Of human capital and garbage
Report Date: 30th January, 2014 Without immigration of skilled labour Germany’s economy will shrink 4.5% in the next two decades and social security payments will rise from 26.2% of GDP to 31.2%. With skilled immigration this could be contained to 27.1%.
An engineer in Bogota is better off in PPP terms as a minimum wage lawn mower in Italy.
A Romanian or Bulgarian Doctor earns 10 times more in Spain and one third of Romania’s doctors have already left.
The Eurozone periphery is haemorrhaging talent towards the core at a cost to future growth of the country left behind of at least 1% a year. If this is not reversed or fiscal transfers from rich to poor pay for it, the ageing burden and debts of the periphery become totally unsustainable. This is the real ticking time bomb inside the euro area.
The secret to maintaining prosperity in all ageing rich countries is the free movement of skilled labour. Countries that grab that and eschew populist anti-immigration rhetoric and laws will be the winners.
No degree of third arrow reform will raise Japanese productivity sufficiently to maintain living standards or achieve debt sustainability unless Japan opens up to skilled immigration. We don’t think it will.
The Law of Human Capital versus Human Garbage says that immigration is binary – highly skilled and well integrated it can carry the can for rich ageing societies. Get the wrong immigrants and lock them in the cellar of society and the same arithmetic reverses dramatically.
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