…that politics will likely continue to stop.
Yesterday, I linked some commentary on immigration liberalization from The Economist. I really want to highlight some of the comments from the Free Exchange column in this week’s issue.
Most of this wage gap is down to productivity differences, stemming from disparities in the quality of infrastructure, institutions and skills. An individual worker, however talented, cannot hope to replicate the fertile environment of a rich economy all on his own. But transplanting a worker into rich soil can supercharge his productivity. A Mexican worker earns more in the United States than in Mexico because he can produce more, thanks to the quality of US technology and institutions.
Millions may move from poor world to rich without bidding down wages in the rich country relative to the developing one. True, a rapid burst of immigration might temporarily reduce wages. But if the pace of movement is slow enough to allow investment to adjust, borders could open without any wage dislocation in either origin or destination economies. Migrants themselves would benefit handsomely, however. In a new paper* John Kennan of the University of Wisconsin-Madison estimates that opening borders could raise the average wage of workers from developing countries by $10,100 a year, or more than 100%, thanks to the large rise in the incomes of those opting to migrate.
Those bigger incomes should swell global GDP. In a recent report Sharun Mukand of the University of Warwick calculates the effect of movement by half of the developing world’s workforce to the rich world. Such a vast migration could never happen in practice, of course, but as a thought exercise it is instructive. If migration closes a quarter of the migrants’ productivity gap with the rich world, their average income would rise by $7,000. That would be enough to raise global output by 30%, or about $21 trillion. Other studies find even bigger effects. A 2007 paper by Paul Klein, now at Simon Fraser University, and Gustavo Ventura, now at Arizona State University, reckons that full labour mobility could raise global output by up to 122%. Such gains swamp the benefits of eliminating remaining barriers to trade, which amount to just 1.8-2.8% of GDP, reckons Mr Mukand.
Even a modest (and more practical) easing of restrictions could be very rewarding. Lant Pritchett of Harvard University estimates that just a 3% rise in the rich-world labour force through migration would yield annual benefits bigger than those from eliminating remaining trade barriers. The incorporation of women into the rich-world workforce provides an analogy: this expanded the labour supply and the scope for specialisation without displacing the “native” male workforce.
For a framework on how this all comes together I recommend MR University’s Solow Model talks (part one is below).
Jake
Tyler
