One October day in 1871, a 500-strong mob stormed Los Angeles’ Chinatown and in two hours slaughtered 19 Chinese. The massacre was just one instance of the hostility directed at ‘job-stealing’ Chinese immigrants in the American West that in 1882 led to a US ban on immigration from China that lasted until 1943.

The US economic body that declares US recessions, the National Bureau of Economic Research, in October released a study on the economic impact of the 1882 Chinese Exclusion Act, which was passed when Chinese people formed about 25 per cent of the western US workforce.

The study of eight western states from 1850 to 1940 found that, as expected, the ban cut the number of Chinese workers of all skill levels in the US. But the law reduced too the labour supply and eroded the quality of jobs held by white and US-born workers, the intended beneficiaries of the Act. It slashed manufacturing output by up to 62 per cent. ‘The results suggest that the Chinese Exclusion Act slowed economic growth in western states until at least 1940,’ the paper found.

While this investigation is of only one episode of restricted immigration, its findings reinforce other research that says migrants offer vast economic benefits, even if their arrival comes with absorption costs. Five advantages stand out that will push Western policymakers to keep welcoming legal arrivals in large numbers, despite the political backlash against mass migration.

One benefit is that immigration drives economic growth. It does so in three ways; by boosting demand for goods, services and housing; by bolstering the productive capacity of an economy; and, by lifting longer-term productivity. Note how over the past seven quarters, Australia recorded a drop in GDP per capita – a recession at an individual level. But high immigration over that time kept the economy expanding (just).

In the US, the Congressional Budget Office (CBO) says the recent economic blow from higher interest rates was nullified by record immigration – eight million foreigners entered under the presidency of Joe Biden to boost the foreign-born to a record 19 per cent of the US workforce. The CBO projects that high immigration to 2026 will boost the US economy by about 2 per cent, or US$9 trillion.

As Federal Reserve Chair Jerome Powell told Congress last February: ‘It’s just arithmetic. If you add a couple million people to an economy… there will be more output.’ Note how Japan, long opposed to immigration has gradually welcomed foreigners to help escape three decades of economic stagnation that is exacerbated by the country’s dwindling population. Baby-sparse South Korea and Taiwan, that up to now restricted migration, are thinking likewise.

A second benefit of immigration is that by stoking growth, it creates jobs. One proof of this is how record migration levels of late to advanced countries – an estimated 15 million immigrants in the past three years – have coincided with full employment and high workforce-participation rates. This contradicts the view that newcomers steal jobs, a stance that assumes the number of jobs in an economy is fixed. Newcomers generally find jobs because immigration is ‘pro-cyclical’ – people head to countries where there are jobs. (This is a double-edged sword in that foreign workers leave when jobs disappear, which exacerbates downturns.)

A third benefit of immigration is to contain inflation pressures, even allowing for its boost to aggregate demand. The extra supply of workers and their greater workplace flexibility reduce wages pressures and increase productivity via improved economies of scale and their complementary skills. While locals might forgo pay increases in the short term, the productivity gains should lift wages and interest rates should be lower, theoretically, than otherwise.

A fourth advantage is that immigrants are talented assets. They are often more skilled on average than the local population, especially if screened. Newcomers are generally of prime working age (25 to 54) and thus put relatively less pressure on health systems. They lean towards the independent, adventurous and hardworking type.

One US study in 2020 showed that immigrants were 80 per cent more likely than native workers to become entrepreneurs – South African-born Elon Musk is but one example. The study found immigrant entrepreneurs accounted for nearly 25 per cent of patents and were more likely to hold business-related degrees. (Immigrants, through remittances, aid their home countries too.)

A fifth benefit is that immigration helps mend public finances because new arrivals pay more tax than they claim from governments. The CBO forecasts that a migration-driven increase in the US labour force of 5.2 million over the 10 years to 2033 will bolster federal tax revenues by US$1.2 trillion and reduce Washington’s deficits by US$900 billion over that time.

Skills shortages and below-replacement fertility rates will pressure policymakers in advanced countries to pursue mass-migration policies despite the outcry about the social costs. Perhaps that’s why Opposition leader Peter Dutton retreated from setting a lower immigration target. It explains the split among supporters of US President Donald Trump over skilled migrants. It’s why many warn about the economic damage of Trump’s mass-deportation plans. Note that while US stock market benchmarks soared to record highs on Trump’s victory, property stocks fell because the industry relies on foreign-born labour.

The truth of the immigration debate is this: people in poorer, war-torn, and repressed countries will forever seek better lives in better countries in legal and illegal ways. While authorities in advanced countries will attempt to block illegal entries, legal immigrants will be welcomed in large numbers – even sought – because policymakers are bereft of other ways to propel their economies, and the political backlash is likely to prove more manageable than the greater economic pain if foreigners didn’t come.

To be clear, this isn’t an argument for unrestricted migration, let alone open borders. The absorption costs of legal immigration include greater pressure on housing and infrastructure and social friction, especially if foreigners import hatred. The Pakistani-heritage Muslim child-rape gangs in the UK show the social costs can be huge. But many of the costs of immigration are disputed, nuanced, even misplaced, and tend to wane over time – the next generation usually fits in better. The exploitation of immigrants is a drawback that is also relevant to the debate.

The political controversies around the social cost of immigration are more likely to create an informal limit on arrivals from certain (Muslim) countries rather than a legal ban of the kind legislated in the US in 1882.

Advanced countries are too economically troubled for policymakers to slash immigration to levels that forgo its benefits.