This article appears in the February 25, 2013 issue of National Review.
The output of an economy can surge only if the key factors of production—capital and labor—surge, or if firms combine inputs in a more productive way. For most economies, labor input accounts for about twice as big a factor in output as capital input does, so growth of the labor force, accordingly, is the most important driver of supply-side growth. A rule of thumb often relied upon by economists is that a 1 percent increase in the labor force produces about half a percentage point of extra output growth.
With their fertility levels declining, developed nations have increasingly relied upon immigration policies that recruit highly productive workers to augment the growth of the labor force. In this regard, the U.S. has fallen far behind its trading partners.
To illustrate how U.S. immigration compares with immigration to other developed countries, the nearby chart displays the number of immigrants admitted legally in 2010 in the 20 wealthiest OECD member states (measured by their per capita GDP that year) as a proportion of their populations.
Perhaps surprisingly for a country that has long thought of itself as a nation of immigrants, the U.S. falls far behind almost all the other countries in the number of immigrants it admitted in 2010 relative to its population size. To put our position in stark contrast, the chart includes the estimated number of undocumented immigrants who entered the U.S. in 2010 (the yellow bar). Even when they are included, total immigration to the U.S., legal plus illegal, is still lower as a share of population than legal immigration is in all but four of the other countries.
To be fair, 2010 was a year of comparatively low illegal immigration, but even at its peak of 850,000, in 2002, the proportion of the U.S. population composed of new immigrants was smaller than that of all but five of the other countries in 2010. (Consider as well that EU countries, which make up most of the rest of the sample, allow citizens to move freely between member states. The sources of their immigration might nonetheless surprise: Of the 459,000 immigrants who entered the U.K. in 2010, for example, only 156,000 were EU citizens.)
In addition to being comparatively restrictive, our immigration system prioritizes immigrants with family ties to U.S. citizens and residents over people wishing to enter for employment. Of the roughly 1 million immigrants admitted in 2010, just under 150,000 were admitted for employment. Almost 700,000 others were relatives of citizens or residents.
Because the number of employer-sponsored visas is limited, many qualified foreigners wishing to work in the U.S. are unable to do so. Australia, which has one of the highest rates of immigration by skilled workers, recently enacted a policy of allowing all foreign graduates of Australian universities to stay and work for two to four years following their graduation. It also increased the number of visas issued to foreign workers, with a large share of them going to highly skilled applicants.
With lackluster GDP growth threatening to become our new normal, allowing more immigrants to enter for the sake of employment is one of the few policies that might restore our old normal. If the U.S. doubled its total immigration and prioritized bringing in new workers, it could add more than half a percentage point a year to expected GDP growth. That is not the only relevant policy consideration, but it should be weighed carefully as Congress considers immigration reform.
-Kevin Hassett is the John G. Searle Senior Fellow and Director of Economic Policy studies at AEI