The Knowledge Economy and Immigration

Economic growth leads to better jobs, it turns out. This is the experience of Japan and the four Asian Tigers who developed Western levels of income starting from low wage, low technology economies. The idea applies to Western cities with strong economic growth. However, currently all Western cities with growth have met the growth with immigration – which suppresses the improvement in the jobs market. Doing so has produced an ever larger low wage sector in the growth cities which is both socially dysfunctional and economically dysfunctional. The idea of improving the jobs market with growth is absent from the lexicon of Western economists, at least in regard to Western economies. Here I describe briefly how the Upward Growth takes place, what is missing from  the literature.

When a good job is created a person will get hired for that position and the job they leave will be filled, typically from below. That is there is there may be a promotion, possibly with some on the job training. Then that new vacancy will be filled in turn from below and so on in turn all the way down to the bottom job. In a city where people are moving around jobs at a high rate this means all economic growth is connected to the worst employers and worst jobs by this domino effect. The skilled and professional markets also get connected to the general labour markets by the tendency in these times for there to be surpluses in skilled and professional areas, particularly of graduates. The de facto minimum wage is therefore where inflation is focused in the situation of full employment. Better companies can always hire from below but the bottom eventually simply runs out of bodies. Then there’ll be price increases at the bottom which will lead to economic contraction and bankruptcy, rationalization. This has the happy net effect of widening the relative number of jobs in the middle. (The de facto minimum wage is what employers have to pay to get a reliable worker that shows up every day and stay for a year.)

In fact this is the traditional form of the Knowledge Economy. In Asia Japan and the then the Tiger economies had the entire population move up the ladder of opportunity and they did so by feeding growth in good jobs by contraction at the bottom through domino effects. In fact it’s the economic plan of all the emerging economies, to move up to higher tech. This is industrialization but it’s a lost theory in the West where any growth is considered the objective, even growth in McLabor. Growth in McLabor is fueled by immigration in the main Western cities by reversing the upward domino effect to downward. This is as people get pushed into unemployment, which suppresses the upward improvement in the job market. Upward Growth is the alternative to the short explanation that immigrants take jobs that the indigenous do not want. The main cities are where the economic growth tends to occur and should be where job market improvements occur first.

In the growth Western cities they will probably always favor immigration. Otherwise labour shortages would develop and the wage inflation would tend to cause the Central Bank to raises interest rates. Eventually there’d be an interest rate induce recession, which is the economics of non-immigration (although it’s never mentioned). What could be done is the de facto minimum wage could be replaced with an aggressive legislated minimum wage for the city area only, say $12. This would keep the rest of the country growing with low interest rates while putting pressure on the lead city. Raising the minimum wage in cities would downsize the bottom, slow growth and improve the quality of jobs being created. The lack of good jobs and the lack of good jobs being created have been social issue for some time now. Improving the bottom would cut the worst of it. Over time most of the country would be affected as more cities come to full employment. Over time the growth in the country could be managed in this way. (That is if the world economy recovers and keeps growing).