Mobility of Rights 1 Exchange Rates, Labor Mobility and Immigration Policies in an Integrated World Adrian J. Shin University of Michigan November 9, 2012 1 Prepared for IPES 2012. This material is based upon work supported by the National Science Foundation Graduate Student Research Fellowship under Grant No. DGE 0718128. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 1 / 15
How do policymakers respond to exchange rate shocks? Exchange rate policy. Dollar appreciation: Dollar Politics in United States (1981 1986) Yen appreciation: foreign exchange interventions in Japan (1991 ongoing) Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 2 / 15
How do policymakers respond to exchange rate shocks? Exchange rate policy. Dollar appreciation: Dollar Politics in United States (1981 1986) Yen appreciation: foreign exchange interventions in Japan (1991 ongoing) Trade policy against currency appreciation. WTO disputes. Anti-dumping measures. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 2 / 15
How do policymakers respond to exchange rate shocks? Exchange rate policy. Dollar appreciation: Dollar Politics in United States (1981 1986) Yen appreciation: foreign exchange interventions in Japan (1991 ongoing) Trade policy against currency appreciation. WTO disputes. Anti-dumping measures. Immigration policy. Why? How? Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 2 / 15
Relevant Preferences Firms have strong preferences for exchange rate levels. Purchasing power vs. price competitiveness. Exporters and import-competing firms prefer undervalued currency. Firms in the non-tradable sector prefer overvalued currency. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 3 / 15
Relevant Preferences Firms have strong preferences for exchange rate levels. Purchasing power vs. price competitiveness. Exporters and import-competing firms prefer undervalued currency. Firms in the non-tradable sector prefer overvalued currency. Migrant workers are extremely sensitive to exchange rate fluctuations for remittances. Appreciation of the host country s currency = remittances. Depreciation of the host country s currency = remittances. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 3 / 15
Relevant Preferences Firms have strong preferences for exchange rate levels. Purchasing power vs. price competitiveness. Exporters and import-competing firms prefer undervalued currency. Firms in the non-tradable sector prefer overvalued currency. Migrant workers are extremely sensitive to exchange rate fluctuations for remittances. Appreciation of the host country s currency = remittances. Depreciation of the host country s currency = remittances. How do exchange rate levels affect labor-intensive firms that rely on migrant workers? Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 3 / 15
Currency Depreciation (Open Trade) Migrants return home. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Filipinos and appreciating Philippine peso in the early 2000s. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Filipinos and appreciating Philippine peso in the early 2000s. Mishra and Spilimbergo (2011) 1 percent depreciation of the real exchange rate 0.5 1.2 percent increase in the emigration rate. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Filipinos and appreciating Philippine peso in the early 2000s. Mishra and Spilimbergo (2011) 1 percent depreciation of the real exchange rate 0.5 1.2 percent increase in the emigration rate. 1 percent change in the real exchange rate 0.15 0.4 percent change in wages. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Filipinos and appreciating Philippine peso in the early 2000s. Mishra and Spilimbergo (2011) 1 percent depreciation of the real exchange rate 0.5 1.2 percent increase in the emigration rate. 1 percent change in the real exchange rate 0.15 0.4 percent change in wages. Firms in the tradable sector gain price competitiveness. Labor-intensive firms can raise the prices of their goods and can endure higher wages. Capital-intensive firms do not lose from return migration. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Depreciation (Open Trade) Migrants return home. Around 200,000 Poles returned home from the U.K. in 2008. Filipinos and appreciating Philippine peso in the early 2000s. Mishra and Spilimbergo (2011) 1 percent depreciation of the real exchange rate 0.5 1.2 percent increase in the emigration rate. 1 percent change in the real exchange rate 0.15 0.4 percent change in wages. Firms in the tradable sector gain price competitiveness. Labor-intensive firms can raise the prices of their goods and can endure higher wages. Capital-intensive firms do not lose from return migration. Firms in the non-tradable sector lose. Labor-intensive: labor shortages and rising prices of imports. Capital-intensive firms: rising prices of imports. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 4 / 15
Currency Appreciation (Open Trade) Illegal immigration increases. Hanson and Spilimbergo (1999) 10% devaluation of the Mexican peso (relative appreciation of the U.S. dollar) = 6 8% of border apprehensions. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 5 / 15
Currency Appreciation (Open Trade) Illegal immigration increases. Hanson and Spilimbergo (1999) 10% devaluation of the Mexican peso (relative appreciation of the U.S. dollar) = 6 8% of border apprehensions. Firms in the tradable sector lose price competitiveness. Capital-intensive firms ask for trade protection. Labor-intensive firms ask for trade protection and/or open immigration. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 5 / 15
Currency Appreciation (Open Trade) Illegal immigration increases. Hanson and Spilimbergo (1999) 10% devaluation of the Mexican peso (relative appreciation of the U.S. dollar) = 6 8% of border apprehensions. Firms in the tradable sector lose price competitiveness. Capital-intensive firms ask for trade protection. Labor-intensive firms ask for trade protection and/or open immigration. Firms in the non-tradable sector gain from rising purchasing power. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 5 / 15
Preferences for Policy Intervention under Depreciation Depreciation (Return Migration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Migrants Rights Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 6 / 15
Preferences for Policy Intervention under Depreciation Depreciation (Return Migration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Migrants Rights Hypothesis 1. Policymakers are more likely to offer rights to migrants under currency depreciation as the economic and political significance of non-tradable labor-intensive firms increases. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 6 / 15
Preferences for Policy Intervention under Depreciation Depreciation (Return Migration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Migrants Rights Hypothesis 1. Policymakers are more likely to offer rights to migrants under currency depreciation as the economic and political significance of non-tradable labor-intensive firms increases. What do I mean by rights? Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 6 / 15
Scope of Migrants Rights Expanding migrants rights. Access to public goods: education, employment, health care, housing, public benefit eligibility, etc. Family reunion, labor market mobility, etc. Export of social security benefits ( Mobility of Rights ). Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 7 / 15
Scope of Migrants Rights Expanding migrants rights. Access to public goods: education, employment, health care, housing, public benefit eligibility, etc. Family reunion, labor market mobility, etc. Export of social security benefits ( Mobility of Rights ). Restricting rights. Elimination of benefits mentioned above. Aggressive policies towards undocumented immigrants. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 7 / 15
Preferences for Policy Intervention under Appreciation Appreciation (Illegal Immigration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive High Low Labor-Intensive High Open Immigration Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 8 / 15
Preferences for Policy Intervention under Appreciation Appreciation (Illegal Immigration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive High Low Labor-Intensive High Open Immigration Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Hypothesis 2. As the magnitude of exchange rate appreciation increases, policymakers will restrict rights to migrants. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 8 / 15
Preferences for Policy Intervention under Appreciation Appreciation (Illegal Immigration) Sector Factor Intensity Trade Immigration Tradable Capital-Intensive High Low Labor-Intensive High Open Immigration Non-Tradable Capital-Intensive Low Low Labor-Intensive Low Indifferent Hypothesis 2. As the magnitude of exchange rate appreciation increases, policymakers will restrict rights to migrants. Hypothesis 3. If labor-intensive firms in the tradable sector can employ migrant workers, their demand for trade protection under currency appreciation decreases. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 8 / 15
What happens when trade is closed? Currency depreciation (return migration) affects all labor-intensive firms negatively. Currency appreciation decreases the likelihood of the provision of rights to migrants. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 9 / 15
Two Exchange Rate Shocks Migrants and firms can be exposed to different exchange rate shocks. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 10 / 15
Two Exchange Rate Shocks OECD Countries Australia Austria Belgium Canada Czech Rep Denmark 12000 00 00 6000 120 110 12 10 8 6 110 105 95 7 6 5 4 115 110 105 95 60 40 120 110 10 8 6 4 70 60 50 150 50 95 85 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Finland France Germany Greece Hungary Iceland 150 50 140 130 120 110 25 20 15 10 115 110 105 95 70 60 50 115 110 105 95.6.5.4.3.2 95 85 75.8.6.4.2 70 60 50 15 10 5 95 85 75 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Ireland Italy Japan Korea Luxembourg Mexico 200.1 120 1 140 120 110 12.35 120 110 120 150.08.8.3 105 10.06.6.25 8.2 6.4 60 50.04 60.15 95 4 60 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Netherlands New Zealand Norway Poland Portugal Slovak Rep Exchange Rates 70 60 50 40 105 95 60 40 20 70 25 20 15 10 105 95 40 30 20 10 0 500 0 1.8.6.4.2 95 85 75 60 40 70 60 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Spain Sweden Switzerland Turkey UK US 1.4 1.2 1.8.6 110 20 15 10 5 140 130 120 110 160 140 120 110 105 95 400 300 200 250 200 150 95 85 75 300 250 200 150 140 130 120 110 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Year Migration RER (Mishra and Spilimbergo, 2011) REER (World Bank) Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 11 / 15
Two Exchange Rate Shocks Top Migrant-Sending Countries Afghanistan Bangladesh Belarus China Egypt 6000 4000 2000 0 1.3 1.2 1.1 1.9 60 40 20 16 14 12 10 300 250 200 150 60 40 20 0 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 25 115 115 2.8 6.1 110 110 2.6 20 105 70 4.08 105 2.4 15 60 95 2.2 2.06 10 50 95 2 0.04 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 300 200 0 3 2.5 2 1.5 France Germany India Indonesia Italy Kazakhstan Korea Mexico Morocco Pakistan 12.35 120 22 140 18.3 10 20 130 16 120.25 8 18 110 14.2 6 16 12.15 4 60 14 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Philippines Poland Portugal Romania Russia 1 40 1 0 8 160 95 30.8 6 60 140 500.6 85 4 120 20.4 60 40 2 10 0.2 75 20 40 0 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 120 110 250 200 150 70 60 Exchange Rates Sri Lanka Turkey Ukraine Uzbekistan Viet Nam 12 10 8 6 4 400 300 200 60 40 20 0 140 120.0085.008.0075.007 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 19 19 2000 2010 Year Migration RER (Mishra Spilimbergo, 2011) REER (World Bank) Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 12 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Long-term Implications Less migrants are attracted to the developed world. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Long-term Implications Less migrants are attracted to the developed world. Policymakers in sending countries have to deal with two different exchange rate shocks. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Long-term Implications Less migrants are attracted to the developed world. Policymakers in sending countries have to deal with two different exchange rate shocks. Increasing share of labor-intensive firms in the non-tradable sector in migrant-receiving states. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Long-term Implications Less migrants are attracted to the developed world. Policymakers in sending countries have to deal with two different exchange rate shocks. Increasing share of labor-intensive firms in the non-tradable sector in migrant-receiving states. The rise of migrants rights. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Two Exchange Rate Shocks Trends Both MRER and REER show volatile levels. MRER is increasing in the post-bretton Woods era, while REER shows divergent movements. Long-term Implications Less migrants are attracted to the developed world. Policymakers in sending countries have to deal with two different exchange rate shocks. Increasing share of labor-intensive firms in the non-tradable sector in migrant-receiving states. The rise of migrants rights. My theory as an alternative hypothesis to the norms argument for the provision of migrants rights. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 13 / 15
Next Steps Examine the implications of the Uruguay Round for my theory. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 14 / 15
Next Steps Examine the implications of the Uruguay Round for my theory. Extend my theory to include the classical gold standard and the Bretton Woods system (adjustable pegs). Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 14 / 15
Next Steps Examine the implications of the Uruguay Round for my theory. Extend my theory to include the classical gold standard and the Bretton Woods system (adjustable pegs). Find ways to come up with comparable measures of MRER from the perspective of receiving countries in the early 20th century to see how labor mobility, exchange rates, trade openness, and immigration policies have moved together. Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 14 / 15
Thank You! Adrian J. Shin (University of Michigan) Mobility of Rights November 9, 2012 15 / 15