Tuesday, June 22, 2021

Bill Mitchell — Restricting population growth is good for local workers

In the aftermath of the 1991 recession, which was the worst economic downturn in Australia since the Great Depression of the 1930s, I wrote a series of articles that we published in academic journals. In part, they were theoretical pieces that conjectured about the impact of rapid population growth on the labour market, which at the time was characterised by persistently high unemployment and rising underemployment (the recession had replaced full-time with part-time work). My conjecture was that high rates of immigration at a time of slow employment growth would lock unemployed workers into long-term unemployment. Of course, I could not test that proposition because the government maintained the relatively high immigration levels and other factors might have been responsible for the rising long-term unemployment. Last week’s Australian Labour Force data showed that unemployment and the unemployment rate has fallen rather quickly in recent months as the economy recovers slowly from the pandemic recession. Historical comparisons show the unemployment response this time has been much larger than in the previous recessions. The other key point is that the working age population has grown at historically low rates as a result of the border closures. It seems that my conjectures in the early 1990s were correct, despite getting flack at the time from mainstream economists who were pushing the line that immigration is always good for the labour market.
Scarcity rules in markets. Immigration affects that, which is why immigration is a major political issue in the US now. The objection is not just to importing low skilled workers but also knowledge worker. Of course, importing embedded in labor in less expensive goods is also a form of "exporting" jobs and capital. What favors firms in this regard, disadvantages local workers. It's also a reason for opposition to the EU that resulted in Brexit.

Bill Mitchell – billy blog
Restricting population growth is good for local workers
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Andrew Anderson said...

Ancient Israel, per the Bible, welcomed immigrant labor because assets in Israel were roughly equally owned by all Hebrews. Thus foreign labor was not a threat to citizens (since Hebrews did not normally work for wages) but a blessing.

Likewise with imported manufactured goods though I imagine they'd find it tough to compete with a just domestic economy.

Ahmed Fares said...

Of course, importing embedded in labor in less expensive goods is also a form of "exporting" jobs and capital.

The US is a net importer of capital. As the following quote shows, that enlarges the US capital stock.

Another objection to free trade is that it is undesirable if it creates trade deficits. This is an egregious fallacy, because another name for trade deficits is “capital surpluses.” Every cent of a U.S. trade deficit is a cent invested by foreigners in America or in dollar-denominated assets. These investments not only return the dollars to the U.S., they also signal that the U.S. is a relatively attractive place to invest. Further, by enlarging our capital stock, they enrich us. —Donald Boudreaux

Also, while this is from an older article, it shows we really shouldn't be concerned about the split between the current account and the capital account.

One point of view suggests that the trade deficit is no big deal. If Japan were to start buying large quantities of steel, lumber, glass, and furniture from the United States, we would call that an export and our trade deficit would shrink. But if instead Japanese investors buy office buildings in New York made of American steel, lumber, glass, and furniture, that purchase is a capital account transaction. Because there no reason to prefer that Japanese buyers take delivery of their steel, lumber, glass, and furniture in Tokyo rather than New York, one can argue that we shouldn’t be terribly concerned about the trade deficit.

As far as I can tell, this is close to the view that Ben Bernanke has expressed when he suggested that the U.S. trade deficit reflects a “global saving glut.” With so much saving in the rest of the world, it is natural that foreigners would want to invest some of that saving in the United States rather than on their own shores. And there is no particular reason that we should object to their doing so.
—Greg Mankiw

Ahmed Fares said...

Same idea as that from Greg Mankiw, this time from Scott Sumner:

The international accounts balance out perfectly, once you include trade in goods, services, and assets. The overall balance of payments deficit is precisely zero, if measured properly. Some countries, such as China, are relatively good at exporting goods. They run a positive trade balance. The US is relatively good at international investment—we run a persistent trade deficit, financed by our profits on overseas investments. Or we sell the Chinese “goods” such as houses in LA, that don’t count as US exports because they are not physically moved overseas.

Our balance of payments accounting doesn’t really correspond to what’s going on in the real world. If we sold the Chinese mobile homes, and put them on a ship to China, they’d count as exports. It sounds crazy, and it is, but that’s how the accounting is done.

This does not mean that we live beyond our means. GDP in the US is much larger than US consumption. Over time, we are becoming wealthier and wealthier.

source: Why America can run trade deficits forever

Ahmed Fares said...

Further to my comment, this response from Scott Sumner in the comments section of the article I posted above:

Yes, that’s the claim, but of course it’s wrong. If we run a CA deficit then I > S, so there are more jobs in investment to make up for the loss of jobs in trade.

Matt Franko said...

Well these 2 Art degree morons beg to differ:


You say potayto they say potahto…. Your whole methodology is shit…