Immigration and Happiness - what is the link?

I recently suggested that from the perspective of economic geography, attracting more immigrants and foreign talent to Singapore is a good thing. All of us will benefit in one way or another. Many Singaporeans suffering from competition with foreign talent will no doubt disagree with me. Yet, it is difficult to see just how much job competition immigration poses - the labour market has been tight in the past few years, wages are rising, and the resident unemployment rate, which stands at 3.6 per cent, is not particularly high considering a part of it might simply be attributed to job frictions.

Keeping Up with the Jones

In another discussion on Singaporeangle, I actually made the following claim: Singaporeans are unhappy with foreign talent because they feel that their own socio-economic standing may be threatened. This is not a wholly original idea. Professor Lord Layard, another LSE luminary, has spent years finding out what are the factors that actually make people happy. It turns out that research after research suggest that people's happiness is derived from relative, not from absolute income. In other words, people compare and benchmark themselves against one another.

A Singaporean student used to top his class, but more bright students from all over the world begin to arrive at his school. He gets the chance to work and learn from these new students, but alas, his class position has fallen quite a few notches. He no longer wins prizes at quizzes. The teacher has also diverted her attention to the brighter students. Even though his overall experience is enriched, he feels poorer and less happy. He begins to suspect whether he would be better off if all these new arrivals had never come at all.

Trickling Down, Slowly

The Department of Statistics recently published this highly interesting report. Table 4 really captured my attention. We have known for some time of the growing income divide, which many people have attributed to globalisation. What was most interesting about Table 4 was that it showed the trickle down effect in two distinct dimensions. First, the people in the upper deciles saw greater increases in their income. Second, they also saw their incomes increase earlier in the economic cycle. It takes the people in the lower deciles 3-4 years into the economic expansion before they begin to feel the positive effects.

Socio-Economic Tradeoff

Herein lies the dilemma. What happens in the classroom is a microcosm of what is happening in Singapore. The sensible immigration policy is to try to attract people with skills, that is, not those at the lower deciles. However, no matter where one puts the entry cutoff level, some native Singaporeans will inevitably be below this cutoff. Their relative position in society is eroded in the process. The more foreign talent we attract to drive our economic growth, the faster the erosion of social standing for the lower deciles. Of course, the higher you are in the social hierarchy, the less threatened you are (as suggested by Table 4). In fact, a large pool of immigrants may actually improve your relative position. Our happiness or emotional response towards immigrants is therefore a highly primitive one.

On one hand, we clamour for greater access to foreign domestic help and the reduction of the maid levy. Some estimates put the number of maids in Singapore at 150,000 (that is 1 in every 30 persons on this small island, close to the population of Ang Mo Kio) but no one seems unduly concerned. Having someone else do the housework is the ultimate middle class status symbol in Singapore.

On the other hand, we feel deeply resentful when the CEO/CFO job goes to a foreign guy, when our jobs become less secure as a result of foreign talent immigration, or when their children compete with ours in school for prizes and scholarships.

Not that any of these are surprising. No matter how well one disguises the various arguments against immigration, I suspect the emotional trigger postulated by Lord Layard is at work deep down inside all of us - we like immigration only when it improves our relative position in society, doesn't matter if we are all better in absolute terms.

Globalisation and Inequality Between Nations

However, there is one missing piece in Lord Layard's analysis - the effects of globalisation. Without the foreign students, the Singaporean boy would continue to top his class. But those bright foreign students will simply go elsewhere if Singapore does not welcome them. And from wherever they are located, they will continue to compete with Singaporean students in one way or another within the same global marketplace. Firms simply move to places with easy access to factors of production, and in the process create an agglomeration force that make them stick to that location.

Globalisation therefore not only has the potential to increase inequality within nations, it also has the potential to increase inequality between nations as research by the spatial economists show. Shutting out or placing too much constraints on the entry of talent may preserve the relative socio-economic positions of Singaporeans, but it would also make it difficult for Singapore to maintain its position in the league of nations.

This also highlights an intricate tradeoff between the policy maker and the average Singaporean. The policy maker rightly cares about the league of nations. The heartlander only cares about the league of neighbours. To get the average Singaporean to focus on the big league and not the small one will be a key challenge.