Crises, Immigration and the Labor Market: Learning from Past Mistakes

Economic crises can intensify xenophobic outbursts and result in hostile attitudes towards minorities. This is all the more true when health crises are at the root of economic crises. The Black Death during the Middle Ages (1348-1352) triggered a wave of atrocious persecution against European Jews, who were accused of being responsible for the epidemic.

Alarmingly, almost 600 years later, traces of it were still found. This is what a 2012 study shows: German cities in which the pogroms of the 1920s were more frequent and attacks of synagogues on Kristallnacht more severe, were precisely the cities where attacks against Jews had been more frequent during the Black Death epidemic.

Every major crisis exacerbates xenophobia

More recent examples of intensified mistrust of ethnic minorities have occurred during outbreaks of avian and swine flu. Covid-19 has already produced its share of xenophobic reactions, in France and throughout the world. As past crises have shown, these could intensify and bring about a myriad of measures to exclude foreigners from the labor market. In some countries, such as the US, these measures have already started to be introduced.

From the second half of the 19th century until the 1970s, France used immigrant labor massively. The immigration rate was the highest in the world at the end of the 1920s. France has therefore an old history of immigration and is rich in lessons when it comes to thinking about the consequences of major economic crises on xenophobia, anti-immigrant sentiments and ensuing political responses.

A first lesson can be learnt from the Great Depression of 1873 as it was marked by the multiplication of severe incidents opposing French and foreign workers: from the anti-Belgian riots of the 1890s to the Aigues-Mortes massacre targeting Italian immigrants in 1893.

The rise in unemployment following the 1929 crisis encouraged once again the growth of anti-Semitic and anti-immigrant discourse, as illustrated by the Stavisky affair in 1934. The economic crisis of the 1970s, which followed the first oil shock, led as well to an increase in physical violence, particularly against immigrants from North Africa.

A recent economic study analyzed the effects of the 2008 crisis on anti-immigrant sentiments in Europe to clarify the reasons for the increased mistrust.

Drawing on regional data from more than 20 European states, this study shows that the rise in unemployment caused by the 2008 economic crisis led to increased distrust of immigrant population due to its supposedly unfavorable economic consequences.

This result is consistent with previous historical studies that report numerous public statements claiming that immigrants threaten native employment.

"Forced Returns"

During the crises of the 1880s, 1930s and 1970s, the French parliament, considering that foreigners were at the root of French workers’ difficulties to find a job, legislated each time to reduce their access to labor markets.

Following the first two major crises, access to white-collar jobs (lawyers, dentists or doctors), craftsmen and tradesmen professions and to public servant positions (which are still largely closed today to non-EU nationals), was prohibited or restricted. In order to reinforce policies aiming to protect French workers, the government also organized in the 1930s the repatriation of more than 450,000 foreign workers.

In 1977, the French government considered again encouraging the departure of large numbers of immigrants to offset the rise in unemployment. This was reflected in the introduction of voluntary return measures accompanied by a bonus.

However, the failure of this policy to deliver tangible results, led the government to adopt in 1978 a policy of "forced returns", aiming to reduce the foreign population by at least 100,000 persons per year during five years. Confronted to implementation difficulties, the policy was abandoned in December 1979.

The negligible effect of immigrants on unemployment

Worsening unemployment in times of crisis may therefore lead to public policies restricting foreigners’ access to the labor market. Their logic is based on a Malthusian view that presumes a fixed number of jobs.

However, this is not the case: immigrants are not only workers; they are also consumers and create new businesses, which foster economic activity and job creation. As a result, most empirical work on the effects of immigration on wages and unemployment show that these effects are on average negligible.

What about return policies? Do they help to promote the employment of nationals?

Two recent studies, conducted in the United States, provide some answers to these questions. The first study examines the effects of ending the "Bracero" program, which sent a quota of Mexican seasonal workers to US farms for up to six months each year between 1942 and 1964.

The calling into question of the bilateral agreement with Mexico began under Kennedy’s Presidency and stems from the belief that Mexican workers were exerting downward pressure on US citizens’ wages.

Its suspension should therefore have provided an incentive for employers to raise wages in order to attract US workers. The study shows that this was, however, not the case: wages in the agricultural sector were not affected by this immigration policy likely because the mechanization of harvests alleviated labor shortages.

The second study exploits the repatriation of more than 400,000 Mexican U.S. residents between 1929 and 1934. The economic depression of the 1930s led the US government to expel thousands of Mexican workers (about 30% of whom were born in the United States) in order to boost employment. However, the study shows that the expulsion policy had no effect on US nationals’ employment between 1930 and 1940.

Some estimates even indicate that regions in which the policy was applied more drastically were also those where US citizens’ employment rate declined the most.

According to the authors, the expulsion of thousands of Mexicans, including entrepreneurs, depressed local economies and reduced labor demand for natives.

Counterproductive effects

Our previous discussion shows that it is necessary to take into consideration three fundamental points when considering the effects of return policies on employment:

• First, immigrants not only increase competition on the labor market, they also contribute to economies’ dynamism through their effects on entrepreneurial activity and consumption.

• Second, foreign workers and unemployed nationals are not necessarily substitutable in the production process because of their differences in qualifications and skills. Thus, the return of foreign workers to their countries of origin does not mechanically result in their replacement by nationals and consequently in lower unemployment.

• Third, expelling foreign workers can, at least in the short term, disrupt productive processes and have counterproductive effects on economies.

Periods of crisis increase xenophobic outbursts and anti-immigrant sentiments, which can lead policy makers to target migrant workers in the hope of quickly restoring labor demand for natives.

However, available studies show that curbing unemployment’s rise in times of crisis through measures restricting access to the labor market and policies encouraging the departure of foreign workers are ineffective. In times of crisis, it is rather macroeconomic policies to stabilize economic activity and stimulate recovery that are crucial to stop the rise in unemployment.