Copenhagen Economics Institute Short Course March 5-7 2007

1. Copenhagen Economics InstituteShort Course March 5-7 2007 Globalization in the Very Long Run March 6 Determinants and Impact of Mass Migration

2. Part 1 The Determinants

3. North-North in the first global century

4. More North-North

5. What about South-South?

6. The demise of world migration

7. The resurrection of world migration

8. Selection issues: who migrates? • Immigrant mix by origin: rising ethnic diversity • Quality: falling skill and schooling relative to native-born • Age: high labor participation and low dependency rates relative to native-born (stable) • Gender: bias favoring males (stable)

9. Rising ethnic diversity (by source) and debate about declining immigrant quality

10. … and its return in the modern era.

11. Four Stylized Quality Facts • Native-born ‘quality’ (= human capital per person) rose across the late 19th century • Foreign-born ‘quality’ fell across the late 19th century • Native-born ‘quality’ rose across the late 20th century • Foreign-born ‘quality’ rose far less across the late 20th century. Ergo, relative quality fell.

12. US native-born ‘quality’ rose 1870-1930

13. The ‘quality’ of US immigrants fell 1820-1898

14. The ‘quality’ of the sending country pool of potential emigrants c1900

15. Relative wage and relative education: US immigrants vs native-born 1960-1990

16. Selection bias by age.

17. … and by gender.

18. To be explained in the modern era: changing FB shares in high-wage countries

19. The Most Parsimonious Migration Model(in terms of stocks of FB) a la Robert Lucas

20. However, …

21. We clearly need a better model! And let’s try finding one that explains the First Global Century with unrestricted migration before turning to the Second Global Century where migration is so tightly restricted.

22. The (panel) emigration rates to be explained

23. The incentives and investment sources

24. The Stylized ELC Fact

25. Modeling the ELC emigration responses

26. Estimation

27. Decomposition of the ELC

28. Does the same model work today? Yes. It works for African emigration. It works for US immigration. And why not? Even though immigration policy is far more restrictive today, the fundamentals driving mass migration are also far bigger.

29. Demographic Arithmetic

30. Economic Arithmetic

31. Part 2 ImmigrantImpact World Wage Convergence, Host Country Crowding Out, and Inequality The Welfare State, Fiscal Effects and Accommodating Adjustment in Other Markets Culture, Language, Disease and Violence

32. Road Map forWorld Wage Convergence, Host Country Crowding Out, and Inequality The total impact of mass migration on world wages has four component parts (cet. par.): [1] the wage gap between countries falls (e.g. convergence between countries) [2] host country wages fall (crowding out and supply glut → more host country inequality) [3] sending country wages rise (crowding in and rising supply scarcity → less sending country inequality) [4] The migrants gain the most by far (→ less world inequality)

33. Remember, ceteris paribus! Magnitudes will depend on the: Size of the migration Size of the sending and receiving countries Other (domestic) determinants of wages, independent of the migration Other (domestic) determinants of wages, dependent on and responding to the migration

34. Searching for the causes of convergence

35. Measuring the impact

36. Qualifying the convergence bottom line • Let capital chase labor so that r=f(k) is constant. What then? (Remember: the pre-1913 and post-1970 years are ones of global capital markets.)

37. An Anglo-American example

38. Was capital mobile?

39. Qualifying the convergence bottom line • By letting capital chase labor so that r=f(k) is constant, the amount of convergence explained by mass migration drops to 70%, with 30% left for other forces. Mass migration still played a huge role, … if only in the Atlantic economy (= North). • That is, world labor markets between the South and the North were segmented.

40. Give me two reasons why you would NOT expect the same result today. • Remember ceteris paribus! • Remember we are talking about raw or unskilled labor! [1] The relative size of the migrations are less today (especially sending regions). After all, immigration is restricted everywhere. [2] The other (independent) influences are much bigger today.

41. Host Country Crowding Out?

42. What matters? • Suppose bigger skill (S) and/or capital (K) scarcity causes an elastic K and/or S response? Bigger or smaller crowding out?

43. Host Country Crowding Out?

44. What matters? • Suppose bigger skill (S) and/or capital (K) scarcity causes an elastic K and/or S response? Bigger or smaller crowding out? • Suppose labor demand is more elastic? Bigger or smaller crowding out?

45. Host Country Crowding Out?

46. What matters? • Suppose bigger skill (S) and/or capital (K) scarcity causes an elastic K and/or S response? Bigger or smaller crowding out? • Suppose labor demand is elastic? Bigger or smaller crowding out? • Suppose immigration is endogenous? Bigger or smaller crowding out?

47. Host Country Crowding Out?

48. What matters? • Suppose bigger skill (S) and/or capital (K) scarcity causes an elastic K and/or S response? Bigger or smaller crowding out? • Suppose labor demand is elastic? Bigger or smaller crowding out? • Suppose immigration is endogenous? Bigger or smaller crowding out? • Suppose native-born labor supply is endogenous? Bigger or smaller crowding out?

49. Host Country Crowding Out?

50. Williamson’s favorite example where immigrants crowded-out native-born World War I and US immigrant restrictions lowered foreign immigration big time, and crowded in black Americans from the US south. The resulting “Great Migration” south to north had a spectacular impact on 20th century US social history.