What the U.S. Can and Can’t Learn from Denmark’s Immigration Experience

Matt Yglesias writes:

It’s a dogma among immigration restrictionists that either immigration in general or low-skilled immigration in particular is bad for native-born American workers, but the actual evidence for this proposition is extremely weak and restrictionists never seem very interested in wrestling with the data.

I can’t speak for immigration restrictionists, but I’ve made a series of arguments relating to less-skilled immigration: (a) while less-skilled immigrants often complement less-skilled native-born U.S. workers, they often compete with foreign-born less-skilled U.S. workers, and this is something we ought to care about; (b) many less-skilled workers will be adversely impacted by technological advances that automate routine cognitive and manual tasks, and this will matter more over time; and (c) poor children raised in households headed by parents who were themselves raised in high-poverty neighborhoods face skills deficits that other children do not, and mitigating this disadvantage requires labor-intensive intervention, e.g., an increase in instructional hours.

My sense is that (a) is not a particularly controversial point — what is controversial is whether we ought to assume that redistribution via the tax-and-transfer system is sufficient to deal with any adverse impact on foreign-born less-skilled U.S. workers.

Similarly, there is a broad understanding that the automation of routine cognitive and manual tasks poses a challenge to less-skilled and mid-skilled workers, per (b). The hope, as I understand it, is that non-routine tasks, e.g., in-person services like eldercare and food prepation, will absorb less-skilled workers displaced by automation. This is an entirely reasonable proposition. It is also true, however, that as mid-skilled work is automated, in-person service work will become more attractive in relative terms to a broader spectrum of workers than is currently the case.

If (c) is right, i.e., if redressing the disadvantages that flow from family disruption and intergenerational poverty really does require labor-intensive intervention (recall the work of Toby Herr and Suzanne L. Wagner, which we discussed earlier this month), it’s not clear that greatly increasing the size of the population that will require such labor-intensive intervention makes sense. 

Matt points to the case of Denmark, drawing on new research by Mette Foget and Giovanni Peri, which finds that a surge of less-skilled immigration in Denmark led to gains for less-skilled natives as they shifted towards more complex work that complemented less-skilled immigrants. I wrote about Foget and Peri’s work a few weeks ago, and I highlighted their findings — I repeat some of my earlier observations below:

Our analysis has four main findings. First, considering native workers who stayed within the same establishment, larger flows of non-EU immigrants in the municipality increased wages and occupational mobility of natives, measured as the probability of changing occupation. This increased mobility was strongly associated to a move towards more complex jobs for workers who also changed establishment. This suggests that the specialization of natives in response to more manual skills in the local labor market materializes mainly across firms. 

Second, less educated natives experienced positive (not always signicant) wage effects. The positive effects were particularly strong in the complex service sector. The only case in which some incumbent native workers had negative effects on their wages and careers was for the low skilled in the public sector.

It is worth noting that prior to 1995, Denmark had a relatively small number of immigrants with limited Danish fluency. The post-1995 immigrant influx was dominated by less-skilled immigrants with limited Danish fluency, and it is not terribly surprising that these workers complemented less-skilled natives fluent in the Danish language. In the U.S., roughly 9 percent of the population speaks English “less than very well,” and 13 percent of the population is foreign-born. Even if the impact of less-skilled immigration is broadly positive for less-skilled natives, it is worth noting that less-skilled foreign-born workers represent a bigger share of U.S. society in 2013 than of Danish society in 1995.

Third, the cumulated effect on weeks worked shows that immigration increased the mobility, particularly for highly skilled, both across establishments within municipality and towards other municipalities. However, non-EU immigrants did not reduce the cumulated weeks of employment of natives. Therefore immigration increased the cross-establishment and cross-municipality mobility of natives but did not affect the length of their working year.

It is worth noting that in the U.S., skilled workers tend to be more geographically mobile than less-skilled workers and less-skilled immigrants tend to be more geographically mobile than less-skilled natives. A pattern that obtains in Denmark, a compact, relatively homogeneous society, won’t necessarily obtain in the United States. I support measures designed to increase the geographical mobility of less-skilled U.S. workers, like relocation vouchers, but these measures have a fiscal cost and they risk attenuating existing social networks.

Fourth, following the transition in the short and long run, using an event-study-like method, we observe that less educated workers progressively increased their wage and the complexity of their occupations in response to non-EU immigration reaching the largest effect five to six years after the beginning of the event. This effect is similar for highly educated. Employment effects are not signicant in the short or in the medium-long run on either group. Moreover, the upgrading effects on occupation and wages in response to immigrants appear to be stronger and more persistent for natives who were young and had low-tenure when the immigrant inflow started. 

Foget and Peri acknowledge that the impact of less-skilled immigration on less-skilled natives is uneven, with younger workers with low-tenure faring better than their older counterparts.

One obvious point to keep in mind when using Denmark to make the case for policy change in the U.S. is that the Danes offer a great deal of labor-intensive social assistance. Consider the following passage from “The Welfare State as an Investment Strategy: Denmark’s Flexicurity Policies“:

One of the main assumptions of flexicurity is that the availability of generous income replacements increases the risk-taking propensities of the labor force, thereby facilitating job mobility. For instance, seasonal unemployment in the construction industry is buffered by supplementary unemployment benefits. As a consequence, employers do not have to dismiss temporary workers. Compared to other OECD countries, Denmark has one of the longest entitlements periods for unemployment insurance (currently 2 years) and the highest maximum replacement rates for low-wage earners (up to 90 percent of former income). If unemployment benefits are exhausted, or the unemployed individual has not paid contributions into unemployment insurance funds, then means-tested social assistance is available as a last resort (between 60 and 80 percent of unemployment compensation, depending on care responsibilities). Unemployed individuals have to demonstrate “labor market availability” by searching for jobs, accepting positions at local job centers, and participating in activation programs. In international comparison, the Danish rules for showing availability are relatively strict and have been tightened repeatedly during the last decade (Velfærdskommissionen 2005, 96). [Emphasis added]

The benefits Denmark provides to unemployed workers are expensive. And though the authors of the report don’t elaborate, enforcement of the “labor market availability” provision depends on an extensive network of social workers who have long-term relationships with less-skilled workers. Baumol’s cost disease teaches us that labor-intensive services of this kind tend to be very expensive in affluent countries, and wages for skilled professionals in the U.S. are somewhat higher than they are for skilled professionals in Denmark. 

Furthermore, the Danes make use of “active labor market policies”:

Among OECD countries, Denmark has one of the highest total expenditures on labor market policies (2.56 percent of GDP in 2008) as well as the highest expenditure on active labor market policies (1.35 percent of GDP in 2008) (OECD 2010a). Active labor market policies have two important and somewhat contradictory functions: first, to motivate the unemployed to find work without assistance, and second, to qualify those who cannot find employment on their own. As a metric of active labour market policy effectiveness, long-term unemployment rates in Denmark have consistently remained among the lowest across the OECD.

The success of Denmark’s active labor market policies is admirable. But this success comes at a high price in terms of public social expenditures.

Moreover, Denmark invested heavily in upgrading the skills of less-skilled natives:

In international comparisons, Denmark‟s expenditures and share of training participants is among the highest in the world (Trepartsudvalget 2006). For instance, the Eurostat Labour Force Survey in 2009 found that Denmark had the highest rate of participation in adult vocational training in Europe. More than 30 percent of people aged between 25-64 years had participated in adult vocational training within the previous four weeks compared to a European Union (27) average of 9 percent. Participation in continuing training underpins a flexible labor market by increasing the employability of Danes, improving both their numerical and functional flexibility (Bredgaard et al. 2009).

So again, comparing the U.S. and Denmark when it comes to occupational upgrading of less-skilled natives is not really a no-brainer. The upgrading process Foget and Peri describe did not happen in a vacuum — less-skilled Danes did not upgrade their skills without external intervention. Rather, less-skilled Danish natives received extensive social support.

For social democrats like Matt, this is a feature, not a bug. I assume Matt believes both that we should dramatically increase less-skilled immigration and that we should dramatically increase public social expenditures on active labor market policies, job training, and income replacement. But given the Chojnicki, Docquier, and Ragot claim that a more selective immigration policy “would obviously be more profitable to low-skill workers than to medium and high-skill workers,” and that for recent cohorts “gains for the low skilled are twice as large as for the highly skilled,” its not clear to me that a less-selective immigration policy should be favored over a more-selective immigration policy. I agree that a sharp increase in less-skilled immigration wouldn’t be a disaster, and that it might benefit less-skilled natives, particularly if we decide to devote a much larger share of GDP to tax-financed social services. The salient question is whether limiting less-skilled immigration while increasing skilled immigration would prove more beneficial to less-skilled workers, native- and foreign-born. I suspect that the answer is yes, and I have yet to see a convincing argument to the contrary. 

Note that in the wake of the less-skilled influx of the late 1990s, Denmark decided to limit less-skilled immigration. This could be an example of pure foolishness. Or it could reflect a recognition that while Danish society had the tools it needed to adapt tolerably well to the influx of the mid-1990s, an ongoing influx would pose serious challenges.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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