. At the extreme end, Portugal has a TFR of 1.3. Ireland has the highest rate in the EU, at just 2.0. Both are below replacement level.
Europe can’t experience a population explosion either. Everyone would need to start having more than two children on average. But it would take 20 years before those children reached the reproductive age. In other words, Europe needs several generations of high reproduction levels to rebalance its demography. There’s no chance of that happening. And it leaves immigration as the only credible solution.
And let’s also dispel the myth that falling birth rates eases pressure on jobs.
Youth unemployment in Spain is at 48%. Yet its TFR is 1.3. And what about Europe’s basket case, Greece? Youth unemployment there a barely believable 52%. It’s TFR? 1.3 again.
What about Germany, you say?
Germany also has one of the lowest TRF’s in the world, at 1.4. Yet its economy is doing reasonably well. Youth unemployment is only at 7%. Doesn’t that prove that demographics don’t matter? Not quite.
Germany is one of the most migrant friendly European states. There are 16 million people with immigrant backgrounds in Germany. There are over 1.5 million Turks in Germany alone. The Germans have even coined a special word for Turkish migrants: guest workers.
Germany is a pro-migrant country. It accepts that it needs migrants to support its economy. And it’s managed this better than other major EU states.
France’s immigrant population has created lots of friction. In Italy too, rising numbers of African migrants are causing tension. These are countries where migrants get blamed for everything.
Anti-immigrant sentiment runs high in most developed European states. That true almost everywhere outside Germany, the UK and Scandinavia.
If you’re looking for one reason to explain Europe’s decline, it’s demographics. It’s the biggest reason why the Eurozone is struggling today. But hardly anyone pays attention to this.
Australia’s demography is sounder, but we need more, not less, immigrants
Like Europe, Australia’s fertility rate is below replacement level. At 1.9, we don’t produce enough babies to replace our population. But we do take in a lot of immigrants. This is a nation that prides on its multiculturalism.
Australia’s population pyramid is less of a problem than in Europe. But it still foreshadows a difficult future, unless things change.
We have a huge bulge of people between 20 and 60. There’s a fewer people below that. Like Europe, we face the same problems, but on a smaller scale.
Fortunately, we have a progressive immigration policy. Regardless of what you hear about boat people, the government knows how important this is. It’s why the Abbott government just agreed to take 12,000 Syrian refugees. This move should be commended, not criticised.
If we maintain this policy, our fertility rate won’t be as urgent a matter. But the problems are still ahead of us. Immigration is more acceptable when things are going well. People tend to care less about such issues when jobs are plentiful, and living standards are rising.
Australian migrants have buffeted the economy for decades. We would’ve gotten a lot older and greyer were it not for this. The mining bust, for one, would have been a much bigger problem if we were more like Italy.
But we still face an uncertain future.
According to Markets and Money’s Greg Canavan, we’re heading for a recession in 2015.
Greg is one of Australia’s leading investment analysts. He says that we’re on course for our first recession in 23 years.
In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals how we’ve found ourselves in this position.
But there is a silver lining in all this.
There are actions you can take now to lessen the blows of the recession. Download your free copy today to learn how to protect your wealth from the coming crash. To find out how to download his free report right now, click here.
Contributor, Markets and Money