The Wall Of Peace

I took a trip to the Red Bloc, and I don’t mean Texas and the South, after I finished college. I mean the old Red Bloc, specifically the Soviet Union and East Germany. I was very curious to find out if my childhood memories of communist life were a figment of my imagination, or if that life was indeed as I remembered it. For the record, what I saw in the Soviet Union and East Germany, and particularly a very memorable trek across the Berlin Wall, more than reinforced my pre-existing impressions.

My wife and I are thinking of downsizing and while rummaging through old boxes and lots of old junk, I came across this tourist guide that I purchased in East Berlin back in the early 1970s. I thought the book had been lost long ago in one of my many moves, but somehow it survived all the way to today.


I specifically remember this book because it was where I first found out that travel between East and West Berlin had not been restricted prior to the building of the Berlin Wall on August 13, 1961. I ended up using this very interesting fact in We Wanted Workers to illustrate the sizable “cost” that influences the migration decision. There was little reason for most East Germans to remain behind the Iron Curtain when all it took to escape the poverty and oppression was a cheap subway or train ride from East to West Berlin. And yet fewer than 15 percent of East Germans chose to move.

Rereading the brief socialist history of East Berlin (and the German Democratic Republic) in this tourist guide is very eye-opening. Unfortunately, the propagandist style seems faintly familiar and brings to mind how the mainstream media writes about many politically charged topics today. I thought this passage was particularly interesting, and I really like the reference to “experts” to quantify the costs and benefits.


West Berlin became the cold war stronghold of the imperialists against the entire socialist camp…In West Berlin, more than 80 centres for agents and espionage were established which were intended to disturb the construction of socialism in the GDR. The American radio station RIAS and the western press poisoned the atmosphere, creating unrest against the population through hate propaganda and deliberately set out to entice scientists and specialists away from the GDR…

The hate campaigns of the press, the enticement and the acts of sabotage increased. The “Cold War” threatened to become a “hot war”–the third World War…On 13 August 1961 the GDR, through the action of the National People’s Army and the workers’ militia, overnight secured its borders also towards West Berlin…To make it quite clear to any aggressor that the border to West Berlin is a state frontier, the workers have made it well discernible by the anti-fascist protective wall…

According to expert estimates, the GDR lost 100,000 million marks through the open border, money which otherwise could have been used for construction work. The closing of the border brought an immediate and discernible easing. With new vigor, the Berlin working people started constructing their capital.

And that is how the “Wall of Peace” came about.



Immigrants do jobs that…

…natives could have done. The demolition of the narrative that large numbers of immigrants can enter a labor market without having much of an effect on native employment opportunities continues apace.

The new paper by Christian Dustmann, Uta Schönberg, and Jan Stuhler looks at what happened in some German labor markets after the fall of the Berlin Wall. It turns out that German localities bordering Czechoslovakia were affected by a policy that allowed some Czech workers to commute to jobs in Germany, but did not grant those workers any type of residency rights. The amount of commuting was substantial, “averaging to about 10% of local employment in municipalities closest to the border.”

So what happened?

On average, the supply shock leads to a moderate decline in local native wages and a sharp decline in local native employment.These average effects mask considerable heterogeneity across groups…A 1 percentage point increase in the inflow of Czech workers relative to employment in the baseline has led to about a 0.13 percent decrease in native wages, a 0.93 percent decrease in native local employment…A 1 percentage point increase in the employment share of Czech workers decreases the local wages and employment of unskilled natives by 0.20 and 1.37 percent, respectively, but of skilled natives by only 0.11 and 0.50 percent.

Obviously, I’m not surprised by these effects. What I find really interesting, and what makes the paper important, is the conceptual analysis of how immigration jointly affects wages and employment. For reasons that we do not yet fully understand, immigration sometimes has a large impact on native wages and a small impact on native employment. And, yet, the opposite is true in other contexts. The Dustmann-Schönberg-Stuhler paper opens up new avenues for research by introducing a technical framework that should eventually enable us to get a fuller understanding of why different labor markets react differently along different margins.

The paper is forthcoming in the Quarterly Journal of Economics.


Germany and Open Borders

Last month’s issue of the Journal of Economic Literature published my take on the perceived economic benefits from open borders. Some advocates claim that open borders would generate tens of trillions of dollars of additional wealth worldwide, so that policy makers in the industrialized world are stupidly walking by–and leaving behind–“trillion-dollar bills on the sidewalk.”

I never believed those arguments, but it wasn’t until I saw a presentation by one of the leading lights in the open-borders camp that it dawned on me that the whole edifice was built on quicksand. So I started working out simple examples to use in my immigration classes some years ago, with a slight expansion of the model each time I retaught it, until it all came together in the JEL paper.

The basic point of that paper is that those trillion-dollar bills are manufactured by an economic model so far removed from reality that it makes you wonder whether some people are living in a parallel universe. Along with the huge increase in world GDP, that model also predicts that over 5 billion people will move. Somehow that small–and very inconvenient–detail is glossed over more often than not. And it’s easy to see why: the model hinges on the assumption that, despite the billions of movers, nothing will happen to the cultural, political, social, and economic infrastructure of the receiving countries.

Which brings me to Germany. This headline from the New York Times three months ago made such an impression that I took a screenshot of it immediately, knowing that I would use it someday. And today is the day.

German Village

I thought to myself: this is almost like a natural experiment in open borders. Subsequent news reports state that at least 600 of those 750 refugees did settle in the village of Sumte, a “bucolic, one-street settlement of handsome redbrick farmhouses [with] more cows than people.” I’ve looked around the web to find the gloating from the open-borders camp about how their theories were proved right; how the economic pie accruing to those 852 fortunate people increased dramatically and everybody lived happily ever after. But I haven’t found it.

Continue reading “Germany and Open Borders”