Immigrants: The Backbone of America

Let's talk about immigration from a purely economic perspective. Today, 13% of the U.S. population are first or second generation migrants. It’s always been a hard topic, but data shows that immigrants matter, and are good for this country's long-term prosperity. We’ve seen it in our history, and it's been repeating itself. Let’s take a look at some of that data.

A Brief History:

Today is no different than our past. We’ve always had immigrants, coming in various forms and in different waves (by continents): 

Amendments to the original chart in: http://metrocosm.com/animated-immigration-map/

[For the purpose of this essay, I will discount the notion whether immigrants illegally v. legally moved to the U.S., and focus on the overall economic impact of migrants to the U.S. I will also not discuss forceful immigration.]

Agricultural & 1st Industrial Revolution:

During this period of time, there was an influx of Irish and German immigrants, primarily during the 1820s growing to a peak around 1850s. Irish immigrants were the largest group to enter the U.S., followed by German immigrants. Most of them came to the U.S. seeking political as well as economic opportunities. This was particularly relevant in 1848, when revolutions erupted in German states. For the Irish, it was also a way to escape the Irish Potato Famine starting around the same time.

This migrant flow occurred at the eve of agricultural changes, many of whom became farmers and ended up developing innovative techniques such as soil conservation and crop rotation. Quickly following that, there were inspirations to automate many of the processes of weaving cloth or fabric, and improve outdated farming techniques. That opened the doors to the 1st Industrial Revolution, which involved transitioning work from hand productions to machines, like the steam engine and textile automation. A lot of the initial labor work was thanks to those same immigrants early on, to setup and power these systems. Eventually, the Irish and Germans assimilated so closely into American life that they built themselves in both rural and urban areas, establishing mini-towns in places like New York, Chicago, and San Francisco.

California Gold Rush & Railroads:

The Gold Rush period starting in the 1840s and ending around the peak of 1860s was a prominent time for California, and paved way for the State’s success. Many of whom were dubbed the “49-ers” – people who moved to California for the Rush whether domestic or international – were Chinese immigrants, reason being that job opportunity in China is generally low and also pays significantly less. The oldest Chinese community in the country is in San Francisco’s Chinatown, which sprung out as a result of the mass migrations of these group of people during this time. These gold seekers (along with original native Mexicans who already lived in the State before it was annexed), were responsible for shaping California’s early modernization.

After the gold rush ended, some of the Chinese opened their own businesses, including restaurants and laundromats. Others went on to farming. But most went to railroad construction. This was due to an increasing need for cross-country travel from the East to the West (as a result of California’s prosperity), as well as the need to trade goods from both coasts. The government passed the Pacific Railway Acts of 1862 and 1864, which spurred even more railroad construction interests and jobs. Chinese workers were the first to be targeted for this work because they can be racially discriminated and therefore paid less, while doing the most dangerous jobs (for example: they often handled dynamites in order to open paths and tunnels for rail tracks).

Still, the immigration flow for Chinese labor was so massive (flooding in around 200k) that the government enacted “The Chinese Exclusion Act” shortly after, which stopped almost all Chinese immigration for nearly a century. This was the first immigration law passed that was against a specific ethnic group outside the U.S. Halting Chinese immigration during this time negatively impacted the speed at which several railroad constructions were finished.

2nd Industrial Revolution:

Around the same time as the Gold Rush period and after the Civil War in 1865, which resulted in hundreds of thousands killed or wounded, immigrant workers were recruited to compensate for lack of domestic labor. Most of these immigrants were Italians, Canadians, Russians and Hungarians, many of whom began their new lives in mining camps and in agriculture. The now sudden excess of labor resulted in spurred economic growth, and for 40 years to come that flow only continued to increase significantly. This cycle partially contributed to the country’s propulsion into the 2nd Industrial Revolution.

With economic prosperity comes increased migrations as well, and in turn stimulated the economy - a positive feedback loop. Russian immigrants brought with them new technologies and inventions like electric power, that eventually replaced the 1st Industrial Revolution’s work around steam power. Factories sprung up in dozens within metropolitan vicinities, with mass production and supply chain practices that could be operated by more unskilled immigrants (with skilled domestic workers taking up traditional tasks like farming, construction, education, businesses et al). This opened the gates to even more labor, and push forward immigration numbers to the highest (close to 2M) the U.S. has ever experienced at that time.

Post WWII Era:

At the end of World War II, like the aftermath of the Civil War, immigration almost immediately increased (and was in fact encouraged), in order to compensate for human losses. There were jobs for pretty much everyone. The overall post-war immigration stimulus brought back economic stability and enhanced trade.

From 1941 to 1950, around 1M people immigrated to the U.S., including 226k from Germany, 139k from UK, 171k from Canada, 60k from Mexico and 57k from Italy. The Displaced Persons Act of 1948 (to help the war effort for families and refugees who were left with no home) also encouraged increased mass migration. Some additional 200k Europeans displaced by WWII were consequently allowed to immigrate outside normal national quotas, filling more jobs to rebuild an economy.

The Modern / Information Age:

Today, entrepreneurship defines the spirit of the holy-coveted “American Dream” more than ever, and is rapidly engulfed by immigrants from all backgrounds:​

Src: WSJ

Src: WSJ

KPCB’s internet trends report says that immigration remains a critical function for U.S. tech companies. More than half of the most highly valued tech companies in the U.S. are founded by first or second-generation immigrants, including Apple, Google, Uber, Tesla and many more (respectively: Steve Job’s biological father was a Syrian refugee, Sergey Brin was originally from Moscow, Dara Khosrowshahi fled Iran when he was a kid during the major Iranian revolution, and Elon Musk is originally from South Africa). 

But besides the billion dollar technology revolution, entrepreneurship comes in all forms – from corner business, shops and bodegas, to restaurant ownerships and grocery stands. Today, they also make up over 60% of all Uber and Lyft drivers, as is likely true for other on-demand technology services. Immigrants are also more likely to start SMBs (small or medium-sized businesses) than those who were native-born. 

Generations of Good:

Piecing everything together, we can see that immigrants have always been good for this country in the long-run, and it applies to every industry:

Chart captures % of immigrant workers per industry vertical. Src: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2760060/

​There is consistency across most industry verticals that immigrants contribute to a very large percentage of the workforce. As you can see up here, comparing against 1880 and 1920 alone, immigrants overall – regardless of what century or decade in American history – have been a relevant part of working culture. If they were to be all removed from society, especially in the midst of the country’s Agricultural revolution when they embody up almost 50% of the workforce, the economic loss would measure up very greatly.

Another interesting note here is that although the raw count of immigrants flowing in is steadily increasing, it encompasses a steadily decreasing % of the total US population: ​

Src: http://metrocosm.com/animated-immigration-map/

​Some media likes to exploit the dangerously increasing count of Mexicans crossing our southern Californian borders, but in fact that number is dwarfed when compared against the % of overall U.S. population. This may very well challenge the notion that “there is a fixed # of jobs in the economy – and immigrants take the majority slice of the pie”, because that cannot be as easily possible anymore if there is an overall lower number of immigrants to begin with. There’s also the other case to be made that immigrants who become entrepreneurs actually create jobs. Study shows that immigration also improves wages to U.S.-born workers, and overall pushes them up in the labor market.

Not only do immigrants improve the overall lives of American workers, but they also empower trade and spending domestically. A podcast from This American Life tells that story well; immigrants today earns $1.3T in income collectively, and contributes $105B in State and Local taxes / $224B in Federal. They also add $927B in consumer spend – that itself equates to nearly 15% of U.S.'s economic output. Removing that number out of the economic equation would be absolutely devastating to America.

• • •

I’m currently reading a popular, bestseller book by Yuval Noah Harari called “Sapiens: A Brief History of Humankind”. It details, in a history book fashion, our past and mankind’s evolutionary waves – from the dawn of the different human species (Sapiens, Neanderthals, etc.) and the subsequent stone, wood and fire ages, all the way to the 21st century modern and information age, and beyond (superhumans and AI). He recounts the past and mentions an overarching theme: that mankind will inevitably learn to grow and evolve by way of moving around and migrating as an evolutionary trait to progress.

From purely an economic perspective, we see that an influx of migrants is always followed by a positive bump. The same applies in reverse: when migrants are restricted from access, the bump is lower. Immigration has always been a driving force for America, and that is no different today. There are currently 65M displaced people in this world – how will we choose to help them?

• • •

• Ref: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
• Credit to: Joey Loi, PM at Dropbox, for the inspiration and proofreading.​
• Thoughts? Leave comments below, or tweet me: @dcliem
• For more essays around markets, product insights, product management, venture capital or other SV banter, subscribe here or ping me at hi@danielcliem.com

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