With an unprecedented number of migrants and asylum seekers trying to enter the United States through its southern border, immigration is at the top of American voters’ minds ahead of November’s presidential election. Paradoxically, this debate has gained momentum just as the US economy outperforms other developed economies, partly owing to immigration-fueled population growth.
The Japanese economy should serve as a cautionary tale about the perils of opposing immigration. After growing rapidly following the end of World War II, Japan’s population peaked at 128.1 million in 2010. It had dropped to 124 million by early 2024 and is expected to decline further, falling below 100 million by 2055.
Japan’s economic stagnation since the 1990s can be partly attributed to its demographic challenges, as its working-age population declined from 86.8 million in 1993 to 81.5 million in 2010. While initially opposed to immigration, Japan eventually introduced various incentives to encourage it. But these measures have yielded only modest results, and the country’s population continues to shrink.
Demographic decline
Japan is not alone. Numerous developed and developing countries, including China, are also grappling with shrinking populations. In South Korea, the speaker of the National Assembly recently described the country’s low birth rate as a "national crisis." The European Union’s working-age population is projected to decline by 20% by 2050. Even in Africa, the only continent expected to experience strong population growth this century, the rate of increase is expected to slow.
Meanwhile, according to the US Census Bureau’s "main immigration" projection, America’s working-age population will only be 2% larger by 2035. By contrast, in a "zero immigration" scenario, the American workforce would decrease by 5%, with the US population shrinking by 32% by 2100.
A shrinking population and labor force can impede economic growth by redirecting investment from new capital goods, which boost worker productivity, toward replacing workers. Moreover, the average educational attainments of new entrants to the labor force exceed those of retirees, implying that retirees tend to be less educated and trained than those entering the workforce. When there are fewer new labor-market entrants than retirees, productivity can be adversely affected. In such a scenario, demand for health care and pensions grows faster than the overall population.
Economically beneficial
Regrettably, immigration is becoming increasingly unpopular just as its economic effects are becoming greater. Immigrants, who often arrive at a young age, bring essential intermediate skills necessary for industries like health care, construction, and hospitality. But nurses and construction workers are not just crucial for replacing retiring seniors; they also enhance the productivity of highly skilled professionals, including doctors, engineers, and educators. Thus, welcoming more immigrants could boost US output growth.
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