Let Their People Come Lant Pritchett Center Global Development September 15, 2006
Future of Migration Five irresistible forces in the global economy are producing increased pressures for labor mobility Immovable ideas of rich country voters are blocking these forces The goal is to accommodate forces and ideas to create politically acceptable and development friendly (which includes human rights respecting) policies for labor mobility
Five Forces Increased global inequality gaps in earnings of equivalent workers are huge Demographic changes gains from trade depend on differences and boy are there differences Globalization of everything but labor goods, capital, ideas and beachhead effects Limits of capital/labor substitution and labor saving innovation hard core non-tradables are the future of employment Large changes in optimal populations
Force 1: Location, location, location Fraction of Total Inequality Due to Across Countries 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Years Theil coefficient Mean ln deviation
Force 1: Wage gaps among industrial workers are larger than ever 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2.3 3.6 4.1 4.4 2.4 6.1 7.2 7.6 9.0 9.1 Ratio of wag es in PPP Japan /Vietnam 1990 s NL D/In donesia 1990s Ita ly/ethiopia 19 90s UK/Ke nya USA/sending country gaps In 19 th century Gaps today In the first globalization era the world was set in motion by wage gaps of between 2 to 1 and 4 to 1 between host and receiving countries those are tiny by comparison today USA/G uatemala 1990s Spain/Morocco 1 990s USA/Italy 187 0 USA/Sweden 1870 USA/N orw ay 18 70 USA/Irela nd 1870
Force 1: Most of the gap appears to be where not who Annual earnings, dollars $25,000 $20,000 $15,000 $10,000 $5,000 $0 -$5,000 $1,406 Gain from HS vs Primary, from ES in ES $17,266 Gain from USA, with primary $19,942 Gain from USA, with HS Difference -$524 from USA vs from ES with HS
Force 1: Over foreseeable horizon reductions in wage gaps make migration pressures higher, not lower Pretty good evidence of threshold effects so that migration flows first rise and then fall as laggards gain on leaders. My guess is that most large countries are on the rising part so that wage gains increase migration pressure (even if they reduce gaps) This is bad news for the aid to prevent migration sell
Force 2: Demography Fertility has collapsed in Europe slowly in some parts (e.g. Germany), rapidly in others (e.g. Italy) Projections are the support ratio in Europe (25) will fall from 4.25 to 1.82 (Demeny) Population of North Africa/West Asia increases to 3 times Europe
Force 2: Europe s disappearing act compared to the Muslim tier that surrounds it Population (millions) 1400 1200 1000 800 600 400 200 0 1950 1970 1990 2010 2030 2050 Year
Force 2: Who takes care of granny? twice as many over 85 (!) than under 5
Force 2: Rule of thumb: what cannot happen won t happen but what will happen? 6 5 4 France Germany 3 Italy Japan United States 2 1 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Year
Force 3: Everything but labor globalization Trade is substantially liberalized Movement of capital has been substantially liberalized Movement of ideas is more rapid (instantaneous) Movement of people is cheaper and cheaper
Force 3: Why is this graph so facetious? 120 Gains as % of world GDP 100 80 60 40 20 All remaining goods liberalization 3% increase in host country labor force Full Liberalization of labor markets 0
Force 3: Slight less facetious? 350 300 250 200 150 100 50 0 305 167.5 79 86 2.5 Just 3% of OECD labor force All of the trade, aid and debt All of aid All goods liberalization All HIPC debt relief Annual gains bn US$
Force 4: Future labor creation top 25 occupations, no tradables, mostly low skills '000 increase in jobs 6000 5000 4000 3000 2000 1000 0 Hard core nontradable, low skill Hard Core nontradable, high Skill Services, low skill Services, high skill
Force 4: Capital/labor substitution and home for marketed Huge induced innovation to displace low to medium skill labor automated check-out at Home Depot Home production displacing marketed production you at Home Depot Home appliances/value added in preparation versus labor
Force 5: Ghosts and Zombies Post WW II world has run a huge natural experiment (a) expand dramatically number of sovereign states (borders, flags, currencies), (b) encourage mobility of capital and labor but freeze labor in place. How will this turn out? Hinges on views of the role of region specific labor demand: Small shocks all good Big shocks, flows accommodate all good in long run Big shocks, policy and institutional not so good, can be fixed Big shocks, really geographic: lets not think about it
Expansion in # s of countries 20 18 16 ssa mena eca lac eap other 14 12 10 8 6 4 2 0 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Wages Inelastic labor supply (mobility restricted) Wage fall in Zombie (living dead) Elastic labor supply (mobility allowed) Large fall in region specific labor demand Population Population fall in Ghost people move out to accomodate
Force 5: Evidence that, even with optimal policies and even with globalization of all else labor demand shocks are huge Regions within countries vs. across countries Regions within US (contiguous counties) Countries in first era of globalization (e.g. Ireland)
Force 5: Tall thin boxes (boom towns and zombie countries) versus long short boxes (boom versus ghost)
Force 5: Last one out turn out the lights Keya Paha Boyd Lyon Sioux Osceola OÕBrien Dickinson Clay Emm et Palo Alto Kossuth W innebago Hancock Worth Cerro Gordo Mitchell Floyd Howard Chickasaw W inneshiek Allamakee Sioux Scotts Bluf Banner Kimbal Dawes Box Butt e Morril Cheyenne Sheridan Garden Deuel Gr an t Art hur Keit h Perkins Cherry Hooker McPherson Lin coln Thomas Logan Brown Blaine Custer Dawson Rock Loup Garfield Valley Sherman Buffalo Holt Wheeler Greeley How ar d Hal Antelope Boone Nanc e Merric k Hamilton Knox Pierc e Madison Platt e Polk York Cedar Wayne St anton Colfax Butler Seward Dixon Cuming Dakota Thurston Dodge Saunders Lanc as ter Plymouth Burt W oodbury Douglas Sarpy Cass Otoe Monona Washington Cherokee Harrison Ida Craw ford Pottawattamie Mills Frem ont Shelby Buena Vista Montgom ery Page Sac Carroll A udobon Cass Pocahontas Calhoun Adam s Tayl or Greene Guthrie Adair Humboldt Webster Union R inggold Boone Dal l as Madison Wright Hami l ton Clarke Decatur Story Polk W arren Franklin Hardin Lucas Wayne Marshall Jasper Marion Butler Grundy Monroe A ppanoose Mahaska Tam a Brem er Poweshiek Black Hawk Wapel lo Davis Keokuk Benton Iowa Fayette B uchanan Jefferson Van Buren Linn Johnson Washington Henry Clayton Delaware Lee Louisa Jones Cedar Muscatine Des Moines Dubuque Jackson Cl i nton Scot Chas e Hayes Frontier Gosper Phelps Kearney Adams Clay Fillmore Saline Johnson Nemaha Atc hison Nodaway Worth Ha rrison Me rcer Putnam Sc huyler Sc otland Clark Dundy H itc hc oc k Red Willow Furnas Harlan Franklin Webster Nuckolls Thayer Jefferson Gage Pawnee Richardson Ho lt Ge ntry Gru ndy Sullivan Adair Knox Lewis Ch eyenn e Sherman Wallace Greeley Hamilto n Stanton Morton Wichita Kearny Grant Stevens Ra wlin s Thomas Loga n Scott Finney Ha sk e l Seward Decatur Sheridan Gove Lane Gray Meade Norto n Gr ah am Tr eg o Ness Hodgeman Ford Clark Phillips Rook s Ellis Rush Pawnee Edwards Kiowa Comanche Sm ith Os bo rn e Ru ss e l Barton St afford Pratt Barber Jewel Mitchel Lin coln Ellsw orth Ric e Reno Kingman Harper Republic Cloud Ot taw a Saline Mc Pherson Harvey Sedgwic k Sumner Washington Cla y Dic kinson Marion Rile y Butler Co wle y Marshal Ge a ry Morris Potta watomie Chas e Lyon Gr ee nw oo d Elk Nemah a Wabaunsee Jack son Shaw nee Osage Coffey Wilson Brown Woodson Mo nt go me ry Chautauqua Do nipha n At chison Douglas Frank lin Anderson Allen Andrew Buchanan Leave nw or th Je fferso n Neosho Labette Platte Wyandotte Johnson Miami Lin n Bourbo n Crawford Cherokee Clinton Clay Jack son Daviess De Kalb Cass Bates Vernon Ba rton Jasper Newton McDonald Caldwell Ray Lafay ette John son Cedar Dade Barry Henry Lawre nce Livingston St. Clair Carroll Pettis Be nton Hic kory Polk Stone Gre ene Linn Saline Christian Chariton Dallas Ta ney Howard Co oper Mo rgan Camden Web ster Ma con Ran dolph Mo niteau La clede Miller Wright Douglas Ozark Bo one Cole Shelby Pulask i Mo nroe Audrain Callaway Os age Maries Te xas Phelps Ho well Marion Rals Montgomery Ga scon ade Crawford Dent Shannon Ore gon Pike Wa rren Lincoln Franklin Iron Rey nolds St. Charles Washington Carter Ripley St. Louis St. Louis City Jefferson Ste. Gen evie ve St. Fra ncois Ma di son Wa yne Butler Bollinger Perry Stod dard Cape Girard eau Scott New Madrid Mississipp i Pemiscot Dunk lin
Force 5: Contiguous regions of the USA are a third their counter-factual size Region of the United States (contiguous counties) % change in population 1930-1990 Ratio of current population to counter factual at rate of natural increase Number of countries (of 192) with smaller area (with examples) Ratio of area per capita income to national average Texlahoma -36.8% 0.31 117/192 (Nicaragua, Bangladesh) 92.2% Heartland -34.0% 0.33 117/192 85.2% Deep South -27.9% 0.36 96/192 (Jordan, Austria, Sri Lanka) 62.6%
Force 5: Ireland s wages relative to UK rose over entire crisis period population fell Relative to 1870=1 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 Year Pop'l Wages/UK GDP PC
Force 5: Bolivia s population rose wages fell 1.7 1.5 1.3 1972=1 1.1 0.9 0.7 0.5 1970 1975 1980 1985 1990 1995 RGDPPW Pop'l Wages/USA wages
Immovable Ideas: People say they Really Hate Migration ten times as many want it reduced as increased Reduced (either "a lot" or "a little") "Remain the same" Increased (either a lot or a little ) Receiving Western Europe Germany West 77.58 19.62 2.82 Italy 75.60 20.84 3.55 Austria 56.14 39.92 3.96 Great Britain 68.22 27.65 4.12 Netherlands 61.51 33.02 5.47 Sweden 69.77 23.52 6.71 Norway 63.20 29.37 7.43 Spain 40.07 51.48 8.44
Eight immovable ideas against the five forces Nationality is a morally legitimate basis for discrimination Moral perfectionism based on proximity Development is exclusively about nation-states, not nationals. Labor movements are not necessary (or desirable) to raise living standards Increased migration of unskilled labor will lower wages and worsen the distribution of income in the receiving countries Movers are a fiscal cost as they use more services than they pay in taxes Allowing movement across borders creates risks of crime and terrorism They are not like us cultural clash
Why bother? Ideas are like damns abolitionists were nuts the crying chief Anti-globalization bassackwards Trivialization of real concern entirely symbolic TRIPs why can only evil succeed? Animal rights will your grandchildren be shocked you ate meat or blocked migration?
Three possibilities for political acceptability Increase migrant skill points based systems (for the same? Or more?) WTO GATS mode 4 as political device Temporary, occupation specific quotas for unskilled labor
Increased emphasis on high skill/wealth Five forces for increased labor mobility Summary High and rising wage gaps - Equalizes wages only at the upper end (if at all) Differing demographic destinies + Limited impact if allows more migration Everything but labor globalization - Detracts from globalization of unskilled labor Employment growth in hard core nontradable services +/- Doesn t necessarily focus on hard core nontradables Ghost/zombie countries - Brain drain effects possibly large (e.g. health care workers from Africa) Nationality is a morally legitimate basis for discrimination Eight ideas limiting migration in industrial countries +++ Points systems can be nationality adjusted Moral perfectionism based on proximity ++ Those who are allowed are expected to become citizens Development is exclusively about nationstates, not nationals. Labor movements are not necessary (or desirable) to raise living standards Increased migration of unskilled labor will lower wages and worsen the distribution of income in the receiving countries Movers are a fiscal cost as they use more services than they pay in taxes Allowing movement across borders creates risks of crime and terrorism -- Detracts from development to the extent it exacerbates brain drain -- Does not help with labor +++ Does address inequality problems in receiving countries +++ By attracting higher wage migrants reduces fiscal cost. +++ Points systems allow careful screening of applicants. They are not like us cultural clash +++ Language and education screening can be used to increase compatability
Can WTO/GATS mode 4 be the answer? What are the principles of success behind GATT/WTO as a negotiating mechanism? National origin is irrelevant (a ton of steel is a ton of steel) doesn t work for people MFN doesn t work for people Prices not quantities doesn t work for people
High and rising wage gaps + Would allow movement in unskilled services Differing demographic destinies Could be used to fill gaps Everything but labor globalization +++ Brings labor mobility into the globalization framework Employment growth in hard core non-tradable services +++ Focuses on services trade, including those that require physical presence to deliver Ghost/zombie countries No special emphasis Eight ideas limiting migration in industrial countries Nationality is a morally legitimate basis for discrimination --- MFN would extend market access to all countries Moral perfectionism based on proximity Development is exclusively about nation-states, not nationals. Labor movements are not necessary (or desirable) to raise living standards +++ Nation-states negotiate agreements via WTO - Increased migration of unskilled labor will lower wages and worsen the distribution of income in the receiving countries Movers are a fiscal cost as they use more services than they pay in taxes Allowing movement across borders creates risks of crime and terrorism --- Allows opening of markets in unskilled labor +/- Since presence would be temporary not a major concern ---- Market access and MFN is very difficult to reconcile with security concerns They are not like us cultural clash --- MFN implies countries cannot control nationality of service providers
Six elements of a viable mechanisms for increasing labor mobility 1) bilateral agreements between host and sending countries 2) allow for temporary movement of persons in a regime separate from immigration, 3) have numerical quotas for specific occupational categories (and internal regions in the host country?), 4) enhance the development impact of the labor movement through agreements with the sending country government. 5) impose automatic penalties on the sending country (and host country employer) for laborers who overstay, 6) protect the fundamental human rights of laborers
Five forces for increased labor mobility High and rising wage gaps + Allows workers some access to high wages Differing demographic destinies + Limited impact as magnitude of problem is too large Everything but labor globalization + Brings labor at last into bilateral relations Employment growth in hard core non-tradable services + Singles out this industries/occupations for quotas Ghost/zombie countries + Employment quotas can be allocated to poorest countries
Eight ideas limiting migration in industrial countries Nationality is a morally legitimate basis for discrimination Moral perfectionism based on proximity + Accommodation 1 unilateral control of agreements with receiving country + Accommodation 6 protect human rights of workers Development is exclusively about nation-states, not nationals. Labor movements are not necessary (or desirable) to raise living standards Increased migration of unskilled labor will lower wages and worsen the distribution of income in the receiving countries Movers are a fiscal cost as they use more services than they pay in taxes Allowing movement across borders creates risks of crime and terrorism They are not like us cultural clash + Accommodation 4 making schemes as development friendly as possible + + Accommodation 3 occupation (and region) specific quotas to reduce job displacement + Accommodation 2 temporary workers only + Accommodation 1 unilateral agreements can specify nationality and conditions for entry -/+ Accommodation 2 temporary means less cultural/political influence but migrants are not incoroporated risks backlash
Labor mobility as MDGs plan B Reconciling the irresistible forces with immovable ideas is an enormous challenge The existing mechanisms for international agreements are inadequate for labor mobility Bringing migration onto the agenda when the MDGs fail then what? Start now to think, design, produce evidence to be ready for the next big wave