The Swiss population is growing rapidly: it took the country just 12 years to reach the last million. The same amount of time it took to reach 6 million people in the 1960s, a time when debates on immigration were just as controversial. Although many successful countries are growing, the scale of immigration in Switzerland is also large compared to the rest of the world. While Germany, for example, has practically stagnated, Italy has recently even shrunk. Those who complain about “too much” growth are actually lucky: A shrinking population and a stagnating economy lead to far greater (distribution) conflicts.

Immigration as a Result of the Swiss Job Miracle

The population is only growing thanks to immigration. Without naturalization, the number of Swiss citizens would have shrunk since the early 1990s. Attractive and well-paid jobs act as a magnet. Every second person immigrates to Switzerland to take up a job; two thirds of new immigrants come from Europe. Family reunification (30 percent) and education (10 percent), which are partly linked to employment, follow in second and third place.

Even though more people are now retiring than young people are entering the workforce, ageing is not the main driver behind the large number of vacancies. The main reason lies in a dynamic economy that creates 50,000 additional jobs every year – recently even more. While immigrants filled two thirds of these new jobs in the past, the higher labor market participation of women in particular was responsible for another third. Making even better use of local potential is difficult and expensive, with the greatest potential likely to lie in older workers.

The economy as a whole benefits from recruiting abroad. It is estimated that “only” one in seven new immigrants work for the state and in state-related sectors. However, the growth of sectors close to the state, such as education, which favor hiring Swiss nationals, is creating labor shortages in other areas.

Is the Economy now only Growing Extensively?

The Swiss jobs miracle is “only” half responsible for the fact that real economic output is 50 percent higher today than in 2000. The other half is explained by annual productivity growth of around 1 percent – a high figure by international standards. Driven by productivity, per capita economic output grew by around a quarter in the same period – only very few comparable countries (in particular the USA and Sweden) performed better. What is often forgotten is that Switzerland is growing at a high level. Even if other countries grow faster, they can hardly reduce the absolute prosperity gap with Switzerland.

Wages have also grown with the economy: up 17 percent in real terms since 2000 (median wage). In addition, working hours have fallen slightly – even per full-time job. Furthermore, growth has brought the state steadily increasing tax revenues. There have been virtually no limits to the imagination for new spending in recent years.

However, the positive development masks the fact that growth is concentrated in individual sectors. In many places, productivity development is stagnating or is even negative. The pharmaceutical industry stands out from the rest. Nowhere else does it generate anywhere near as much added value per job. The sector is responsible for half of Switzerland’s growth.

Road to the “Dubai of the Alps”?

There is hardly any other sector where the importance of immigration is more apparent. Foreigners were (co-)responsible for the founding of many of the most important pharmaceutical companies – including Roche, Novartis and Lonza – and make up the majority of the workforce in those companies.

Even today, people without a red passport are involved in 3 out of 4 start-ups. Thanks to them, Switzerland is constantly reinventing itself, establishing sustainable industry clusters and successfully managing structural change. This requires a critical mass of highly qualified specialists, which cannot be achieved without immigration. The local demographic potential has always been too small for Switzerland’s economic strength.

The importance of immigration can also be seen on the other side of the value creation spectrum: for example, every second job in the construction and hospitality industries is filled by foreigners – jobs that many Swiss avoid. Instead, locals are increasingly working in administration or in government-related sectors. Depending on how you look at it, this can be seen as a positive “division of labor” for both sides or – based on the economic model of the Gulf States – a dangerous “dubaization” of Switzerland.

Negative effects of growth

The strong population growth has its price. In Switzerland, this is less of a cultural nature, as immigration is of an above-average European nature. The “filling costs” are of greater significance: Land is becoming scarcer, the infrastructure is overloaded, housing is becoming more expensive.

The strong population growth has its price. In Switzerland, this is less of a cultural nature, as immigration is of an above-average European nature. The “filling costs” are of greater significance: Land is becoming scarcer, the infrastructure is overloaded, housing is becoming more expensive.

Moreover, sluggish structures prevent inert structures from being tackled efficiently and effectively. For example, a lack of cost transparency leads to excess demand; investments are decided on the basis of regional policy, rather than where the greatest congestion is found. The problems are similar when it comes to the ongoing urban sprawl: while many building land reserves are located in the wrong places, the population in the cities is opposed to further densification.

The following applies to “stress due tohigh urban density” as for the debate in general: there is no objectively determinable optimum for immigration or population growth. Many of the disadvantages of growth are subjective, but are no less important. The net balance therefore varies from person to person. The only thing that seems clear is that at the current rate of population growth, the negative effects are increasingly coming to the fore and the cost-benefit balance is deteriorating.

Grosse Menschenmenge, durch Barriere geteilt. (Adobe Stock)

The number of Swiss citizens is growing solely thanks to immigration, but the strong population growth comes at a price: scarce land, overburdened infrastructure and rising housing costs. (Adobe Stock)

Answers to (too much) population growth

While net migration is again high this year, future developments are uncertain. Switzerland remains attractive for foreigners, which is reflected in the unchanged high wage differences compared to other countries. Meanwhile, it is becoming more difficult to recruit workers from Europe because the working-age population is shrinking rapidly.

If we don’t want to jeopardize the attractiveness of Switzerland as a business location, there are three possible responses to growth. Firstly, attempts can be made to regulate immigration within the existing legal framework (for example, with regard to family reunification from third countries). Whether this makes sense or not, the scope is limited – the elephant in the room remains the freedom of movement, as it dominates the phenomenon of immigration. Secondly, the negative effects of growth can be addressed directly, for example by expanding infrastructure and improving spatial planning. However, there are natural and political limits to these measures.

Control immigration – but how?

Thirdly, immigration could be reduced by means of a different control mechanism. However, this is easier said than done. Despite other systems, other countries also struggle with immigration. Everywhere, we hear that there is either “too much” or “too little” immigration, and that “the wrong people” are immigrating. This also applies to so-called exemplary countries such as the UK (where immigration figures have exploded since the Brexit) or Australia (where the economy can’t find the workforce it needs despite a points system). In Switzerland, it is often forgotten how bureaucratic, structure-preserving and growth-inhibiting (poorly qualified) immigration was under the quota system before freedom of movement. A safeguard clause with limits currently under discussion therefore does not inspire much hope.

If one wishes to limit immigration effectively, one should at least rely on an instrument that is as efficient as possible. This could be price-based regulation by means of an immigration tax. However, let’s face it: such a levy would probably mean the end of the bilateral agreements with the EU.

This article was published in a slightly modified form and in German in the publication “Stimme der Wirtschaft” of the Zurich Chamber of Commerce.