Cracks in the Wall

David Autor, David Dorn, and Gordon Hanson have been producing a steady stream of very important papers that examine and measure the labor market impacts of trade. Their latest NBER working paper is a really nice one. Let me quote from the abstract:

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income.

I was struck by how the very slow adjustment reduces the short-run gains from trade to nearly zero:

The mobility costs that rationalize slow adjustment imply that short-run trade gains may be much smaller than long-run gains…Using a quantitative theoretical model, Caliendo, Dvorkin, and Parro (2015) find that in the immediate aftermath of a trade shock, constructed to mimic the effects of growth in U.S. imports from China, U.S. net welfare gains are close to zero.

This reappraisal about the net benefits from trade is happening concurrently with a reappraisal of the gains from immigration, that other aspect of globalization that generates even more controversy. A recent post by Branco Milanovic entitled “Migration’s Economic Positives and Negatives” shows the scope of the rethinking.

Migration, by raising incomes of the migrants…, is the most potent force for the reduction of global poverty, as well as for the reduction of global inequality…

However, I think that this is not so simple. There may be also some negative economic effects to consider. I see three of them. First, the effect of cultural or religious heterogeneity on economic policy formulation…Second, cultural differences may lead to the erosion of the welfare state…Third, migration might have important negative effects on the emitting countries…

We have, I think, to take into account also the negative economic effects of migration.

I am not so sure that Milanovic identified the most important adverse effects that we need to consider, but they are certainly effects worth pondering. It is the possibility that migration has many unintended consequences, and that some of these consequences might not be so beneficial, that I tried to address more formally in my recent JEL paper.

There is a very simple starting point for trying to understand the strange dynamics of the 2016 electoral cycle in the United States (and the ongoing political upheaval in Europe). Why exactly did it take so long for the obvious insights offered by the “new” trade literature and the reassessment of immigration to filter up the food chain and penetrate elite thinking?

By the way, this all reminds me of a very good and prescient book written by my colleague Dani Rodrik back in 1997: Has Globalization Gone Too Far?

My Favorite Textbook

Like Greg Mankiw, I too have a favorite textbook, except mine is this one.

I found out a few days ago about the Open Syllabus Project, which ranked textbook usage in economics (and other fields). And I was really happy to discover that my textbook is the top ranked labor economics textbook on the list (at #29).

Thank you to everyone who adopted the textbook in the past. And a special thank you to the many professors and students who shared their reactions (and identified many corrections) over the years. In a few months, it’ll be time to think about the 8th edition. I already have some ideas, but please do contact me if you have any suggestions for what I’m hoping will be a major revision.

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”

On Mariel

A couple of readers of early drafts of We Wanted Workers made some comments last spring that planted an idea in my head: perhaps it was time to revisit Mariel and see what we could learn from that supply shock with the hindsight of 25-years worth of additional research.

I resisted the idea for a while, as I thought it would be a complete waste of my time. But it kept nagging me. So one Sunday morning I wake up, go downstairs to my office, and start looking at the March Current Population Surveys (CPS) for the 1980s. Within an hour, my monitor was flashing a graph like this one:

Screen Shot 2016-01-23 at 11.03.50 AM

And I remember saying out loud “What the heck!” except I didn’t use those words. I then spent the entire summer working time-and-a-half on my Mariel paper. The paper went through several rounds. I got a lot of feedback from many friends who read early drafts. And I even did something that I had never done before: I hired someone to replicate the entire exercise from scratch just to make sure it was right!

Continue reading “On Mariel”

We Wanted Workers

In early fall 2016, Norton will be publishing my latest book: We Wanted Workers: Unraveling the Immigration Narrative.

I am really excited about it. It is by far the most readable thing I have written, and the most fun too. Three main themes run through the book:

  1. The “economistic” view of immigrants as a collection of robotic workers, who move from one place to another to fill slots in an assembly line, can lead us astray when we evaluate the impact of immigration. As Max Frisch quipped, “We wanted workers, but we got people instead.”
  2. The impact of immigration on the receiving country depends on the conditions that motivated the exodus, and on the conditions immigrants encounter when they arrive in their new homes. Some of those conditions make immigration more beneficial, but others make it more costly.
  3. It is crucial to examine exactly how it is that we come to learn certain things about immigration. Much depends on the assumptions made, on the way data are manipulated, and on the results that are hidden away in the attic of inconvenient truths.

And all this is presented in the context of many personal and professional anecdotes that describe the evolution of my thinking on immigration.

Can’t wait till it comes out!

Hello World (again)

About 10 years ago, I had a blog that ran for about a year or so. It quickly began to consume too much of my time, and I realized that I could not be a heavy blogger and a full-time researcher at the same time. So I stopped blogging after a while.

Immigration is back big time. I’ve been dragged into a public debate over some work I did last summer. And I have a book coming out in the fall that hopes to clarify many of the issues in the immigration debate.

So I’m going to try blogging one more time. I’ve learned my lesson; I don’t expect to be blogging daily. But I suspect that the book will provoke some reactions–and the election is coming up as well. So come summer/fall I may be hanging around here more than just a bit.