Apr 03 2008

Unforseen consequences of weaker dollar – fewer immigrants!

FT.com / World – American dream hit by dollar’s decline

Ever wonder if there was a connection between the strength of a country’s currency and the flow of immigrants into that country? No? Me neither… but interestingly it appears that there is a direct relationship between these variables. The weaker a country’s currency, the fewer immigrants cross its borders to find work. Here’s why:

Migrant workers are choosing to move to Europe, Australia or Canada instead of the US in order to protect the purchasing power of the money they send home to their families, according to one of the world’s leading experts on remittances.

The shift is a result of sharp falls in the value of the US dollar against other international currencies, many of which have been boosted by the rise in commodity prices.

This news may make some American’s happy, since it could mean more opportunities for the American workers who may have lost their jobs during the current recession. This, however, may not be the case. It turns out that much of the decline in immigrant workers is in high skilled fields for which demand for workers in the US remains high even in times of recession. According to the article, “the trend was especially notable among skilled workers, such as doctors, nurses and information technology specialists”.

A decline in the inflow of high skilled workers may actually make Americans worse off. I have blogged about the shortage of American workers in fields such as engineering, software design, and natural gas rig technicians,and I don’t think many Americans would argue that health care in America is already too cheap, so I suspect that more doctors and nurses would be desired.

A weak dollar has many effects on America. In some ways, it makes the country better off. As I have blogged about here, a weak dollar should lead to more balanced trade, a boom for US manufacturers, and an increase in exports, all related, of course, to the relative decline in prices of US goods to foreign consumers. But a weak dollar may in fact do more harm than good, one reason for which is explained here: skilled foreign workers whose talents are in strong demand in the US are moving more and more to European markets to find work.

Anti-immigration hawks may be cheering, but American consumers may start rearing as high-skilled labor shortages drive up wages and prices in the markets Americans most depend on today: health care, energy and technology.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

26 responses so far

26 Responses to “Unforseen consequences of weaker dollar – fewer immigrants!”

  1. James Tsaoon 04 Apr 2008 at 9:54 pm

    This appears to be quite surprising to me because I thought the labor force in the U.S are shifting more and more towards high-skilled jobs, but apparently, the domestic supply of high-skilled jobs are not great enough to cover the demand for it. As a result, prices might rise even more, hurting the wellbeing of consumers. Yet I wouldn't see this as too big of a trouble because not all aspects regarding a weaker dollar is harmful to the U.S. U.S exported goods seem cheaper to foreign countries and thus exports rise. This increase in exports may create new job opportunities and increase aggregate demand. Hence, in a sense, weaker dollar rises the prices of many services like health care, but in return lowers the unemployment rate in the U.S

  2. ElaineLungon 07 Apr 2008 at 11:14 pm

    I guess I'm not surprised. I mean, why did they originally board the ships for America anyways? Because we have such sophisticated, refined culture? Because our food is so delicious? Because we wish they all could be California girls? Well, the last bit may be true, but that's beside the point. They came because we were well off economically, and our dollar was strong and hath thee in thrall, y'know, La Belle Dame Sans Merci style. And now, it's less beautiful, enchanting faerie and more Britney Spears: once cute and desirable with all her idealistic promises of virginal beauty and innocence, now overweight, bald, increasingly the subject of ridicule and slightly, if not moreso, psychotic. Immigrants aren't stupid. They know what they're taking such pains to leave their country for, and it won't be for Britney Spears.

    I remember back in middle school, there was a girl who wrote in our school newspaper about how immigrants ought to stop stealing the jobs of honest Americans like her father. I wonder if she's happy now. Maybe I should email her the link and see if she remembers writing about it.

  3. Jason Welkeron 08 Apr 2008 at 1:46 pm

    Elaine… that was beautiful! The image of America as Britney Spears is surprisingly acute today… thanks!

  4. kxc.024on 08 Apr 2008 at 7:05 pm

    I've attended international schools all my life and I remember wondering, as a kid, why my friends had to keep moving to another country (well back then, I thought of it more along the lines of why they were ditching me haha). My mom would always then explain to me that they move wherever the job is better for their parents and I guess this article really portrays that.

    The people that are moving away aren't the low-skilled workers. One reason is probably because it's too expensive for them to travel somewhere else. But another more obvious reason is probably that they won't earn that much more in a different country. However, it's different for those skilled entrepreneurs because for them, their talent is worth a lot more in a country where the currency isn't devaluing. This is a bad situation because then the prices of a lot of things that people take for granted will go up (like health care), meaning people are going to be worse off, in relation to their real wages.

  5. Rebecca Sungon 08 Apr 2008 at 8:05 pm

    Going back to Elaine's friend saying that "immigrants ought to stop stealing the jobs of honest Americans," it seems to me that having a more people who are highly skilled would actually increase productivity and efficiency. Like Elaine said, the immigrants are taking great pains to go to different countries to make money, so they're probably not focused on "stealing" jobs of Americans, but to make money for their family. It would be very interesting if you email her :P.

  6. Helenon 08 Apr 2008 at 10:38 pm

    I remember us talking about immigration earlier in class and the misconception of how immigrants "stealing" American jobs is bad for Americans. First of all, many immigrants are taking up jobs that Americans don't want – low wage, labor intensive. Second of all, immigrants offer low labor costs for the US economy, which keeps the price level down (relatively). If Americans, not immigrants, were working in smoky factories, the American workers would be demanding a much higher wage than the immigrants. This goes back to hurting Americans themselves as the increase in wages drive up the price level.

    Something that I think is related: my dad told me that he recently demanded that his salary be paid in RMB, not US dollars – same logic as the immigrants, right?

  7. Kristie Chungon 09 Apr 2008 at 12:53 am

    Now that I think about it, it makes a lot of sense. The reason why immigrants were going through the trouble of going to America was that the dollar was strong, and they thought they would be better off there. However, with the American economy going through a recession, the immigrants are probably not going to the States, but rather places with stronger and more stable economies, such as Europe. I guess the poor economy and the weak dollar has many effects.

  8. kevinchiuon 09 Apr 2008 at 1:07 pm

    Interesting… this appears to be solid support for why McCain shouldn't try to cut down on government spending in public capital goods like education; if people from abroad who have high-skill abilities are no longer coming to meet the demand of the US firms, people within the US will need to develop these high skills to try and meet the demand (thus, a higher education). Maybe firms in the US will just have to change markets..

  9. MichaelChowon 09 Apr 2008 at 8:26 pm

    This whole idea of a decreased supply of immigrant labor in the US really surprised me in the sense that along with it, it has so many factors or effects. As mentioned in the article I along with the typical American in plain sight, at first thought that yes in fact this will be better without a doubt! Fewer immigrant workers means more jobs for Americans! But yes, with the case of the recession the economy of the US is desperately in need of all the jobs they can possibly fill to be filled. What also was interesting to me in this article was the introduction in how immigrant workers are more likely to persue higher skilled jobs, many of which are highly demanded by the economy. The weakening US dollar really has its negative effect on many aspects including immigrant preference in the location/place they wish to work in. In a way the US is in deep trouble.

  10. emilyyehon 09 Apr 2008 at 9:28 pm

    Besides immigrants, what happens to nations where the USD is very important in their trade? For instance, I've read reports that people in developing nations often choose to save their earnings in the US currency because they believe it is more stable than their nation's. So what happens when all that money in the bank becomes gradually worthless as the USD continues to weaken? I for one will look forward to switching my money to the yen or swiss franc that appear increasingly strong against the dollar to save the value of that hard-earned money!

  11. Jeewonon 09 Apr 2008 at 10:05 pm

    I keep hearing about the weakening of the US dollar, but I never knew that it could affect the number of immigrants moving into the country. Most immigrants move to the US in order to earn money and send it back home, but if the value of the US dollar falls, I guess they would decide to move somewhere else where the currency isn't so weak. I'm suprised that the immigrants are playing a significant role high skilled fields. I thought they took jobs that the Americans are not willing to take, for low wages.

  12. Jeff Yeon 10 Apr 2008 at 8:30 pm

    I may be wrong, but since the U.S. is lacking in skilled workers, wouldn't that mean higher wages for people just out of college with specialized degrees, potentially…us? Though i guess one would have to take in the rate of inflation first before celebrating too early.

  13. TimChuon 10 Apr 2008 at 10:37 pm

    i feel bad for those who supported anti-immigration right now. They must be sitting at home thinking "damn. it backfired". I admit, all along, i expected most immigrants especially those down south would be making up most of the blue collar population. And all this time we've ignored the fact that other immigrants from European countries have been helping the US out with what they need most. Quite extraordinary if you ask me. Looks like the US will have to depend a lot more on other countries in the future…

  14. Dana Y.on 13 Apr 2008 at 5:10 am

    Although I do understand that skilled labor forces are moving to Europe instead of U.S. if given the choice, I just want to point out that U.S. is in the brink of recession or already in recession. Consequently, most companies are laying off many of their workers. In fact, most of the work force is very anxious about losing their jobs right now. This in perspective, I believe it is logical that Americans should devise more ways of employing American work force intact right now, instead of mourn about losing skilled workers from foreign nations.

  15. Jessicaon 13 Apr 2008 at 11:56 pm

    Interesting. When I hear immigrants, I usually think poor, European citizens who step off of dirty crowded boats, looking for the American Dream. Haha, I guess too much APUSH. Anyways, it never occurred to me that the immigrants who are going to America are the skilled workers, such as doctors and professionals. It makes sense that these professionals are choosing to go to other developed nations that would value their work more and they would be paid more. As for the increase in exports with the weaker dollar, will that actually make a big difference? Most things are Made in China anyways. If they're not, they're usually made in Colombia or India or some other developing country. Uh oh, looks like America's heading for a downfall.

  16. Robert Wangon 14 Apr 2008 at 1:01 am

    Yeah Jess, probably a bit too much APUSH there. The American Dream has sort of ended I guess. =(

    Like Jess though, I didn't expect the majority of the immigrants to be skilled workers, we tend to think that immigrants are usually the unskilled workers, but I guess we're wrong. It does make sense to seek other options as opposed to going to America though. As shown in Sicko, doctors in the states don't actually get pension, whereas doctors in the UK do, so the better the immigrant doctor performs, the more he or she will actually be able to send home to the family.

  17. Trevor Sunon 14 Apr 2008 at 7:05 pm

    I think the reason why its so surprising to find out that these immigrants are skilled workers is because many think they are those crazy Mexicans trying to run across the border. In reality, they are simply people from another country, such as China, with high levels of education looking for a job that can keep the food on the table for their families back home. With current situation of the US economy it is unsurprising that they would choose to immigrate to another country with a more stable economy.

  18. Eithanon 01 Dec 2008 at 5:14 am

    Although this article was posted in April, it is relevant today as well because the dollar has depreciated in the past few months. As the article states, a dearth of high-skilled workers in America will drive up wages and prices in the markets Americans most depend on today: health care, energy and technology. Although a weaker dollar will result in fewer high-skilled workers moving to America, it will also result in fewer low-skilled workers migrating to America. This will harm the American economy just as much as a lack of high-skilled workers. Immigrants in the US today work mostly in low-skilled jobs. With less immigrants, these industries will also face a shortage of labor. Thus, food prices, car prices, and the prices of other products that require low-skilled labor, will also rise. Consequently, a weak dollar will lead to an overall shortage of labor in the US, rising wages and possibly even acting as an inflationary pressure in the economy.

  19. Robin Thekemuriyilon 07 Dec 2008 at 8:15 am

    Eithan, you have made a thoughtful post, and I agree with what you are trying to say. I agree to the fact that in will put inflationary pressure on the economy. Even before looking at the effect due to the shortage of labor, a weak currency can cause inflationary pressure on the economy. A weak currency will make the final goods and services have higher prices. This is because the capital goods needed to produce the final good may be imported. A weak dollar will make imports more expensive. It is now more expensive for a US consumer or producer to import, because the weak dollar can now buy less of the other currency. This will increase the cost of production for America producers; therefore the price of the final goods or services will be higher.

    But one can say that there will be an increase in employment in America, if it has a weak dollar. Two of many effects a weak currency has are greater employment in export industries and greater employment in domestic industries. A weak currency increases exports, because it is less expensive for foreigners to buy American goods. This increase in exports will lead to more employment in the export sector. More employment can be found in domestic industries. Since it is more expensive for Americans to import, they will prefer buying goods locally. This is beneficial for the local market because there is an increases employment. But the question now is, why did this increase in employment due to the weak dollar lead to fewer immigrates?

  20. Robin Thekemuriyilon 07 Dec 2008 at 8:17 am

    But the question now is, why did this increase in employment due to the weak dollar lead to fewer Immigrants*?

  21. Liviaon 08 Dec 2008 at 8:15 pm

    Robin don't you mean "why did the fewer immigrants caused by the weak dollar lead to greater unemployemtn?" because the way you phrased it seems as if you are saying that there is more domestic (so American in this case) employment caused by the weak dollar that has led to a decrease in immigrants? maybe this is what you meant, but the article says that it is not higher employment in the US by American workers that decrease the immigrants workforce, but a decrease in the immigrants, caused by the weak dollar, could allow more Americans to work as more jobs will be available, even though as it was said many immigrants do high skilled labor for which there is a lot of demand and if the immigrants leave there will much higher demand that american workers cannot satisfy.

    This article was really interesting and made me think. In countries like Italy and Spain there is a massive number of immigrants from countries in Africa or in Eastern Europe because in fact they do try and send the money they earn back to their families. it would be interesting to know if, now that the euro has depreciated compared to some currencies, if the amount of immigrants still coming to Italy has changed.

  22. Magdalenaon 08 Dec 2008 at 8:26 pm

    Robin, your questions isn't clear really but I'm assuming that your question is if the weak dollar lead to fewer immigrants?

    If so, the article state the answer to that pretty clearly.

    Because of that the dollar is weak, foreign workers are going to move and see if they can get a job on the market in Europe or Canada, for example, instead of staying in the US.

    This would be a major harm to the Americans because skilled workes, such as doctors as the article states, would most likely move to somewhere outside of the US, which would cause an increased demand for doctors in the US.

    This article was really interesting, because when most Americans would think of a weak dollar, and that it would lead to fewer immigrants, you would assume that it would be good for the country since it would lead to an increase in the domestic market, that it would be easier for an American to get a job.

    However, this article shows that some Americans are dependent on some foreign workers, such as healthcare and other markets, and that maybe they are not enough of people skilled for a certain job in America, but a foreign worker has that skill, if that would be the case, then less immigrants to the US would for sure be a bad thing.

  23. Robin Thekemuriyilon 09 Dec 2008 at 12:57 am

    Livia and Magdalena, I phrased the question like I meant. Why did this increase in employment due to the weak dollar lead to fewer immigrates? I asked this question to start a discussion, because all the main points were talked by the previous people. From the article I did understand that the fewer immigrants caused by the weak dollar lead to greater unemployment. But according to theory a weak currency makes exports cheaper and more will be demanded. This creates jobs in the export section. A weak currency will also make imports more expensive. This creates jobs in the domestic market. So, due to the weak dollar more jobs have been created. So my question was for starting a discussion, shouldn’t these new jobs that are created lead to more immigrants coming into the country for these new jobs? I hope this cleared things up.

  24. Magdalenaon 09 Dec 2008 at 1:22 am

    Robin, i just thought that your questions was unclear, i read it as you thought that an increase in employment lead to a weaker dollar, which I guess you did not mean.

    Also, why would there be an increase in employment when immigrants leave? the article stated that due to the weak dollar immigrants with jobs that american were depended upon left, however it didnt say that the jobs that now are availible would be 'taken' by americans, but that the demand for those jobs would increase.

  25. Magdalenaon 09 Dec 2008 at 1:47 am

    To make it clear, there wont be an increase in employment in the US, which was what I thought you meant

  26. Oliveron 15 Dec 2008 at 11:31 pm

    I think robin has a very good point. I still dont understand why the weak dollar leads to less immigration, but i think less immigration will not lead to unemployment, because there are alot of americans that could be incorporated into businesses, and therefore the immigrants are not as imprtant.