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Monday, July 31, 2006

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Blissex

«we emphasize the need for a general equilibrium approach to analyze this problem»
«This requires to assume a production function»

Well, stop there -- with such premises need not pay any more attention. The purpose of that stuff is prove the central verity of Economics, that factor prices are determined and solely by marginal productivity, and it succeeds amazingly at that. There is no need to worry about about immigration or anything else as the central verity guarantees that everybody get their just rewards

Or else it is a load of inconsistent bullshit, and why pay attention to that either...

A. PERLA

Blissex: "that factor prices are determined and solely by marginal productivity"

An immigrant replacing a native worker does not enhance marginal productivity, unless it is a job creation that is fulfilled.

It supposedly frees a native person with inherent skills to find a better job (more pay). The point, I think, is this. Native people who are in entry-level unskilled work do not and will not ever be able to be "freed" to a better job. This job escalator does not work.

Immigration, to my mind, can only help where service jobs are created and cannot be fulfilled by unskilled native workers (particularly the unexperienced just coming onto the job market) either due to a lack of them or a lack of willingness to assume this work. This typically means, in a developed country, that existing welfare systems simply provide payments that allow the unemployed to refuse unskilled labor even though they probably do not merit any other kind of work.

Conclusion? Well, that should be evident. Reduce unemployment benefits, which America did under Clinton, and watch the unemployment roles diminish by half over the intervening decade. People accepted employment when they had no other alternative.

I cannot possibly see how this sort of phenomenon will be detected by economic analysis. But, I remain to be convinced.

Arthur Eckart

The implication is immigration has a small effect on domestic wages. However, that may be true only if the assumption holds: "Immigrants are imperfect substitutes for US-born workers." In reality, illegal immigration into the U.S. has been massive for over 20 years, and many of those immigrants are low-skilled workers. So, those immigrants would be perfect substitutes for all U.S. workers (because both high and low skilled U.S. workers can perform low-skilled jobs). It seems, low-skilled illegal immigrants displaced U.S. workers by accepting jobs below U.S. reservation wages, and then permanently depressed wages. Consequently, even if domestic workers lowered their reservation wages, they may not be low enough to displace immigrants. So, low-skilled immigration may have a large negative effect on low-skilled domestic wages and displacing low-skilled domestic workers.

Arthur Eckart

A Perla, when income inequality increases, or low-skilled incomes fall, the opportunity cost of high-skilled jobs increases. So, low-skilled workers are induced to acquire high-skills. The fastest growing industries in the U.S. require high-skills, e.g. computer engineers, programmers, software designers, biochemists, microbiologists, etc. There are labor shortages in new industries, because they're growing so fast (older industries are laying off workers, because of productivity gains). One problem is it takes many years to obtain high skills. Another problem is many low-skilled workers are unwilling spend years learning new skills. So, although many Americans "upgraded" their skills (e.g. after becoming unemployed), the U.S. had to "import" high-skilled labor (e.g. from India) to fill shortages.

Pancho Villa

"that factor prices are determined and solely by marginal productivity"

...and marginal productivity is mostly determined by simplicity, thus simplicity automatically means flexibility...am I wrong?

Loki on the run

Athur Eckart says:


One problem is it takes many years to obtain high skills. Another problem is many low-skilled workers are unwilling spend years learning new skills. So, although many Americans "upgraded" their skills (e.g. after becoming unemployed), the U.S. had to "import" high-skilled labor (e.g. from India) to fill shortages.

However, the problem here is that the jobs you refer to can only be filled by, lets say, people with IQs two SDs above the mean.

There is a limited supply of such people in the US and those coming in from south of the border are not contributing a huge number of them.

However, India and China, with a combined 6 or 7 times the population of the US, has an enormous supply.

Arthur Eckart

Loki, I agree, the skills are so high few can learn them, and China and India have more people who are capable. When I was in grad econ, only a small proportion of the students graduated (there's a book "The Making of an Economist" that showed only 600 Econ Ph.Ds and 2,000 Econ MAs are awarded in the U.S. each year, e.g. compared to 100,000 MBAs). So, although average skills rise, along with economic progress, the top 5% remains fixed. Better use of that small percentage can help accelerate economic progress.

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