The contribution of the Hispanic community in the United States economy


The Hispanic (Latino) community in the United States has contributed significantly to the economic growth of the United States in recent decades and will continue to do so over the next 10 to 20 years. This contribution derives partially from demographic vitality which the fact that Hispanics are the youngest and largest minority group in America. They are on a path toward becoming an increasingly large share of the United States labor force because of their current higher fertility rates, net migration, and rising labor force participation rates. This outsized contribution of Hispanic immigrants to the United States economic growth also results from the quality of the workforce, not just quantity.
Samuel Huntington in his book entitled “How Countries Democratize” stated that Hispanic arrivals have exceeded contemporary native-born Americans and some other migrant groups in their entrepreneurial capabilities and integration into economically relevant parts of the workforce. This phenomenon contrasts with the persistent negative, and now disproven, perceptions of Hispanics as unskilled and occupying low-impact parts of the economy. Like other immigrant groups before them, Hispanics are converging on the native born in important aspects as their incomes rise and their children are born in the United States. In the past, the Hispanic community has stood out because of its generally lower education levels and higher fertility rates.
Gonzalo Huertas, a research analyst at the Peterson Institute for International Economics stated that Hispanic educational attainments are now rapidly converging to the United States average. Simultaneously and crucially, the Hispanic community now exhibits significantly higher levels of opportunity-driven entrepreneurship than does the rest of the United States population. These factors position the Hispanic community to increase its contribution to the United States economy in the coming decades. Development economists looking at countries’ long-term performance have identified “demographic dividends” as sources of sustained growth. For communities with growing levels of human capital, a shift in age structure, caused by a rising share of the working age population and lower share of the nonworking age group, presents an opportunity to build on that growth rate provided that this improvement is combined with lower levels of fertility.
Gonzalo Huertas noted that this opportunity is usually reinforced by parents having smaller families, enabling them to endow their children with higher skill levels and correspondingly better job opportunities. The demographic dividend played a major role in the rapid development of Japan and South Korea after World War II, as well as in periods of historically high growth of the United States economy, following past periods of high sustained immigration from Europe. Such a demographic dividend is emerging for the United States Hispanic community, with significant positive effects on the overall United States economic growth rate. Hispanic fertility rates have declined dramatically since the Great Recession, to levels very close to the United States average, and this trend is very likely to persist.
Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics asserted that given continued convergence in educational levels already well underway, the Hispanic demographic dividend will likely contribute 0.21 percentage point to the annual real GDP growth rate over the next 25 years, through its impact on the increase of employed Hispanic labor. The high rate of entrepreneurship among Hispanic immigrants suggests that this estimated effect on growth could grow, through increasing both human capital investment across generations and the employment spillovers of Hispanic convergence, although somewhat lower labor productivity today introduces a downward risk to that prospect.
Jacob Funk Kirkegaard explains that given that Hispanics today are rapidly achieving educational levels similar to those of the rest of the United States population, as well as converging towards smaller families, perceptions should similarly conform to reality. The Hispanic community’s deviation from the United States average on these two key parameters has historically fed political stereotypes of a growing but economically disadvantaged United States minority community. The Hispanic community’s recent convergence to the United States average, however, tracks along largely the same path of earlier waves of immigrants coming to the United States.
Jacob Funk Kirkegaard further noted that as Mexican fertility rates are also rapidly converging down to United States levels, the fact that Hispanic inward migration to the United States originates from an adjacent location, as opposed to earlier waves of migration from “across the sea”, means that Hispanic immigration can no longer be said to be different from earlier inflows. In general, standards of living, social circumstances, and family norms and sizes in Latin America, and in Mexico in particular, are themselves converging to the level of the United States. If persistent over the long run, this decline in Hispanic fertility rates will also have a quantitative impact on overall United States population forecasts.
Importantly, Hispanic migration to the United States from Mexico, until recently, the most significant country of origin, has also begun to decline in recent years. The demographic dividend is real and imminent but also finite in duration. The labor supply driver of Hispanic immigration is declining, with impacts that will be felt in United States growth down the road.
Absent some future source of sustained immigration, the United States growth rate will be capped, much as Japan’s is now, barring some unprecedented surge in fertility among middle income families. In any paper discussing long-term population trends in the United States, and in particular one that argues that the traditional “melting pot” description of the United States continues to apply to the Hispanic community, there is a definitional data concern. Race has been recorded in every American census conducted since 1790, reflecting its central role in United States history, as well as its arbitrary definition.
Felipe Fernandez-Armesto, author of the book entitled “Our America: A Hispanic History of the United States” stated that until 1950, respondents’ race was determined by census interviewers, which generally resulted in Americans being assigned a single race category. In 1960, Americans got the opportunity to choose their own race in the census, and in 2000, they got the option to identify as more than one race. Intermarriage rates for the United States Hispanic population are already among the highest of any subpopulation in the United States at around 27 percent, rising to 39 percent when counting only native-born United States Hispanics.
According to Felipe Fernandez-Armesto, this phenomenon again speaks to the rapid convergence and integration of Hispanic migrants and their children in American society, stereotypes notwithstanding. Consequently, though, in terms of recorded census data, a growing number of partly Hispanic respondents are likely to self-identify with the “more than one” category in terms of race and/or ethnic affiliation. Perhaps more importantly, such racial classifications will become far less politically and socially relevant. An increasingly Latino United States population is coming, and this demographic dividend will propel that process of integration economically.
Importantly, the life of expectancy of Hispanics is higher than that of other demographic groups. This poses good opportunities for financial advisors who work providing financial services, such as retirement plans, insurance, annuities, and long-term care plans. According to Huertas and Kirkegaard higher levels of Hispanic opportunity-driven entrepreneurship than among the rest of the United States population, emphasizes the importance in securing the community full access to financing and other business support crucial to grow start-up businesses to scale.