Though I am generally a big fan of the FT, this article by Andrew Balls (FT.com – subscribers only, reproduced free here) created a false impression of the contents of a recent Congressional Budget Office report (pdf) on the impact and role of immigrants in the US labour market.
Even the title, Increased migration to US holds back wages, is misleading. (I realise that journalists do not control the headlines that sub-editors put on their articles; but when the headline is comprehensively wrong it does suggest that the article may not have conveyed its meaning very effectively.)
Here is the first paragraph:
Increased immigration of low-skilled workers from Mexico and Central America helps to explain the pattern of low average wage growth in the US in recent years, the Congressional Budget Office said in a report released on Thursday.
You might reasonably conclude that migration is bad for the wages of native-born workers, since it slows down wage growth. But you’d be wrong. The CBO report is clear what causes this: the migrant workers themselves accept jobs for lower wages than native-born workers, and so depress the measured average wage of workers as a whole.
The CBO report does not find that increased migration reduces the wages of native-born workers. It says:
More recent studies based on differences across a large number of local labor markets have continued to find little, if any, adverse effect on native workers. For example, based on his analysis of data from the 2000 census for about 300 metropolitan areas, David Card concluded “Although immigration has a strong effect on relative supplies of different skill groups, local labor market outcomesof low skilled natives are not much affected by these relative supply shocks.
Now that is rather an important distinction. The report does caution that there may be other changes which dull the impact of migration on native-born unskilled wages:
To the extent that employers or workers adjust their location decisions in ways that offset the otherwise adverse impact of immigration,the effects will be diffused.
The CBO paper has an interesting discussion of Borjas’s estimates which try to take account of this effect, making nationwide estimates of the impact of migration on wages of unskilled workers. The estimates are inconclusive about the size of the effect, because the effect is muted by secondary adjustments that occur in response to the increased labour force (such as more investment, or greater educational attainment by native-born workers), whose size is unknown.
So what the CBO report tells us is:
- The migrant workers are better off (presumably, else they wouldn’t come)
- If there is a fall in the wages of native-born workers, it is too small to detect statistically, and the effect appears to be very small.
- The economy is more competitive, goods are cheaper and consumers (including native-born workers) are better off.
That sounds like a win for everyone. It is a shame that the article, and especially the headline, in the FT chose to sound a misleading warning about a fall in average wages rather than highlight the reports conclusions of gains for everyone from more open migration policies.
Google has launched a new online blog reader (known to techies as an RSS feed reader).
I’ve been playing with it this morning. My preliminary view on this beta version are:
Pluses:
- nice look and feel – using Ajax to scroll through blog entries
- allows you to tag posts yourself so you can group them later (rather like GMail’s virtual folders)
- allows you to import your feeds in OPML
Minuses:
- OPML import doesn’t seem to work
– It is slow (too slow to be usable). (For example, it does not seem to pre-load my feeds before I come to read them, and appears to load them in real time.)
My conclusion is that when this works, it will probably become my feed reader of choice. But it isn’t there yet. In the meantime, I’ll stick with akgregator. As ever, more suggestions in Wikipedia.
More generally, this is yet another example of how Google is gradually (actually, not very gradually) taking over from Microsoft. The web will be the new desktop.
Update: October 7th – I’ve been playing and find I can import OPML files if I first edit them and remove all the categories, and change the header to:
<?xml version="1.0" encoding="utf-8"?>
<body>
<outline type="rss" … etc
But the whole thing is painfully slow. Not switching yet.
This week’s Economist reports an interesting study into the taxation of mobile phones. Not surprisingly, developing countries with high mobile taxes generally have far fewer mobile phones per person than those with low taxes.
This is important because there is good evidence that access to mobile phones is good for development.
Easy! we all cry out in unison. Developing countries should stop being so short sighted and abolish the tax on mobile phones. Doh!
Indeed they should. But if you are the Finance Minister in a very poor country, this is easier said than done. In Bangladesh, health expenditure per person per year is just $11, and primary education just $34 per person per year. You need the money to expand those services. People with mobile phones clearly have more money than most.
Finance Ministers know that if they abolish the tax on mobile phones, there will be more usage, more business, and more taxes coming in. Well perhaps: but when will that revenue arrive? How are you going to manage in the meantime? Many developing countries cannot afford to borrow to see them through until the revenues pick up.
Mobile phones are just one example. The economies of many developing countries would benefit hugely if they could abolish import tariffs, for example on computers and cars; liberalise state telephone companies and other state companies; remove user fees on key government services; and so on. But in poor countries with only a small formal economy, these taxes and charges are major sources of revenue for the government which pay for essential public services.
This seems to me a good example of how aid donors might help developing countries to carry out reforms. The rich countries could provide fixed term funding to finance the fiscal costs to developing country governments of sensible tax and policy reforms that will boost the supply side of the economy, to see the government through during the dip in revenues that they will inevitably experience and can ill afford. The aid could be calibrated to replace the revenues forgone as a result of the reform, and taper off over time as the revenue benefits of the supply side reforms begin to materialize. Donors would thereby provide bridging finance for reform, and share some of the risk that the revenues do not materialize. For this to work, the bridging funds would have to be predictable, guaranteed for as long as the reforms are sustained, and unhypothecated and untied.
I just love this idea. Religious fundamentalists are picketing a planned parenthood health centre in Southern Pennsylvania. Staff and patients are being harassed.
So the centre has set up a pledge bank by which people who support the centre and want to stand in solidarity with them can pledge an amount which increases for each picket that shows up:
If you pledge 30 cents per protester, and PPSP has 100 protesters in October and 160 protesters in November, your donation would be 78 dollars for the entire two-month campaign.
The centre will have a sign outside which tracks the number of pledges, so that the protesters know that the more pickets they send, the more the financial support for the centre will grow.
(Hat tip: Warren Ellis)
The mainstream media have lost interest in Darfur. Even Nicholas Kristof, who has done an outstanding job writing about this in the New York Times, has been quiet since July.
Things are not getting any better. A fuel shortage delayed the deployment of Africa Union troops, desperately needed to restore peace.
George Bush and Tony Blair, both of whom have said words to the effect that another Rwanda must not happen on their watch, are doing nothing.
We know what needs to happen. The International Crisis Group, a respected, independent, non-profit, non-governmental organisation, said this on July 6th:
The international community is failing in its responsibility to protect the inhabitants of Darfur, many of whom are still dying or face indefinite displacement from their homes. New thinking and bold action are urgently needed. The consensus to support a rough doubling of the African Union (AU) force to 7,731 troops by the end of September 2005 under the existing mandate is an inadequate response to the crisis. The mandate must be strengthened to prioritise civilian protection, and a force level of at least 12,000 to 15,000 is needed urgently now, not in nearly a year as currently envisaged.
This requires more courageous thinking by the AU, NATO, the European Union (EU), the UN and the U.S. to get adequate force levels on the ground in Darfur with an appropriate civilian protection mandate as quickly as possible, which in practical terms means within the next two months. Otherwise, security will continue to deteriorate, the hope that displaced inhabitants will ever return home will become even more distant, and prospects for a political settlement will remain dim.
What are we waiting for?
Only 22 percent of American professional economists understand the idea of opportunity cost. This is the conclusion of a study of 200 economists attending the 2005 annual meetings of the American Economic Association. They were asked this:
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton?
(a) $0; (b) $10; (c) $40; or (d) $50.
Not sure of the answer? What would you gain from seeing Dylan? You value it at $50, and it would cost you $40. So the net benefit to you of seeing Dylan is $10. That is the opportunity cost to you of seeing Clapton.
Among the economists at the AEA, the answers given were:
| Answer | Value |
Respondents | Percent |
| A | $0 | 50 | 25.1% |
| B | $10 | 43 | 21.6% |
| C | $40 | 51 | 25.5% |
| D | $50 | 55 | 27.6% |
The distribution of answers looks fairly random, though it is shaming to see that the correct answer was the least popular.
There are perhaps four concepts in economics that really, really matter, namely:
a. marginalism
b. opportunity cost
c. comparative advantage; and
d. efficient markets.
As a government economist, the notion of opportunity cost was my bread and butter, the reason for my daily existence. If academic economists no longer understand the idea, what are they teaching the next generation of economists?
(via Robert Frank in the New York Times)
Some of us will be celebrating Denmark’s 4-1 victory over the English football team (apprently England’s worst defeat since it was trounced by Wales in May 1980). As evidence of a worrying growth of Danish nationalism in this household, here is a picture of Grethe running the San Francisco marathon in her Denmark t-shirt.
Stephen Thomsen at Chatham House has published an interesting paper, "Foreign direct investment in Africa: the private-sector response to improved governance" (pdf) which says that:
- Private capital flows to Africa in the form of foreign direct investment (FDI) are growing. While in the past much of this investment was limited to the raw materials sector, the current wave involves firms from more countries and sectors than ever before.
- Foreign investors, including from within Africa itself, invested almost $50 billion in Africa during 2000–03. While this represents only a small share of global flows, the more relevant comparison iswith the size of the African economy. By this measure sub-Saharan Africa attracts almost as much FDI as Southeast Asia.
- Although Europe remains the principal source of investment, a rising share is coming both from Asia and from within Africa itself.
- Investors have been influenced by improvements in governance, most notably with respect to the business climate, where the desire to attract foreign investors can provide a strong incentive for African governments to reform their policies and practices. Although much remains to be done, some countries have nevertheless made great progress in areas such as political and economic stabilization, privatization and simplification of cumbersome regulations.
- This foreign investment also has implications for patterns of trade and integration. Many African exports are channelled through multinational enterprises, helping to integrate African countries both with one another and with the global economy.
As the paper argues, this is a tribute to the huge improvements in governance across the continent over the last few years. I was also interested to see the conclusion that aid flows and foreign direct investment are complementary:
Not only can public donors encourage private investors and vice versa, but together they can also make a greater contribution to development than either by itself. This can be seen most clearly with respect to infrastructure where neither the large aid-financed projects of the 1950s and 1960s nor the largely private projects of the 1990s have yielded the expected private and social returns in many cases. In this light, any increase in aid to Africa such as through debt relief agreed at the G8 meeting is likely to foster greater flows of foreign investment in the future. When allied with improvements in governance on the continent, the combined impact of increased aid and FDI might well yield positive results on a far greater scale than has previously been seen.
Grethe and I ran the Double Dipsea on Saturday – nearly 14 miles of gruelling, hilly trail running. Check the course profile. Here is the Marin Independent Journal’s review of the race.
I’m quoted in today’s Scotsman newspaper about the forthcoming G8 meeting.
Above all, however, he vowed to concentrate on the plight of Africa and climate change. The priorities have not changed. This week he and Gordon Brown face the task of making good on their progress so far. "The [UK's] objectives for the summit are ambitious but achievable if our political leaders are willing to give sufficient priority to them," said Owen Barder, a former official from the Department of International Development who works at the Washington-based Centre for Global Development. "In Whitehall parlance, they are ‘stretching’. The aid and debt targets are achievable: compared to other public spending programmes, only modest additional resources are needed, and straightforward institutional changes would improve the impact of aid. The trade objectives will be more difficult." ‘Stretching’ is an apt description of Blair’s negotiating stance. Despite the ground-breaking deal to relieve 100% of debts owed to international institutions by the world’s poorest countries, a number of Britain’s G8 partners remain reluctant to go further.
Thabo Mbeki has sacked his Deputy President, the popular Jacob Zuma, over allegations of corruption. This is exactly the sort of firm leadership, and intolerance of corruption, that the new generation of African leaders are advocating. I hope he will get the international recognition that he deserves. In the meantime, the UK has suspended a substantial part of its aid to Ethiopia after 36 people died in election protests. I commented on 10 June on the difficulty of making judgements about when aid should be withheld because governments can no longer be regarded as good partners in development. I hope these events will be noticed and commented on by the anti-aid brigade, who complain about poor governance in Africa, and who perpetuate fears that aid will be channelled to Governments with a poor record on governance. As these examples show, governance is improving, and aid is not provided without regard to the behaviour of the recipients.
The welcome announcement this weekend of one hundred percent debt relief for Heavily Indebted Poor Countries (HIPC) has prompted some discussion of whether we need arrangements to prevent the accumulation of debt in future. Debt relief skews development assistance away from priorities by shifting resources to countries that have been managed badly (and hence run up unafordable debts); and countries may find that benefiting from debt relief today makes it more difficult for them to get credit at affordable rates in the future. Furthermore, achieving full debt relief where it is both necessary and fair has taken a very long time, during which millions of dollars have been paid by poor countries to the rich. Today’s Guardian suggested this:
Surely, rather than rich nations sitting as judge and jury on the debts of the poor, it should be possible to establish an independent arbitration system to stop this situation ever developing again.
The establishment of an arbitration committee to regulate who can borrow does not sound practical or desirable. Here is another possible solution, focused on the particular problem of debts incurred by illegitimate and corrupt governments (often called "odious debts") – such as those accumulated by the apartheid government, or by the Government of Mobuto Sese Seko of Zaire. An institition would be nominated (perhaps the Security Council) which has the power to designate particular regimes as "odious". Countries such as the UK and US would change their laws to prevent the legal enforcement of any sovereign debts of those countries, for debts incurred after the regime was declared to be odious. Lenders would know that any loans to odious regimes could not be enforced or collected, and so lending would largely dry up. Such a mechanism (which has been proposed by economists Michael Kremer and Seema Jayachandran) would shut down access to credit for corrupt regimes (unlike trade or financial sanctions, it would be self-enforcing); and it would prevent the accumulation of debts by corrupt countries that might have to be forgiven in the future, with the consequential damage to credit worthiness of the government and skewing of aid resources.
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