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May 21, 2007

Dani Rodrik on Guest Workers

Harvard economists Dani Rodrik and George Borjas are having an interesting debate about guest worker programs over at Rodrik's blog. Well worth a read. Rodrik is pro-guest worker program, and not merely as a compromise, but as a good in and of themselves. In his paper "Feasible Globalizations" (pdf), he argues that as a development strategy for the third world, robust temporary worker programs would be better than liberalized trade and better than aid (Edited: see update at bottom). Better, in other words, than just about anything on the table now:

Consider for example a temporary work visa scheme that amounts to no more than 3 percent of the rich countries’ labor force. Under the scheme, skilled and unskilled workers from poor nations would be allowed employment in the rich countries for 3-5 years, to be replaced by a new wave of inflows upon return to their home countries. A back-of-the-envelope calculation indicates that such a system would easily yield $200 billion annually for the citizens of developing nations, vastly more than the existing estimates of the gains from the current trade agenda. The positive spillovers that the returnees would generate for their home countries—the experience, entrepreneurship, investment, and work ethic they would bring back with them and put to work—would add considerably to these gains. What is equally important, the economic benefits would accrue directly to workers from developing nations. We would not need to wait for trickle-down to do its job.


But wouldn't such a regime harm the incomes of workers in advanced countries? Maybe, but no more than is already happening. Rodrik argues:

Imports from developing countries—which are nothing other than inflows of embodied labor services—create the same downward pressure on rich country wages as immigration, and that has not stopped policymakers from bringing trade barriers down. The bias towards trade and investment liberalization is certainly not due to the fact that that is politically popular at home(whereas labor flows are not). The median voter in the advanced countries is against both immigration and imports: fewer than 1 in 5 Americans and Britons reject import restrictions when they are asked their views on trade policy. In these countries, the proportion of voters who want to expand imports tends to be about the same or lower than the proportion that believe immigration is good for the economy.


As for the political difficulties of such a policy, Rodrik isn't convincing on how to surmount them. His analysis of why we advantage material imports over labor imports and worry more about further immigration rather than existent immigrants, however, is very persuasive:

If substantial liberalization of trade and investment has taken place, it is not because it has been popular with voters at home, but largely because the beneficiaries have organized successfully and become politically effective. Multinational firms and financial enterprises have been quick to see the link between enhanced market access abroad and increased profits, and they have managed to put these issues on the negotiating agenda.

Temporary labor flows, by contrast, have not had a well-defined constituency in the advanced countries. This is not because the benefits are smaller, but because the beneficiaries are not as clearly identifiable. When a Turkish worker enters the European Union or a Mexican worker enters the U.S., the ultimate beneficiaries in Europe and the U.S. are not known ex ante. It is only after the worker lands a job that his employer develops a direct stake in keeping him in the country. This explains why, for example, the U.S. federal government spends a large amount of resources on border controls to prevent hypothetical immigrants from coming in, while it has virtually no ability to deport employed illegals or fine their employers once they are actually inside the country.


And lastly, a primary problem with guest worker programs is that they are almost never temporary. How do you force people to leave? Here, too, Rodrik has some ideas:


Unlike previous such schemes, there need to be clear incentives for all parties—workers, employees, and home and host governments—to live up to their commitments. One possibility would be to withhold a portion of workers’ earnings until return takes place. This forced saving scheme would also ensure to workers would come back home with a sizeable pool of resources to invest. In addition, there could be penalties for home governments whose nationals failed to comply with return requirements. For example, sending countries’ quotas could be reduced in proportion to the numbers that fail to return. That would increase incentives for sending government to do their utmost to create a hospitable economic and political climate at home and to encourage their nationals’ return.

Update: Rodrik comments:

One correction. I do not believe or say that temporary labor mobility is the best development strategy for developing nations. I believe that this is one of the most useful things that rich countries can do for poor nations--more useful than more aid and more trade. This is an important distinction. The best development strategy is one that relies on domestic policies, not on rich country policies. But otherwise thanks for airing these issues.

May 21, 2007 | Permalink

Comments

Ezra--

One correction. I do not believe or say that temporary labor mobility is the best development strategy for developing nations. I believe that this is one of the most useful things that rich countries can do for poor nations--more useful than more aid and more trade. This is an important distinction. The best development strategy is one that relies on domestic policies, not on rich country policies. But otherwise thanks for airing these issues.

Posted by: Dani Rodrik | May 21, 2007 1:57:37 PM

And how would this change the motivation of undocumented workers in excess of the 3% or insure that the guest workers would actually return when their time was up?

Posted by: JackD | May 21, 2007 2:51:26 PM

The best development strategy for the world would be for Americans to stop electing anti-trade, anti-market, anti-globalization politicians. :)

I'd like to write a book, The Real End of Poverty, with that one goal.

Posted by: Jason | May 21, 2007 3:22:00 PM

One possibility would be to withhold a portion of workers’ earnings until return takes place.

It would have to be a substantial portion to make the tradeoff worthwhile.

Plus, please keep in mind that a laborer from, say, a small town 100 miles from Jakarta isn't going to have access to the kinds of financial systems we're used to here. A plan like this sounds like a good way for those workers to never see a lot of that withheld money.

Posted by: fiat lux | May 21, 2007 4:07:06 PM

he argues that as a development strategy for the third world, robust temporary worker programs would be better than liberalized trade and better than aid

Of course, for those workers in Africa, Asia, and South America they are going to have to put up with liberalized trade.

Posted by: Jason | May 21, 2007 4:08:42 PM

If you want to change Mexico, then letting illegals come in unhindered is the wrong way to do it. Mexico needs massive economic and legal reforms, but since all the young unhappy people who would be in a position to demand change are instead heading to El Norte, that means the Mexican cronies in power have absolutely no pressure to change.

BTW, its not the role of the US govt to solve all the world's problems. If Ezra wants to donate his salary to these causes then by all means do so. Otherwise quit extorting money out of me.

Posted by: joe blow | May 21, 2007 4:31:56 PM

Oh, SHOCK! An economist that hates the American worker.

If you care more about people in other countries than people in this one, open up a charity. Become a Mexican citizen and fight for social reforms. Don't try and pervert our government into a wealth transference system from our poor, to Mexico's poor. It's not your own pockets your picking here, so STFU about how horrible Mexico is. You're just a hypocrite.

Posted by: soullite | May 21, 2007 5:02:02 PM

Dani has become the most important economic blogger in just a few weeks.

Any plan that mandates employers checking the creds of workers is better than wht we have.

I am still not entirely convinced that a guest workeer program is all that great, but a limited program where they have to go back after X years may work very well. An easy solution to the lack of infrastructure would be to build our own banks over there and require partipating countries to have a compatable infrastructure. Its not that difficult and lays the ground work for viable institutions in these countries to go along with the new crop of now relatively skilled workers.

Posted by: Mickslam | May 21, 2007 6:28:35 PM

Rodrik's post was extremely hopeful in too many ways to count. We're going to make sure people don't overstay visa's (a perpetual problem across the world in any country) by fixing their home government's quotas and hoping the government therefore makes their home country as good a place to live as America? Amazingly hopeful.

Forced savings are also a hugely complex program which would engender great distrust from workers and employers, and encourage black market pay. I can't believe I'm hearing an economist advocate for government forced savings. (One could say Social Security is much like this, but then since when have libertarians wanted more social security?)

I do agree that immigration is often great for home countries through remittances, but I would also like to see some sort of quantitative comparison for the benefits foreign poor people get from this (whom I DO care about), and the effect of destroying the floor of the labor supply in the US. Not just a casual assumption that they equal out.

Posted by: Tony V | May 21, 2007 6:54:33 PM

"Imports from developing countries—which are nothing other than inflows of embodied labor services—"
Isn't this a statement of the Labor Theory of Value? That's not a criticism. I just find it interesting. And insightful.

Posted by: dale | May 22, 2007 6:19:48 AM

Oh, wonderful! A bracero program on a global scale. The filth who own the world and control its borders will allow peons to move around on the condition that they continue to please their employers. Cheap labor is allowed to move where the owning classes need it most, and in a way that gives it absolutely no independence or bargaining power. It sounds an awful lot like the old Laws of Settlement in Britain, expanded over the entire planet.

What's not to like?

Posted by: Kevin Carson | May 23, 2007 1:13:23 PM

on the condition that they continue to please their employers

Nope, the visas are portable to any employer, so if one doesn't treat you well, you can go to another, just like the rest of us.

gives it absolutely no independence or bargaining power

Again false. They'll have full labor law protections and will be able to join unions, like everyone else.

Posted by: Sanpete | May 23, 2007 2:12:38 PM

Thanks for the info, Sanpete. Although I have a viscerally negative reaction to guest worker programs, given past examples of their ilk, from what you say this sounds less odious than its predecessors.

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Posted by: judy | Oct 8, 2007 7:57:44 AM

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