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why the welfare state needs foreign labor

Continuing on the Breaking the Gridlock kick, foreign labor opponents are keen to depict foreigners as a threat to the host nation’s economic self-interest. At their most beneficent, opponents argue against an influx of unskilled labor, which would hurt unskilled labor currently in the country. In theory, this argument is valid. As Lant Pritchett notes, however, evidence suggests the impact is marginal:

The evidence of the Mariel boatlift of a huge influx of workers into a single labor market (Miami) shows little impact on employment or wages (Card 1990). Even Borjas’s (1999) regression evidence that the labor movement of nationals is affected by the patterns of migration and hence the impact on the national labor market needs to be considered shows that only 4 percent of the decline in the real wage of high-school-educated workers can be attributed (and the cross-state regression evidence was apparently driven by the experience of California).

Given that national legislation involving a similarly “huge influx of workers” is politically impossible, the economic fate of low-skilled nationals will not be much affected by foreign labor for the foreseeable future. For those whose concerns stand unabated, Pritchett takes another tact:

The economists’ usual response to distributional arguments against efficient policies is “instruments to targets,” and for economists to resist migration on this ground while advocating free trade is intellectually inconsistent.

For fear of some anti-free traders remaining unimpressed, I would add that we also don’t allow distributional considerations to take precedence over more efficient technological innovations.  I don’t expect this counter-argument to impress anti-free traders in isolation, but free labor has the advantage over free trade in that the direct benefits accrue to those most in need; folks against an unskilled labor influx out of a concern for distributional effects would do well to consider Pritchett’s points in the previous post on the morality of labor mobility.

It would do the case for labor mobility a disservice, however, to simply argue that it wont harm national interests. I won’t waste kilobytes on the obvious benefits of allowing in more labor that firms want to pay to create products, but Pritchett does offer useful clarity on foreign labor as a way to address the problems facing aging industrial countries:

The populations of Germany, Japan, and Italy have already begun to shrink and, for Italy and Japan, are projected to be only 60 percent of their 2000 size by 2050. France and the United Kingdom will remain roughly the same size during the next fifty years. Among large industrial countries, only the United States is expected to continue to experience sizable population growth (these projections already assume some level of migration).

Current projections show support [to retiree] ratios falling in Germany from 4 to 2, and in the more dramatic cases of Italy and Japan they fall to about 1.5—only 1.5 workers for every retiree. The systems of social transfers in Europe can be sustained only with very high tax rates even at current support ratios and program design parameters (which include a combination of tax rates, ages, benefits, and so on). But if support ratios fall to anything like projected levels, then it is not clear that there are politically feasible combinations of design parameters that can make the systems solvent—either tax rates need to be too high or retirement benefits drastically curtailed.

This country-specific focus foretells of Pritchett’s final recommendations for bilateral labor agreements, which I’ll explore soon. More generally, it stirs a hope that the industrial nations will soon understand that it is in their economic interest to allow in young, tax-paying workers to correct their demographic imbalances.

Filed under: General Welfare, World,

help people, not plots of land

Returning for another round (first round: the illiberal global labor market) of Breaking the Gridlock, Lant Pritchett attacks international organizations’ assumption that economic development should focus on the nation-state, rather than the national, as the primary unit of interest. This nation-centric perspective pervades most international institutions and frustrates support of labor mobility. If you didn’t know any better, you might believe that the primary objective is to increase the productive capacity of low-yield geographic areas rather than the economic well-being of the inhabitants. Still the perception of economic development as a national phenomena would be of little concern if it wasn’t often at odds with the interests of the nationals themselves. For example, the de facto measure of development progress, GDP, presents the migration of a productive national to another country for a better paying job as a loss. The real benefits of labor mobility are only apparent when development is centered on people, not arbitrary lines. Read the rest of this entry »

Filed under: General Welfare, World, ,

the right charter city analogy

Chris Blattman and Paul Romer provide a productive back-and-forth on Romer’s charter cities idea. Blattman posted a question of particular interest, “How is this different than Chicago’s notorious housing authority, and the failure that was Cabrini-Green?” He later adds, “Singapore stumbled upon a successful model, Chicago did not. Ex-ante, I think it may have been hard to predict which would succeed.

“A trial-and-error process would, without doubt, produce dozens of successful charter cities around the world. But the error and trial could have a very heavy human cost. A half century after its birth, Cabrini-Green and the Robert Taylor homes have been razed.”
Read the rest of this entry »

Filed under: World

the illiberal global labor market

Lant Pritchett concludes “Let Their People Come: Breaking the Gridlock on Global Labor Mobility” not by talking about amnesty, but bilateral temporary work agreements. In just 151 pages (available for free), Pritchett not only presents a convincing argument for the reduction of labor movement restrictions, but also thoughtfully and respectfully engages the anti-immigration ideas that keep labor mobility reform off the agenda. While unafraid to voice disagreement with these ideas, Pritchett is careful to acknowledge their political import, and -in a welcomed bow to pragmatism- produces his final recommendations in the context of these realities. This post will be the first in a series to explore Pritchett’s arguments, beginning with an introduction to the matter at hand and the morality of the foreign labor debate.
Read the rest of this entry »

Filed under: General Welfare, Philosophy,