Lecture 10 Migration Econ 340. News Feb 9-15 Members of both parties oppose granting TPA to Obama --...

Lecture 10Migration

Econ 340

Lecture 10: Migration 2

News Feb 9-15• Members of both parties oppose granting TPA to Obama -- NYT: 2/10 | Proquest

– Both left-leaning Democrats and Tea-Party Republicans in Congress oppose further trade agreements and therefore oppose granting Trade Promotion Authority, or Fast Track, to Obama. This is one issue on which the Republican leadership and Obama agree, but they may not get their wish due to opposition from within both parties.

– Obama sees the Trans-Pacific Partnership, TPP, as central to his "strategic pivot to Asia" and TPA is needed for that to succeed.

– Some Democrats view all trade agreements as harmful to US wages and jobs. Populist conservatives see the trade agreements as catering to the interests of Wall Street and large corporations.

• US files case in WTO against China's export subsidies -- WSJ: 2/12 | Proquest | NYT: 2/12 | Proquest | FT: 2/12 | CTools – The US administration has filed a complaint in the WTO saying that China illegally subsidizes exports in multiple sectors,

including agriculture, medical goods, and more. – "The case being brought by Washington alleges that China provides discount services and cash bonuses tied to export

performance to businesses located in 179 'demonstration bases' spread across the country." (FT) – Obama's agressive action coincides with his need to get cooperation from Congress on trade deals and Fast Track, and is an

effort to show that he is tough on trade. • Currency changes, wanted and unwanted. -- WSJ: 2/11 | Proquest | NYT: 2/10 | Proquest | NYT: 2/11 | Proquest | FT: 2/10 | CTools

– G20 Finance Ministers met in Istanbul and gave their support to expansionary monetary policies to boost the world economy, a stance that in effect encourages policies that will cause currencies to depreciate, sometimes called "currency wars."

– The Russian currency, the ruble, continued its fall against the dollar and the euro. Many in Russia are upset by this and are trying to shift out of the ruble, but the head of Russia's central bank continues to argue in favor of letting the market determine the rubles's value.

– Venezuela announced that it would ease its rigid exchange controls and allow markets a greater role in determining the value of its currency, the bolivar. Under pressure from falling prices of its exported oil, the bolivar is expected to depreciate.

– Italy's Finance Minister argued that the recent fall in the value of the euro was desirable, moving currencies closer to rates that are justified by the fundamentals and making it easier for the Eurozone's weaker economies, like Italy, to compete internationally.

http://www.nytimes.com/2015/02/10/business/left-and-right-align-in-fighting-obamas-trade-agenda.html?ref=todayspaper

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1652617798/B5A7A5C72FE84B27PQ/1?accountid=14667

http://www.wsj.com/articles/u-s-launches-new-trade-challenge-against-china-1423664566

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1654553004/1C179C8A821C4373PQ/1?accountid=14667

http://www.nytimes.com/2015/02/12/business/white-house-to-file-trade-case-against-china-at-wto-over-export-subsidies.html?ref=todayspaper

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1654545208/C5836A4C801A4ABCPQ/1?accountid=14667

http://www.ft.com/intl/cms/s/0/155ede14-b1a2-11e4-a830-00144feab7de.html?siteedition=intl%23axzz3RZUPtfyS

https://ctools.umich.edu/access/content/group/795b9fe9-eb22-4031-9f0d-02ac2814fbbe/News/20150212%20-%20US%20challenges%20%E2%80%98illegal%E2%80%99%20Chinese%20export%20subsidies%20-%20FT.com.pdf

http://www.wsj.com/articles/g-20-leaders-back-aggressive-stimulus-1423587402

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1653076946/42F6580D544E43C9PQ/1?accountid=14667

http://www.nytimes.com/2015/02/10/business/international/rubles-fall-tests-governor-of-russias-central-bank.html?ref=todayspaper

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1652617847/F9D2096B4F934205PQ/1?accountid=14667

http://www.nytimes.com/2015/02/11/world/americas/venezuela-sets-up-new-free-market-exchange-for-dollars.html?ref=todayspaper

http://search.proquest.com.proxy.lib.umich.edu/newsstand/docview/1653078289/317A1843B50B424DPQ/1?accountid=14667

http://www.ft.com/intl/cms/s/0/68af0b74-b07c-11e4-92b6-00144feab7de.html%23axzz3RCaJiMeI

https://ctools.umich.edu/access/content/group/795b9fe9-eb22-4031-9f0d-02ac2814fbbe/News/20150210%20-%20Rome%20foresees%20economic%20benefit%20in%20euro%E2%80%99s%20fall%20-%20FT.com.pdf


News Feb 9-15

• Members of both parties oppose granting TPA to Obama – Both left-leaning Democrats and Tea-Party Republicans in

Congress oppose further trade agreements and therefore oppose granting Trade Promotion Authority, or Fast Track, to Obama. This is one issue on which the Republican leadership and Obama agree, but they may not get their wish due to opposition from within both parties.

– Obama sees the Trans-Pacific Partnership, TPP, as central to his "strategic pivot to Asia" and TPA is needed for that to succeed.

– Some Democrats view all trade agreements as harmful to US wages and jobs. Populist conservatives see the trade agreements as catering to the interests of Wall Street and large corporations.


News Feb 9-15

• US files case in WTO against China's export subsidies – The US administration has filed a complaint in the WTO saying

that China illegally subsidizes exports in multiple sectors, including agriculture, medical goods, and more.

– "The case being brought by Washington alleges that China provides discount services and cash bonuses tied to export performance to businesses located in 179 'demonstration bases' spread across the country." (FT)

– Obama's agressive action coincides with his need to get cooperation from Congress on trade deals and Fast Track, and is an effort to show that he is tough on trade.


News Feb 9-15• Currency changes, wanted and unwanted.

– G20 Finance Ministers met in Istanbul and gave their support to expansionary monetary policies to boost the world economy, a stance that in effect encourages policies that will cause currencies to depreciate, sometimes called "currency wars."

– The Russian currency, the ruble, continued its fall against the dollar and the euro. Many in Russia are upset by this and are trying to shift out of the ruble, but the head of Russia's central bank continues to argue in favor of letting the market determine the ruble's value.

– Venezuela announced that it would ease its rigid exchange controls and allow markets a greater role in determining the value of its currency, the bolivar. Under pressure from falling prices of its exported oil, the bolivar is expected to depreciate.

– Italy's Finance Minister argued that the recent fall in the value of the euro was desirable, moving currencies closer to rates that are justified by the fundamentals and making it easier for the Eurozone's weaker economies, like Italy, to compete internationally.

And in today’s news: Azerbaijan prepares

to drop currency peg to dollar.


Outline: Migration

• Why People Migrate• Why Wages Differ across Countries• Effects of Migration

– On Payments to Factors• Labor• Other

– Other Effects• Policies to Affect Migration• The U.S. Experience


Why People Migrate

• Main Reason for Migration: Better Wages• Other Reasons

– Better living conditions– Freedom/Persecution– Climate


Outline: Migration





Why Wages Differ across Countries

(Mostly these are the same reasons we’ve seen before, for why countries trade)

• Relative Factor Endowments– Of labor relative to other factors, such as land,

capital, natural resources– Countries that have an abundance of these

other factors tend to have• High demand for labor, and thus• High wage• They are likely to attract migration



• Differences in Technology– Advanced technology makes labor more

productive– Causes higher wages, and attracts migration



• Other causes for a country to have high wages– Infrastructure– Competitive and efficient markets– Strong institutions (“Intangible wealth”)

• trust among people in a society• an efficient judicial system• clear property rights• effective government



• Labor Unions?

Do these contribute to high wages and thus attract migration?– This cuts both ways:

• Labor unions do seek to increase wages and improve working conditions for their members

• But one way to do that is to keep out migrant labor


Outline: Migration





Effects of Migration

(See Deardorff “Migration”)

• Look at supply and demand – In two countries with different wages– What happens when labor migrates?



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

Labor markets in two countries before migration

Incentive to

migrate from

Mexico to US



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

−L +L

Effect of migration on labor supplies



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

Effect of migration on wages

Migration pulls

wages closer

togetherMigration pulls

wages closer

together



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Effect of migration on welfare


Effects of Migration: Labor

U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Gain to migrants



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Gain to workers left behind



U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Loss to competing workers already in US


Effects of Migration: Other

U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Loss to factors other than labor in Mexico


Effects of Migration: Other

U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Gain to factors other than labor in US


Effects of Migration: All

MexicoWorkers who migrate +(b+c)Workers who don’t migrate +aOther factors in Mexico −(a+b)

Mexico as a whole +cUS

Workers −dOther factors in US +(d+e)

US as a whole +eWorld +(c+e)

U.S.Mexico

DM

DUa bc

d e


Effects of Migration: Mexico

U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Gain to Mexico as a whole, including migrants


Effects of Migration: US

U.S.wU

L

MexicowM

L

DM

DU

SU0SM

0

wM0

wU0

SM1 SU

1

wM1

wU1

−L +L

a b

c

d e

Gain to US as a whole, excluding migrants



• Losers from migration– In country of emigration: owners of factors other than

labor• Their productivity and incomes are reduced by having less

labor to work with

– In the country of immigration: workers • They compete with the incoming workers and their wage falls

Note that there may be different kinds of labor. Only those most similar to the immigrants lose.– These tend to be unskilled workers in the most

common cases


Outline: Migration






• Other effects, not in this simple model– Migrants

• Pay taxes• Use government services• Which is larger? There is debate on this• Griswold cites study saying

– Typical immigrants and their offspring will pay $80,000 more in taxes than they will collect in government services during their lifetimes



• Other effects, not in this simple model– Migration changes population density; may

cause congestion• Eldredge blames immigration for

“overcrowded schools, congested highways, deteriorating ecology and lagging infrastructure”

– Diversity: presence of immigrants adds• Cultural enrichment• Cultural (ethnic) frictions

– Xenophobia (fear or dislike of “others”)



• Other effects, not in this simple model– Many migrants carry wealth with them out of

their country of origin• Financial• Human capital

– Raising concern about a “brain drain” – But see Economics Focus

» Possibility of emigration provides incentive to acquire more education

» Leads to more education even at home



• Other effects, not in this simple model– Many migrants send money back to their

country of origin• Such “remittances” provide important income for

poor countries



• Other effects, not in this simple model– Demographic effects

• Immigrants tend to be young and have large families

• This provides a larger young generation, whose earnings can support the elderly

– Aging population is less of a problem for the US than for Europe and Japan, because of immigration


Population Pyramid: US


Population Pyramid: Japan


Outline: Migration





Policies to Affect Migration

• Immigration Quotas, based on– Race– Country of origin– Income, wealth, skill– Family connections

• “Guest worker” Programs– Permit workers to enter temporarily to fill a

labor-market need– Hard to enforce “temporary”



• Trade Policies– Recall Factor Price Equalization– If this works, it reduces the incentive for

migration– This was one motive for NAFTA: raise wages

in Mexico so that fewer will try to enter the US



• Encourage high-income immigration– Provide larger quotas for workers likely to

earn high incomes– Deny welfare benefits to recent immigrants,

so poor won’t be tempted to come (See Stelzer)



• Control the border– Make it hard for illegal immigrants to enter– But note the costs of doing this (See Skerry

and Rockwell)• Encourages organized crime to smuggle migrants• These make life worse for the migrants


Outline: Migration





Facts about US Immigration

(See Stelzer)• In 1994, US had

800,000 legal immigrants

2-300,000 illegal immigrants

That’s about 4 per 1000 population• Is that a lot?• In 1913 we had 13 per 1000 population!

– (These should be 4% and 13%. See below.)



• Hostility toward immigrant groups often exists, but it fades over time

• Recall the hostility once felt in the U.S. toward– Irish– Southern Europeans (Italians, Greeks)– Asians (“coolie labor”)

• Hispanics are likely to follow the same path



• But see also Borjas:– Compared to 1970, today’s immigration is much

higher• Foreign-born share of US population

– 1970: 4.7%– 2003: 12.7%

– And he argues that today’s immigrants will take longer to assimilate than earlier ones• lower incomes and levels of education• the decline of manufacturing to employ them• the fact that they are less diverse ethnically• policies and attitudes of society



• 2007 US Immigration Bill – Pushed by Bush, McCain, favored by many

Democrats– Defeated in Congress June 2007– Would have

• Provided legal status (& eventually citizenship) for illegal immigrants

• Increased border enforcement to reduce future illegal immigration



• The Wall– We are, anyway, building a wall along the

border– Problems:

• Rivers, etc.• Wall is often not on actual border, but inside it,

cutting properties in two• Wildlife movement



• The Future?– Obama administration was committed to

passing immigration reform– Now looks like he won’t succeed through

Congress– He is making what changes he can

unilaterally


Next Time

• International Movements of Capital– Multinational Corporations– Foreign Direct Investment

Lecture 10 Migration Econ 340. News Feb 9-15 Members of both parties oppose granting TPA to Obama --...

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