Macroblog

May 7, 2007

On Cake, And Eating It Too

In case, you haven't been paying attention to the French elections, the Guardian Unlimited has the index-card version of new president Nicolas Sarkozy's policy agenda.  The "European model" is out...

"'It will never be possible to stress enough the evil that the 35-hour week has done to our country. How can we retain this mad idea that by working less, we will produce more wealth and create jobs?"

... and tax cuts are in:

"We've got the highest taxes in Europe. France's problem is we're paying too much tax."

The cause for Turkish membership in EU wasn't much helped ...

"I want an integrated Europe, in other words, a Europe that has borders ... Turkey is in Asia Minor."

... and immigration control is front and center:

"Who can't see that there's a clear link between the uncontrolled immigration of 30 or 40 years and the social explosion on our housing estates?"

The immigration issue is a complicated one, and I have no business commenting a sovereign nation's assessment of how to best deal with the social consequences of open borders.  But this story, from the Wall Street Journal (page A2 in the print edition), provides an interesting juxtaposition:

The quality of life for some 80 million graying baby boomers in the U.S. may depend in large part on the fortunes of another high-profile demographic group: millions of mostly Hispanic immigrants and their children.

With a major part of the nation's population entering its retirement years and birth rates falling domestically, the shortfall in the work force will be filled by immigrants and their offspring, experts say. How that group fares economically in the years ahead could have a big impact on everything from the kind of medical services baby boomers receive to the prices they can get for their homes.

The article does not make a French connection, but one is not hard to conjure up.  A few years back, a Rand Corporation study had this to say:

The history of French population change is atypical; secular fertility decline began one century before the rest of the West. As a consequence, France had the oldest population in the world over the entire period of 1850–1950. The baby boom after the Second World War created a temporary increase in the number of births, but thereafter the fertility decline resumed. With current below-replacement fertility and increased life expectancy, population ageing is expected to reach new heights...

Family policies in France are a complicated mix, as the Rand article makes clear, and recent efforts at promoting fertility among native French citizens appear to have met with some success.  But this bottom line judgment, from the UN, remains relevant:

In most developed countries, the decline in fertility and the increase in longevity has raised three concerns for the future: the decrease in the supply of labor, the socioeconomic implications of population aging, and the long term prospect of population decline and demise...

On the medium run, the next ten years or so, the labor market is the main focus of concern. The reference system comprises here the set of supply and demand variables that determine the employment equilibrium. The impact of fertility and mortality changes is for that purpose at this time horizon very limited. Conversely, international migration could play a decisive role, as well as other socioeconomic variables.

For the long run, - from 2020 to the population projections horizon 2040-2050- structural imbalances of the age distributions are things to worry about.

The Financial Times reports:

Economists had predicted that investors would greet Mr Sarkozy’s election with enthusiasm, in anticipation of tax cuts, labour reform and debt-reduction measures.

In the long run, that last goal will require that immigration reforms be chosen wisely.

• May 7, 2007 in
  • Europe
  • Immigration
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April 13, 2006

What (Some) Economists Have To Say About The Economic Effects Of Immigration

The "some economists" refers to those interviewed in the latest survey by the Wall Street Journal:

Nearly 80% of economists who responded to questions about immigration in the latest WSJ.com forecasting survey said they believe undocumented workers have an impact on the bottom rung of the wage ladder. Twenty percent believe the impact is significant, while 59% characterize the effect as slight. The remaining 22% said there is no impact...

About half of the economists said the presence of illegal immigrant workers has slightly reduced the overall rate of inflation in the economy, while 8% said the inflation rate has been reduced significantly. But 41% said they believe undocumented workers have had no impact at all on inflation.

Okay, let me try this again.  To the extent that wage costs exert pressure on the pace of consumer- or output-price increases, it is wage growth in excess of productivity growth that matters.  If the wages of any particular subset of workers are lower because their productivity is lower, there are absolutely no consequences at all on prices or their growth rates.

In fact, the low productivity explanation for low wages seem to be exactly what most of the survey respondents have in mind:

On balance, nearly all of the economists – 44 of the 46 who answered the question – believe that illegal immigration has been beneficial to the economy. Most believe the benefits to business of being able to fill jobs at wages many American workers won't accept outweigh the costs.

I could be wrong, but I'm guessing that the opinions of most of those surveyed are based more on gut feeling than research.  If it's research you are looking for, try out Alan Krueger's suggestions (and tip your along the way in the direction of Brad DeLong).

• April 13, 2006 in
  • Immigration
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April 4, 2006

Immigration and Time Inconsistency

Kevin Hassett explains:

Right now in the Senate, the two major [immigration] plans being debated are from Majority Leader Bill Frist and Judiciary Committee Chairman Arlen Specter. Frist's bill focuses primarily on border protection, and has been characterized as an "enforcement only'' proposal. Specter's proposal borrows from a bill that Senators John McCain and Ted Kennedy introduced last year. It includes provisions for temporary guest worker visas and for legalizing the status of currently undocumented individuals...

The Frist bill and an immigration measure passed by the House of Representatives in December provide for stiff enforcement measures, including felony charges for smuggling illegal aliens into the U.S.         

Such a policy falls into a logic trap that is well known to economists. It lacks what they call "time consistency.''  We feel sympathy for the folks already here, but don't want to allow more illegal immigrants in. Yet as we work out a solution that may take years to become effective, if it ever does, there will arrive a whole new population of illegal immigrants who we will feel sympathy towards.         

If we are willing to grant amnesty for immigrants today, we will be willing to grant amnesty again five years later. History appears to bear this out. Some are comparing Specter's proposal to a 1986 bill, signed by Ronald Reagan, that offered amnesty to millions of illegal immigrants, and did little to stem the inflow of more of them....

... Accordingly, there really should be only two immigration policies to choose between. We can round up all of the illegal residents today and ship them home, crack down hard at the borders, and promise to do both again and again forever.         

Or, we can find a way to ease the path toward citizenship for current residents, establish generous rules for entry into the U.S., and be willing to load anyone who doesn't follow those rules into a bus and ship them home.         

The Frist approach resembles neither. The Specter approach resembles the latter, and is the far better policy.

Although I strongly prefer an approach that leads to legal work status, I'm not sure why a policy that strictly shuts down the borders is necessarily time inconsistent unless you begin with the presumption that border enforcement is not possible.  But in that case, it would seem that the Frist-McCain-Kennedy plans run into exactly the same sort of problem. If the borders remain porous, and guest worker programs too conservative, illegal entry will occur, and the problem that Hassett emphasizes rises up again. (See, for example, the heart-tugging picture, and accompanying tale, posted at Econbrowser.)

I'm not willing to concede that sufficient border enforcement is impossible, combined with a guest-worker/immigration policy that keeps the cost of legal entry low (bY ensuring that quotas are sufficient to demand, for example).  But the point is well taken: We should probably be leery of any policy that does not confront the very human impulse to behave in a time-inconsistent fashion.

Bonus: Hassett also discusses the research on the "diversity gains" of immigration, covered last week at Angry Bear. 

• April 4, 2006 in
  • Immigration
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