Russ Roberts’ EconTalk podcast is one of the best ways I have come to better understand a raft of economic concepts. Roberts is a ‘small government’ economist based at Stanford. He is excellent at hosting an informed conversation and invites a broad range of economists to discuss various topics. Michael Clemens is based at the Center for Global Development, a Washington think-tank. His work focuses on migration and the potential to spur global growth and development.
The talk touches multiple topics, including using regressions as evidence, the errors contained in broad measurements such as GDP, a general discussion about aid effectiveness and an in-depth discussion of migration.
On migration, Clemens is perhaps best known for advocating the reduction in barriers of migration to better capture potential economic growth. One of the popular counter points to this argument is that more people in labour markets will expand the supply of labour and lower the price (wage) for individuals in the labour market. Using the historical example of the United States, Clemens says;
So, in 1905 this was a country with just over 75 million people in it. A hundred years later in 2005 it was over 300 million people. So, first of all we had an astonishing increase in the real living standards of essentially everybody in the country. We had exactly zero change in unemployment between those two years–unemployment in 1905 and 2005 were both about 5%. So there’s something wrong with a simple model of the long-term change in countries in which more and more labor just drives you down the labor demand curve.
This example nicely sums up that migration is complex. More people in a society and a labour market means a whole host of things, some more intuitive than others. This example also shows just how quickly populations can change. If Australia were to grow at the same rate from 2000 to 2100, we would go from ~19m to about ~75m, something that I’m sure would prompt worried looks across the political spectrum and amongst the broader public.
The podcast is really good (over an hour long) for understanding the nuances of aid and migration. It’s really hard to envisage mass migration like what used to occur. Prior to the 20th century there were little in the way of border controls. While the numbers don’t look like much compared to current figures, as a percentage of population they were significant given the transport options available. Clemens is able to show that there is more than just doom and gloom to any population or migration debate, something unique when sifting through popular sentiment.
There are a few drawbacks of the podcast. The conversation doesn’t move quickly by any measure and the miniature of economic theory comes to the fore (I understand this is intended for some in the audience but I found it difficult to follow in certain parts). However despite this, Clemens gets his main points across well and even throws in a few jokes. He advocates that employers are better at determining their skill and labour needs than the government, something that is becoming much more common in Australia with the growth in 457 visas and permanent employer sponsored visas. Many may see this as simply ‘pro-business’. Clemens does a good job at linking it to a development agenda above all else. I’d highly recommend his paper, Economics and Emigration.
If you enjoy the podcast, there is a nice back catalogue dating to 2006.
I first read this NY Times piece last year and it has stuck with me since and I find myself re-reading it when I get confused about migration and labour markets. The piece is simple and engaging. From 2006, Roger Lowenstein carefully lays out the academic arguments to immigration reform in the United States. This was a time when immigration reform was a national conversation, much like today. Back then, the reform legislation fell through, as appears may happen again.
What impresses me about this piece is how difficult economic concepts are put simply.
The puzzle is this: how is the U.S. able to absorb its immigrants so easily?
After all, 21 million immigrants, about 15 percent of the labor force, hold jobs in the U.S., but the country has nothing close to that many unemployed. (The actual number is only seven million.) So the majority of immigrants can’t literally have “taken” jobs; they must be doing jobs that wouldn’t have existed had the immigrants not been here.
If we accept the premise of the last sentence (which we should!), immigration becomes complex (noting as well that this was back in 2006 and economic good times meant a low unemployment rate).
In Australia, a similar argument should be even easier to make with ~2.5m migrants in the labour market and about ~700,000 unemployed. Similar to Michael Clemens argument about immigrants having a neutral effect over the long-term as they become integrated into an economic community, this argument highlights how ‘migrants stealing jobs’ argument is not typically the correct response to additional immigration.
Lowenstein doesn’t sweep the downsides away. There are drawbacks for particular parts of a community with increases in different types of migration. The US literature highlights how these effects are concentrated. George Borjas’ work as outlined in the article shows how unskilled migration hurts the wage level of high school drop outs despite an overall neutral (or positive) impact on the labour market as a whole. Intuitively this make sense for developed economies and policy makers should not ignore the effects on the labour market. However unlike in the US, the Australian labour market is much more concentrated in urban centres and has a different industry make-up. It would be irresponsible to take these messages about US immigration and shunt them into an Australian context, be they positive or negative. In addition, the composition of migrant skill and experience is significantly different.
The main sticking point for US legislative reform is the status of undocumented migrants, typically from Mexico and other parts of Latin America. Republicans generally favour deportation whereas ‘amnesty’ – a pathway for permanent residency – is favoured by Democrats. This difference is why the 2006 effort at reform failed. The 2013 version, recently passed in the US Senate, now looks stuck in the Republican controlled house.
Buried about half way down the article is the heart of the matter for US immigration policy.
“It baffles some economists that Congress pays so little heed to their research, but then immigration policy has never been based on economics.”
In Australia we are lucky in the main. While our asylum policies are a mess, every other type of immigration is carefully placed into a framework that considers the economics of the situation first. Even for family migration, short term fiscal benefits through giant visa fees play an important role in maintaining political support for immigration. Australian skilled migration programs would have a lower wage impact on low skilled domestic employees than the US counterparts. The overall effect in Australia on immigration policies on GDP, GDP per capita and wage levels are basically neutral (according to the Productivity Commission back in 2006). I have some issues with these findings but that’s for another post.
Lowenstein’s commentary on natural experiments is excellent as are the tit for tat comments he is able to draw from a range of academics (“Borjas, a Hispanic who has written in blunt terms about the skill deficits of Mexicans, in particular arouses resentment. “Mexicans aren’t as good as Cubans like him,” Douglas S. Massey, a demographer at Princeton, said in a pointed swipe” Ouch!).
Most impressive, despite being written over 7 years ago, his last paragraph could have been written yesterday and still be highly pertinent.
The disconnect between Borjas’s results and Card’s hints that there is an alchemy that occurs when immigrants land ashore; the economy’s potential for absorbing and also adapting is mysterious but powerful. Like any form of economic change, immigration causes distress and disruption to some. But America has always thrived on dynamic transformations that produce winners as well as losers. Such transformations stimulate growth. Other societies (like those in Europe) have opted for more controls, on immigration and on labor markets generally. They have more stability and more equality, but less growth and fewer jobs. Economists have highlighted these issues, but they cannot decide them. Their resolution depends on a question that Card posed but that the public has not yet come to terms with: “What is it that immigration policy is supposed to achieve?”
An excellent read.
This semi-academic working paper from Gibson, McKenzie and Rohorua explores attempts to measure the development impact of non-permanent migration programs. With two of the more recent temporary worker schemes in New Zealand and Australia, the Pacific is well placed to demonstrate impacts of these programs. Sadly from an Australian point of view, the New Zealand program is not only considered ‘best-practice’ from a development perspective but also has substantially more empirical evidence to support the policy intentions.
Gibson et al are development economists. Their focus falls on income, welfare and ‘the economic viability’ of local communities as opposed to migrant rights and social justice. Their preferred methods are random experiments and cleverness in research design. Given the complexities of migration in terms of individual preferences, existing skills, prior wealth and a host of other factors, random experiments attempt to remove these variabilities from the sample being studied and create a better ability to compare to the non-sample population.
The authors establish “five factors likely matter to the development impact of a temporary migration program”. These are productivity, selectivity, opportunity costs, transaction costs and absorptive capacity. Selectivity shows the strength of random design. The paper outlines how nationality can act as a factor in selecting potential migrants. Under the New Zealand seasonal program, Tongan migrants are more likely to come from a poorer background than Vanuatu migrants, meaning the development impact in Tonga is likely to be ‘pro-poor’ when compared to Vanuatu.
The end product is a pretty glowing overview of temporary migration schemes to spur development. I won’t argue the merits here except to say that these authors in particular have devoted a lot of time to empirical evidence as opposed to conceptual criticisms of emigration and development.
In an Australian context, these debates tend to be grounded in a social justice framework, focusing on the rights of the migrant in the destination country. You will be hard pressed to find analysis of Australia’s myriad of migration programs and any impact on global welfare. By concentrating on social justice, Australian migration struggles mightily with a specific goal of development. Unlike in New Zealand, the Australian Seasonal Worker Program has had poor take up rates by employers and failed to firmly establish itself within Australia’s development community. In contrast, the New Zealand program is considered global best practice from a development standpoint. Of course migrant rights are important. Yet when development fails to become the over-arching goal of a program of Pacific-based migration, something is missing.
By no account has the Australian Seasonal Worker Program been a success to date when compared to the New Zealand program. Despite the good intentions, the lack of bureaucratic muscle to make sure that it works in a development context is lacking. This is a shame but hopefully something that can adjust over the next few years (for a good basic critical viewpoint, see this submission to an enquiry into Australia’s relationship with Timor Leste).
Some links to the different studies published on seasonal worker programs;
The official Australian ‘consultants’ report and the official New Zealand report into their respective pilot programs for temporary Pacific migration. The NZ report stands out for it’s excellent empirical evidence base.
Australia is perhaps better placed than any other OECD country to build on past immigration success and spur development through migration. We have a labour market that is not stagnating. We have industry diversity in that labour market to allow good wages for unskilled positions. And most important, we have a modern history of successful immigration programs combined with a geographic position to better encourage regional migration flows.