Recent labour market research has identified two dominant demographic transition processes that create a highly skewed labour market in the West, the US, Japan, South Korea, and even China.
First, declining fertility rates that have fallen below replacement levels
Second, an aging population that is retiring in large numbers from the workforce
These two factors have shrunk the size of the available working age population, essential to sustain high levels of economic growth. Recent labour statistics in the US suggest that the number of adults retiring – 55 years and older – has increased while there are fewer youth entering the labour force due to low fertility for the past many decades.
The US and many other Western economies, therefore, are forced to relax immigration and even open up border crossings on the sly. These labour shortages create an opportunity prompting even illegal and undocumented border crossings in Europe and the US.
The new twist in this saga is the return of Donald Trump as the US president for the next four years. As Trump's second term began on 20 January, Monday, Bloomberg reported that India is set to take back some 18,000 Indian citizens residing illegally in the US. Still, the question is whether Trump will be softer with the Indian illegal migrants?
His campaign rhetoric primarily targeted Mexicans and South American nationals. In addition, the elephant in the room in this debate is China, and Trump may consider India the natural alternative to do business with and a nation aligned to the US in its global security pursuits.
The Aspirational Middle Class?
Despite the geo-political factors and Trump's anti-immigration agenda, the authors believe that the illegal border crossings around the world, including the US, are likely to continue – and the Indian workers will be favoured to fill the labour market voids.
Across the Atlantic, a new dynamic is at play – the growth of India’s middle class, a demographic that is young, restless, and aspirational. Many are smitten by the 'American Dream', fueling alarming levels of ‘illegal’ migration and border crossing from ‘south-western’ and northern borders of the US.
The authors have documented earlier that illegal migrants from India follow risky routes through international transit points with an ecosystem of support facilitating their journey. They often end up trekking difficult terrain, crossing rivers, and incurring huge expenses to pay human traffickers both in India and in transitory countries. In the past year alone, close to 100,000 undocumented immigrants from India sought to cross the US land borders.
What is surprising is that almost all the illegal migrants from India are presenting themselves as asylum seekers. Therefore, it is imperative to understand what labour market dynamics in India are pushing the youth to take such an extreme action.
The Crisis in the US
In the US, the labour force participation rate in March 2023 is nearly five percentage points lower than it was in early 2000s, albeit female rates improved in 2024. Such a decline over the past two decades has been vigorously debated as a large number of vacancies are going unfilled during the same reference period. This is a puzzle which demands urgent analytical explanations in the US.
The declining youth workforce, combined with sector-specific labour imbalances, is impacting the US economy. This workforce reduction, alongside lower rates of family formation, has contributed to a further decline in birth rates. Reduced induction of young workers into the workforce limits the productive capacity of the economy, resulting in reduced output.
These dynamics also strain fiscal policy and public finances at both regional and national levels, leading to high direct and indirect tax rates in the West and the US. Meanwhile, increased demand for social programmes places additional pressure on GDP growth.
Behaviourally, as the 'baby boomers' (people born between 1946 and 1964) are retiring, the Gen-Z workers are not fulfilling those roles at the same level.
The skill set, style, and work preference of Gen-Z workers has changed drastically, many preferring self-employments in the fast growing 'digital economy', leaving a large proportion of conventional job vacancies unfulfilled.
Technology transformation will eventually fill the labour void. Yet, it will fail to take over low level job demand which requires physical labour and ingenious application of human mind.
The housing market trends during the last decade characterised by inventory shortages, rising prices, and more recently, the rapid increase in borrowing costs, has also impeded labour mobility by limiting or delaying the youth from chasing productive employment. Instead, the youth are staying longer at their parental homes and towns causing labour supply imbalance and uneven glut or shortage in localised markets.
Given such complex processes of labour supply and demand dynamics as well as the market segmentations and changing work preferences, the long-term sustenance of the workforce in the US underscores the need for immigration, even if that comes in the form of an influx of asylum seekers also known as undocumented workers.
The Transformation in India
Where the US markets are experiencing labour shortages, a steady supply of Indian workers seems too eager to fulfill that demand, fueling an alarming rise in their numbers crossing the US borders illegally. Rapid and large-scale labour force transformations are taking place across India which are at the root of this migration.
The international labour and workforce definitions are not appropriate and cannot fully describe India’s labour market story.
While the unemployment rates are rather low for such a huge country, the youth and the old must be gainfully employed to support their households and families, lest they face life-surviving challenges.
Unlike in the West, India has a large and unwieldy informal economy, with over 80 percent of workers either self-employed or work in informal sectors of the economy. These are the fundamental differences between the labour force and employment issues between India and the West.
Notwithstanding underemployment, the salaried class who boast regular and predictable monthly income work either with the government bureaucracy, corporates, and small private organised sector which employs only 17 percent of Indian labour force, amounting to just under 10 million employees.
The authors also believe that the characteristics of ongoing economic transformation in India are not adequately rule based and transparent. A large number of business and investment transactions are plagued with economic evils such as misuse of legal entitlements, partnership mistrusts, and intra-proprietorship cheating.
These negative characteristics are further exacerbated by the almost mandatory use of electronic payments, accounting procedures, and compulsory e-filing of corporate records for businesses. These IT-enabled procedures and processes, which are not easy to understand and keep pace with, become a burden for small businesses.
Barely educated entrepreneurs, small business proprietors, self-employed and farming class are at odds with the fast-changing economic system oriented towards increasing enrolment into complicated formal fiscal and financial systems such as business income tax, GST, and sales tax. Participation in such formal economic structures is complicated and a source of discouragement to business promotion.
The newly heralded startups culture, incubation and financial hand holding by the government and private sector only cover a miniscule workforce and are inadequate to generate any value in a half-a-billion-labour-force economy that is India. It is instructive to note that state and federal laws in the US provide for financing, legal entitlements, insurances and incubation, besides special programmes for promoting minorities and small business.
What Illegal Immigrants Say About Why They Left
A few characteristics that describe the business investment environment in India emerged during a group discussion (August 2024) with illegal migrants in transit – also known as ‘dunkies’ – in the lobby of a ‘hostel’ at Madrid are listed below. Many nuances and micro issues came to fore which are rather disturbing to note:
Youth lack knowledge and guidance for small business investments
Classical proprietary businesses are reluctant to invest due to complicated and anonymous (not face-to-face engagements) farcical transactions, misunderstood taxations, accounting system, and over-reliance on suspicious third parties 'dalals' to organise supply chains
Across India, there has been a ‘real estate and property value bubble’ due to urbanisation and alternative use of agricultural cultivable land that has caused a kind of glut in investment funds in localised areas
There are huge land sale transactions where relatively poor farmers and property owners get loads of money with little or no skills to reinvest and become part of newly developing formal markets. Sale of ancestral properties has generated ‘dead capital’ with no clear avenues for investments
Last but not the least, the manufacturing and service sector is getting organised with such a ferocity that millions of small businesses are redundant and unable to be part of the modern production system. IT-enabled supply chain aggregates have killed the neighbourhood business and created oligopolies and monopolistic markets
Income Gap Between US and India
Accordingly, the small business investments and associated returns in India are at crossroads. As an applied economic analyst, one can ponder as to why the youth do not undertake productive investments and be able to generate value-added returns to ensure a comfortable life and living.
Hypothetically, Rs 60 lakh investment in small business can aim for up to a 20 percent net return annually which is very comfortable income for a family of five living in India.
Such a return in terms of PPP value is estimated to be around $5,000 (Rs 4.2 lakh) per month which is the average income of a middle-income household in America. Yet, recent research by the authors have found that about 100,000 Indian youth are taking extreme levels of physical and monetary risks to illegally migrate to the US.
The answer to this anomaly lies in the wage (hourly or daily) rate differentials between the US and India. For example, the average daily wage in India is low, making even modest savings in the US significant enough to justify the risks of illegal migration.
On an average and rough estimate, a worker in a gas station, a grocery store, or a restaurant earns between $60 and $100 which amounts to between Rs 5,000 to Rs 8,500 per day. The take-home pay of an Uber operator is over $4,000 per month in the US and only about Rs 25,000 ($300) per month in India.
It is important to note that asylum seekers from India are affluent single males who will not be able to visit their home country again. It is rather surprising and unexplainable as to why thousands of Indians are willing to take high risks in terms of money, physical life, and even risk of losing family ties?
Looks like these wage and income differentials are the source of the so-called ‘American Dream’ for the Indians illegally migrating to the US.
To conclude, as the market dynamics and demographic shifts play out in the West, the only sane option to keep their economic engines humming would be to relax the immigration policies and allow free flow of labour.
This requires an honest discussion and building of consensus, which is hard in an increasingly partisan political divide that exists today. Until such a pragmatic shift in policy occurs in the West, countries like India need to focus on keeping their youth from risking life and liberty chasing distant dreams.
Policies to preserve, promote and incentivise small businesses should match the aspirations of their educated and increasingly restless youth.
(This article was originally published on 30 December 2024. It has been updated to reflect the latest developments after Donald Trump's inauguration on 20 January.)
(Abusaleh Shariff and Attaulla Khan are with the US-India Policy Institute, Washington DC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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