Sudeep Reddy
Wall Street Journal Blogs
January 1, 2010

The global economic downturn spurred declines in physical immigration — the movement of people across borders — in 2008 and 2009. But a new Federal Reserve Bank of Dallas report says “virtual” immigration — moving the work rather than the workers — continued to grow.

“Most likely, the difference stems from the jobs the two types of immigrants typically do,” authors Michael Cox, Richard Alm and Justyna Dymerska write in the Dallas Fed’s Economic Letter. “Physical immigrants work in construction and other highly cyclical industries. Virtual immigrants are more likely to work in the services economy. It has traditionally been less sensitive than goods to cyclical fluctuations, largely because services aren’t subject to the kind of inventory bulges that make goods production unstable.”

[efoods]Still, virtual immigration increased at a slower pace during the downturn. “Hard times might pressure companies to cut costs, quickening offshoring’s pace,” they write. “At the same time, companies might pull back on offshoring because of cuts in IT budgets and plentiful labor close to home.” For instance, India’s exports in software and IT services are forecast to continue expanding. But the projected growth rate of 17% for 2009 is less than half the pace of the prior four years.

The authors walk through data on labor flows during the latest wave of globalization that began in 1980 — as developing nations entered the global marketplace, transportation costs fell and information technology advanced — and into the recent downturn. As the world recovers from the recession, “the long-term factors supporting cross-border integration of trade, finance and labor are likely to reemerge, although it may take time to fully restore globalization’s momentum,” they write. “The outlook could change if hard times linger and countries succumb to protectionist temptations, setting off a destructive process of deglobalization.”


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