A specter is haunting Europe — the specter of aging.
Many Western countries are facing what the World Bank calls a “profound demographic crisis”: The twin perils of an aging population and record-low fertility rates are predicted to send their populations plunging in the coming decades.
The worst consequences of this demographic shift, per the World Bank, are economic. Soon, the shrinking working population in the U.S., Canada, or Germany won’t be able to meet their own constant demands for high-quality goods and services. These rich, elderly countries will have to make a hard choice for economic survival: force people to work more, or allow immigrants to fill in?
Lant Pritchett, one of the world’s top thinkers on developmental economics, has seen this crisis coming for decades over his career at Harvard, the World Bank, and Oxford University, where he currently heads a research lab. He told Fortune his radical plan to stave off economic disaster.
Population decline
In the long run, without intervention, the UN predicts that a decline in population growth could cascade into a full-on population “collapse.” That collapse is not likely to occur until well into the next century – if it comes at all. However, in the short run, population decline presents a real, and relatively simple economic problem: the West soon won’t have enough workers.
The ratio of working-age people to elderly people in rich countries will soon become so diminished that support for elders will be unaffordable. In Japan, a nation already facing the consequences of a graying population, the average cost of nursing care is projected to increase 75% in the next 30 years, with Prime Minister Fumio Kishida warning that the nation is on “the brink.” In the U.S., think tanks have warned, an older population with more retirees means a shrinking tax base and higher demands on programs like Social Security and Medicare, along with a smaller number of working-age people to pay into those programs.
In short, we have a “ticking time bomb” on our hands, in the words of Greece’s prime minister Kyriakos Mitsotakis, whose government introduceda six-day workweek last month to address the nation’s labor shortages. The move prompted fury and protests among workers as they watched their German and Belgian cousins embrace four-day workweeks.
Indeed, even as some European countries and a few American companies flirt with working less, panicked economists and politicians are sounding the alarm: We need to work more. A study conducted by consulting firm Korn Ferry found that by 2030, there will be a global human talent shortage of more than 85 million people, roughly equivalent to the population of Germany. That talent shortage could slash $8.5 trillion from nations’ expected revenues, affecting highly educated sectors such as financial services and IT as well as manufacturing jobs, which are considered “lower skilled” and require less education.
Now is the time to act, economic veteran Pritchett told Fortune. But doing so involves some radical rethinking of the current immigration debate.
Classical economics offers a number of ways to address a labor shortage, Prichett said. Since most of the unfilled jobs are “unskilled,” or don’t require a degree to complete, one solution for businesses and governments is to invest in automation, essentially having robots fill the gap. But, while automation helps get the jobs done, it depresses human workers’ wages by decreasing the amount of jobs available, “exacerbating” the issue, Pritchett said.
Some have called for increasing wages to induce more people to work. But most of the working-age population in the U.S. is already employed. Despite a well-documented decline in the portion of working-age men with jobsover the past few decades, Prichett said that the vast majority of working-age men are working, meaning raising pay would have small effects at best. There’s room for more women to work, he noted, but that could take away from other important responsibilities that are overwhelmingly shunted to women, such as caring for family or raising children.
That leaves two other options: forcing workers to work more or allowing an influx of legal, controlled immigration.
Why a six-day week won’t work
Mitsotakis’ plan for a six-day-work week is a step in the right direction for the short term, Pritchett said.
But “economics is not just about direction: It’s about magnitude,” he added. In other words, he says, small policy tweaks won’t do it. If we’re trying to address a big, structural problem with the U.S. labor force, the solution needs to be ambitious and comprehensive—precisely the type of legislation American politicians have largely avoided in recent years.
If policymakers simply try to make everyone work an additional day, the math simply won’t work out in the long run, Pritchett said. Even if Greece has “fantastic success” and increases its working hours by 10% over the next 30 years, that growth would represent a “drop in the bucket” in fighting a worsening labor shortage. He calculated a demographic labor force gap of 232 million people globally in his most recent paper, even assuming the highest possible labor force participation rate.
“You can’t solve a problem that’s growing over time with [a labor force] that has an upward bound,” he said. You would have to keep the labor force working more and more, and even then, you would never be able to fill in the gap.
Pritchett has a better idea. He knows that the current immigration debate is fraught, since the West is concerned with the social ramifications of allowing more migrants into its borders. But he maintains the only way to solve rich countries’ labor problem is to let in immigrants to work, particularly from countries where population growth is increasing, such as Nigeria or Tanzania, rather than decreasing.
In his view, the Western debate on immigration has taken on an unnecessarily binary flavor, with the choice depicted as one between a path to citizenship or closed borders. In a recent article titled “The political acceptability of time-limited labor mobility,” Pritchett says the West will soon have to abandon this view. Instead, he advocates for developed nations to embrace a system where immigrants can come to their country to work for a limited time – while also buying goods and services, renting homes, starting companies, and hiring workers — and then go back home, leaving both parties wealthier.
The future of immigration is temporary
The truth, Pritchett said, is that the U.S. needs low-skilled migrants, and many migrants need the economic boost from working in the U.S. Immigration is a symbiotic relationship that the West cannot quit – that’s why it’s so hard for us to actually control our borders.
“The way to secure the border is to create a legitimate way for people and firms to get the labor that the economy really needs in legitimate, legal ways, and until we have that, the whole debate over the wall and stuff is just silly,” Pritchett said.
If anything, the intensifying crackdown on undocumented and legal migration since the late 1980s has led to mass settlement, according to Hein de Haas, a sociologist of immigration. Prior to the 1980s, the U.S. and Mexico enjoyed a relationship similar to the work-visa program Pritchett envisions. Mexicans freely flowed across the border, coming for a short time to work, returning home to enjoy their money, and sometimes repeating this journey over several years, Haas wrote. They never permanently settled because, knowing they could come and go as they pleased, they did not have to.
The U.S. facilitated this temporary migration programs specifically aimed at Mexicans, encouraging contract workers to come to the U.S. after World War I and II. The second of these,the Bracero Program, established a treaty for the temporary employment of Mexican farmworkers in the U.S., and was so popular that it was extended far beyond its initial lifespan, allowing nearly 5 million Mexicans to temporarily work in the U.S. from 1942 to 1964. (The program ended in 1965, when the U.S. sharply limited immigration from Latin America as part of a major overhaul of immigration laws.)
What Pritchett suggests isn’t too dissimilar from simply turning the clock back to a time when migrants could move and work freely. He proposes a fixed-term system: a worker comes to the U.S. with the understanding that they are not on a path to citizenship, works on a 3-year contract, and then returns to their home country. After an “off period” of six months to a year, the migrant could come back for another three years.
“There are a billion people on the planet who would come to the U.S. under those terms,” Pritchett said. “But we don’t have that available.”
He isn’t exaggerating about the billion. In a 2010 survey, Gallup asked people around the world whether they would like to temporarily move to work in another country. Some 1.1 billion responded “yes,” including 41% of the 15-to-24 population and 28% of those aged 25-44, Pritchett sa
“What you could make in America in three years and go back to Senegal with is a fortune compared to anything else you could do to make your way in Senegal,” he added. “You go back to Senegal, you build a house, you buy your own business, and you’ve transformed your life by working temporarily.”
To avoid potential labor shortages in sending nations, Pritchett’s system would depend on bilateral agreements between the host and sending countries, and nations “could choose to put limits on their participation” to address their own labor needs, Pritchett said.
Meanwhile, the U.S. would receive fresh batches of workers for service industries, elderly care, or manufacturing—essentially, all the jobs that would be otherwise unfilled.
Policies like these are not yet being discussed on the national stage, but Pritchett believes that will soon change. With the upcoming labor shortage and the unpopularity of forcing workers to toil for longer, politicians will have to expand their understanding of immigration to allow for policies like his. For now, he’s planting the seed.
In partnership with economist Rebekah Smith, Pritchett has started an organization called Labor Mobility Partnerships (LaMP) that aims to build political support for a temporary rotational migration system. The way he sees it, nothing will change by pitching the idea to politicians (“who tend to be followers, not leaders”) so instead, he is working with countries that are currently already expanding their immigration channels, like Spain.
He is also courting business leaders in sectors that will be the hardest hit by labor shortages, such as elderly care, who could “be potentially a powerful force” in explaining to politicians why policies like his are necessary.
“Ideas at times are like dams: huge, unmoving, impregnable, able to hold the water back forever,” Pritchett writes in the conclusion of his paper. “But a small, strategically placed crack can cause a dam to be washed away overnight.”
Fortune
