From Suphanit Piyapromdee:
Over the past few decades, the number of immigrants entering the U.S. has increased substantially. The local impacts of immigration may differ from national impacts since some cities attract more immigrants. Even within a city, workers may be affected differently depending on the substitutability of their labor with that of the new arrivals as well as their abilities to move. This paper studies the impact of immigration on wages, internal migration and welfare. I develop and estimate an equilibrium model where labor differs by skill level, gender, experience and nativity. Workers are also heterogeneous in city preferences and place attachments. Cities vary in productivity levels, housing prices and local amenities. The results indicate that a 30 percent increase in the stock of immigrants has a small impact on the wages and welfare of natives. If workers are constrained to remain in their original locations, the initial wage impacts on previous immigrants are negative and much more severe in the popular destina- tions for new immigrants. When workers migrate in response to the immigration, the negative wage and welfare impacts in most locations are diffused. However, the negative impacts on the wages of low skill workers in some locations intensify. This is because low skill workers have stronger attachments to places, and hence are less mobile relative to high skill workers. The extent to which the migration responses reduce the adverse wage impacts depends on a city’s labor composition. The model is also used to assess changes in the skill mix of immigrants and a location-specific immigration policy.
The Impact of Immigration on Wages, Internal Migration and Welfare
Sat, 07 Dec 2013 20:35:47 GMT
One of my favorite teachers at Michigan was a self-effacing but brilliant labor economist named Mike Elsby. Mike has sadly decamped for Scotland, but he continues to turn out excellent papers. One of his latest, a Brookings conference paper, takes on a hugely important question that has been on everyone’s minds of late: Why has labor’s share of income declined in advanced countries?
There are basically three competing stories. These are:
1. Robots. Technology has made it cheap to replace humans with automation, driving profits up and wages down.
2. Unions. The relentless decline of organized labor in rich countries has robbed workers of their bargaining power, causing owners to scoop up the surpluses.
3. China/India. The end of the Cold War caused a huge, relatively well-educated labor force to be suddenly dumped onto world markets. A glut of labor on the market means the return to labor goes down and the return to capital goes up.
Mike Elsby and his coauthors find support mostly for story #3. In their own words:
U.S. data provide limited support for…explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods…[I]nstitutional explanations based on the decline in unionization also receive weak support…[W]e provide evidence that highlights the offshoring of the labor intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years. (emphasis mine)
This finding disagrees with some other recent papers, such as Karabarbounis and Neiman (2013), who support the “robots” story. Read Elsby et al. to see the particulars of the argument.
Anyway, this is an important piece of research that everyone should know about. Stories about the Rise of the Robots are scary and seductive, but if Elsby is right, then this is more of a concern for the future than the past. And the decline of unions is sad in many ways, but it seems to be a symptom of labor’s decline rather than a cause.
So what do we do to bring back labor’s share of income? We wait. The Great Labor Dump can only happen once. When it’s over – when insanely huge amounts of investment in China have saturated that country with capital, for example – labor’s share will bounce back.
…unless, of course, by that time we really are facing the Rise of the Robots.
The Great Labor Dump
Sun, 08 Dec 2013 14:35:00 GMT
In early 2013, Mike Konczal wrote the following:
In late 2011, the economist David Beckworth and the writer Ramesh Ponnuru wrote an editorial in the New Republic on how “both liberals and conservatives are wrong about how to fix the economy.” How were they wrong? Conservatives were wrong because, contrary to common belief on the right, the Federal Reserve wasn’t in fact doing enough to boost the economy. Liberals, however, were wrong in opposing austerity and calling for more fiscal stimulus in the form of stimulus spending or temporary tax cuts.
In Beckworth and Ponnuru’s view, the Federal Reserve still had plenty of room to boost the economy. Not only would fiscal tightening be good over the long haul, but it would force the Fed to act. And they argued that as long as the Fed is working to offset austerity, the country “won’t suffer from spending cuts.
We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner.
So how has this experiment unfolded since then? Has the Fed been able to offset the fiscal drag? Michael Darda, Chief Economist of MKM Partners, has the answer:
Despite a two-year contraction in nominal federal outlays for the first time in more than five decades and a raft of tax hikes starting in early 2013, job gains are running slightly ahead of the 2012 pace. Non-farm payrolls (+203K in November and 200K in October) have averaged 189K during the first 11 months of 2013, ahead of the 179K 11-month average in November 2012 and the 170K average for November 2011. Over the last 12 months, non-farm payrolls have averaged 191K, also above the 12-month averages for the last three years. Indeed, year-to-year gains for overall payrolls and private sector jobs have been very steady despite the most intense fiscal consolidation since the Korean War demobilization. Many observers late last year were of the mindset that the fiscal cliff and/or sequester would either throw the U.S. economy back into recession, or slow it materially. It has done neither because, in our view, the Fed has offset it. Although monetary policy has beenfar from perfect, allowing the financialsystem to crash in 2009 (instead of doing QE1), allowing low inflation to morph into deflation in 2010 (instead of initiating QE2) and allowing the full force of the sequester/tax hikes to hit in 2013 (rather than rolling out QE3) do not seem like particularly desirable outcomes. The Fed has managed much better than the ECB and that is the proper counterfactual.
Several points to note. First, the Fed has been offsetting since 2010 a tightening of the structural budget balance as a percent of potential GDP. In my opinion, that is an even more impressive feat. Second, its ability to do so demonstrates that monetary policy is still effective at the zero lower bound. Third, it is amazing that so many people were predicting a recession in 2013 because of the sequester. They did not take seriously the possibility QE3 could offset the fiscal drag. I am waiting for their mea culpa.
The Great Macroeconomic Experiment of 2013
email@example.com (David Beckworth)
Fri, 06 Dec 2013 19:13:00 GMT
The War on Christmas isn’t in fact a war on the holiday, but it is the secularization of what to many of us is a religious holiday. For better or worse that is a real thing, but Christians brought this on themselves.
The theocratic conservatives who complain of the war on Christmas had no compunction about using the holiday as a way to juice their bottom lines by encouraging the purchase of present and gifts by one and all, including the non-believers. Now the fruits of these efforts have come home to roost as non-believer participate and the holiday becomes inevitably less religious in tone. If you don’t want a secularized Christmas, then don’t use your sacred holiday to hock merchandise.
The whole war on Christmas outcry would have some weight if Christian merchants were to plead with the non-believers to not patronize their shops to purchase presents as part of a secular holiday. I’m not holding my breath for this to happen however.
Don’t invite non-believers into your holiday, and then condemn them for being there.
A: Common ground on the bad environmental economics of the ethanol mandate.
This week, the EPA is expected to announce changes to the ethanol mandate, a 2007 law that requires energy companies to mix billions of gallons of ethanol into gasoline and diesel fuels. After six years in the mix, corn-based ethanol has lost its popularity, and a diverse group of critics is calling for the law’s repeal.
Why are environmentalists in favor of a rollback/repeal?
Though ethanol fuel releases less carbon dioxide than other kinds of gas, many question if the side effects of production are worth it…Growing corn requires fertilizer, which requires natural gas to make. Fertilizer also has contaminated rivers and drinking water, says the report. And ethanol factories usually burn coal or gas, which dumps carbon dioxide into the atmosphere.
Why are Tea Partiers in favor of a rollback/repeal?
Other opponents complain the mandate — like any energy subsidy — is free market poison, claiming it “distorts fuel markets and will raise gasoline prices, especially as the increased blending requirements collide with declining demand for gasoline,” reports Politico.
Strange bedfellows indeed.
And who is in favor of keeping the mandate?
Meanwhile, the ethanol industry is asking the AP to retract the story. “At best, the AP article is lazy journalism, but at worst, it appears purposefully designed to damage the ethanol industry,” American Coalition for Ethanol Executive Vice President Brian Jennings said in a statement to the press. “There was an incredibly reckless disregard for the truth in the handiwork of this hit-piece.”
And who is the American Coalition for Ethanol?
ACE is a non-profit, membership-based organization with about 1,500 members including:
- ethanol producers
- the agriculture community
- industry suppliers
- rural electric cooperatives
- others supportive of ethanol.
*Partial credit if you answered ‘Tim’
Q: What do you get when you cross environmentalists with Tea Partiers?*
Wed, 13 Nov 2013 14:53:48 GMT