fedgazette

Job skills with a foreign accent

University of Minnesota professor Ryan Allen on why immigrant labor matters to Minnesota’s economy

Ann Harrington | Senior Writer

Published January 11, 2018

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Ryan Allen
Ryan AllenPhoto by Bruce Silcox, courtesy of the Humphrey School of Public Affairs, University of Minnesota

Minnesota was an immigrant magnet in the early years of statehood, attracting more newcomers from other nations as a proportion of its population than almost anywhere else in the country. Today, the foreign-born account for only about 8 percent of Minnesota’s population and even smaller shares in other district states (Chart 1). But they play an increasingly important role in Minnesota’s labor force, according to a 2017 report by Ryan Allen, an associate professor of community and economic development at the University of Minnesota’s Humphrey School of Public Affairs. As Minnesota’s native-born population ages or leaves the state (Chart 2), immigrants are helping to sustain the state’s population—and its workforce, critical for economic growth.

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The fedgazette spoke to Allen about the changing face of Minnesota’s workforce, the impact of immigration on the state’s economy, and recent enacted and proposed changes to U.S. immigration policy that could affect immigrant workers and industries that rely on their diverse skills. The conversation has been edited for length and clarity.

fedgazette: How do you view the role of immigrant workers in Minnesota playing out in coming years? Is there a reprise of the late 1800s, when foreign-born labor drove economic growth in the state?

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Allen: I think the role will be similar, but the magnitude will be different. If you look at historical data, our high-water mark for the foreign-born as a proportion of our state’s population was over a third; we’re not going to approach that in any years to come. But immigrants are going to be an important component of the labor force. Over the past 10 years or so, more folks who were born in the United States have been leaving Minnesota than have been coming in, so international migrants are really buoying our growth. And projections from the state demographer indicate that is going to be true for the foreseeable future.

fedgazette: You note in your report that Minnesota’s immigrants tend to be clustered at both ends of the skill spectrum, either highly educated or with little education. What kinds of jobs do immigrants typically fill?

Allen: One group is working in engineering and computer science, as doctors and executives at some of our Fortune 500 companies, and here on the faculty at the University of Minnesota. Another large group, about a quarter of immigrants, did not finish high school. Think about who is framing houses for new construction and remodeling, who’s working in restaurant kitchens and cleaning hotels, who’s participating in poultry processing and meat packing, who’s picking our crops. Those are disproportionately immigrants, and that’s not unique to Minnesota; it’s true across the region.

fedgazette: A key economic argument for limiting immigration is that immigrants take jobs that could be filled by U.S.-born workers and depress wages for those positions. Is that the case, or are the economics more nuanced than that?

Allen: That’s obviously a very contentious political issue; I see it as less contentious among economists. There are scholars like George Borjas [of Harvard University] who point to research indicating that immigration depresses earnings, particularly at the lower end of the wage spectrum. However, the bulk of the evidence indicates that if there is an effect, it’s really small. This requires some explanation, because economic theory would suggest that increasing the supply of workers should have a depressive effect. But a lot of the jobs I just described don’t require advanced degrees. So having immigrants fill some of those jobs frees up more-educated U.S.-born workers to take jobs that make them more productive in the economy.

fedgazette: It’s also argued that immigrants impose costs on society because they’re heavy consumers of public services such as schools and subsidized health care. Is immigration a net positive or a negative to the economy?

Allen: It’s true that within a single generation, there are substantial costs associated with immigrants, mostly wrapped up in public education for their kids. A lot of immigrants earn lower wages, so their tax contributions may not match the expense of the services they’re using. But I think that’s a fundamental mischaracterization of how we should be thinking about this. We invest in public education for many reasons, one of which is to produce the next generation of the workforce, and if we don’t make those investments, then 20 or 30 years down the line we’re really going to suffer the consequences. The same is true of immigrants. Recent research has shown that if you think about immigration in a generational sense, it’s a net positive for the economy.

fedgazette: To what extent is foreign-born entrepreneurship important to the national and Minnesota economies?

Allen: Immigrants are overrepresented among small-business owners, which many people consider the backbone of the American economy. One reason for this is the notion of “blocked mobility.” An immigrant may come to the United States with a substantial amount of work experience and a degree from a foreign university that’s not recognized here. Imagine the frustration you would feel if you’re a licensed accountant back home, but in this country, unless you sit for a CPA exam, you can’t practice as an accountant. Well, what’s the next best use of your skills? It’s probably not driving a taxi or working in meat processing. It’s going to be in some area of business. So you see a lot of really motivated and skilled immigrants starting their own businesses.

Here in the Twin Cities, we’ve seen immigrants launch successful businesses like Holy Land, the Middle Eastern grocery and specialty foods maker, which sells hummus to Costco. But you also see neighborhoods where immigrants are starting to move into empty storefronts. Lake Street in Minneapolis is a good example of this; Latino and Somali immigrants have come in and revitalized the area. You also see this in Greater Minnesota, in places like Willmar and Worthington—anywhere with substantial concentrations of immigrants.

fedgazette: The Trump administration has proposed or enacted a number of changes to U.S. immigration policy, including a travel ban and a cap on refugees. What are the ramifications of these policies for the immigrant labor force in Minnesota and other states?

Allen: Because refugees make up a disproportionate share of our immigrant flow compared to the country as a whole, those proposals will have an outsized effect on immigration to our state. But the larger story is what’s going on in the U.S. Senate with the RAISE Act. This legislation would eventually halve legal migration to the country. If that were to come to pass, economic growth could be severely curtailed not just in Minnesota, but in many states that rely on immigrant labor.

Minnesota’s labor force currently grows at about half a percent a year, which is significantly lower than the rate in the ’70s, ’80s and ’90s. To maintain that rate, the state demographer has projected that we’re going to need four-and-a-half times the number of migrants coming to our state now. If the RAISE Act and other proposed changes to immigration policy become law, that level of migration clearly becomes an unattainable goal, and our labor force growth will significantly decline.

fedgazette: Is there any indication that these policies or proposals are already discouraging immigration to the United States and district states, both legal and undocumented?

Allen: At this point, it’s really hard to say. One of the bellwethers is going to be international applicants to universities. I think we have seen some declines in applications by international students for admission to the University of Minnesota. That would be a leading indicator of concern for me, because those are the kinds of high-skilled workers that are going to have multiplier effects in our economy.

At one point, the United States was the ultimate goal for many immigrants. They wanted to come because of the political freedom here, as well as for economic opportunities. But if that perception is changing about how welcoming the U.S. really is to immigrants, then I can’t help but think that has reverberations for many people who were thinking about this country as a destination.

fedgazette: What would restrictions on immigration mean for the economies of Minnesota and neighboring states? Which industries would be affected the most?

Allen: I think the bigger effect would be at the lower end of the earnings distribution, in industries such as construction, agriculture, hospitality and meat processing. People working in remodeling and homebuilding in the Twin Cities are already talking about labor shortages. And that’s a telling thing; these proposals haven’t been enacted, but there already has been a chilling effect on unauthorized immigrants. There’s a palpable fear that identification and deportation is more likely now than it used to be.

fedgazette: What about consumers—how would restricting immigration affect them?

Allen: Economic theory would suggest that we should anticipate increases in prices in particular areas because a labor shortage is going to drive up wages. Or firms are going to have to invest in technology or other kinds of equipment if they can’t find people to do the jobs.

The dairy industry, for example, depends on immigrant labor. It already uses a substantial amount of technology—everything that’s involved with the actual milking is automated. But you still need people to hook those machines up and to work with the cattle. So what happens if that workforce decreases by half? How much would a dairy farm owner have to pay to get a native-born person to get up at 4 in the morning, to be in the muck all day? What’s the wage—is it a 25 percent increase? And how much are consumers willing to pay for a gallon of milk? Well, if some of these policies come to pass, the market will eventually tell us. Or the dairy industry will start to shift out of the state.

fedgazette: The importance of a continued influx of immigrant labor into Minnesota to the state’s economic future is a key message. What are some of the ways that Minnesota and other states competing for labor can attract and leverage foreign-born talent?

Allen: Part of the answer is directly related to the workforce. And part of it is frankly not.

Let’s talk about the workforce issue first. Attracting top-level talent—the doctors, the engineers—is going to be about compensation. The Fortune 500 companies and other large employers like the University of Minnesota are going to have to offer financial packages that make Minnesota a viable option for these folks when there are many states, many industries competing for their talent.

At the lower end of the skill spectrum, it’s going to be about investing in English instruction and workforce training, and creating career ladders so that people aren’t stuck in minimum wage jobs perpetually, so that they see avenues for economic advancement.

But economic opportunity is only part of the story. Where immigrants decide to live is also related to quality-of-life issues: Are there schools that are good for my kids? Do I feel safe? Can I find good-quality affordable housing? Is there a transportation system that matches my needs?

And then there’s the social aspect. How do you create a welcoming environment where newcomers feel that they have a place in the community, that they’re part of a larger social network? Those are also crucial questions.

fedgazette: Thank you, Ryan.

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