Month: October 2010

Here is my latest New York Times column, excerpt:

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.

American economic sectors with much exposure to immigration fared better in employment growth than more insulated sectors, even for low-skilled labor, the authors found. It’s hard to prove cause and effect in these studies, or to measure all relevant variables precisely, but at the very least, the evidence in this study doesn’t offer much support for the popular bias against immigration, and globalization more generally.

We see the job-creating benefits of trade and immigration every day, even if we don’t always recognize them. As other papers by Professor Peri have shown, low-skilled immigrants usually fill gaps in American labor markets and generally enhance domestic business prospects rather than destroy jobs; this occurs because of an important phenomenon, the presence of what are known as “complementary” workers, namely those who add value to the work of others. An immigrant will often take a job as a construction worker, a drywall installer or a taxi driver, for example, while a native-born worker may end up being promoted to supervisor. And as immigrants succeed here, they help the United States develop strong business and social networks with the rest of the world, making it easier for us to do business with India, Brazil and most other countries, again creating more jobs.

Here is the paper.  Here is related work by Peri on European labor markets.

From a few years back, Harold Cole and Richard Rogerson study this question and write:

We examine whether the Mortensen-Pissarides matching model can account for the business cycle facts on employment, job creation, and job destruction.  A novel feature of our analysis is its emphasis on the reduced-form implications of the matching model.  Our main finding is that the model can account for the business cycle facts, but only if the average duration of a nonemployment spell is relatively high — about nine months or longer.

I do not wish to claim that today's currently long unemployment spells make this the model to use.  I would point out, however, that most Keynesian models suggest more mean-reversion than we seem to be experiencing, especially since our central bank, whatever its weaknesses, is no longer allowing outright deflation.  The topic of "short run macroeconomics for the long run" will be a boom area, and right now it is poorly understood.

Price Fishback has a new paper (ungated but earlier draft here) surveying what we have learned about the macroeconomics of the Great Depression, here is one bit:

Some thinks that World War II offers an example of a situation where fiscal stimulus worked.  But the World War II analogy is highly misleading for any discussion of a peace-time economy.  The deficits were run during an all-out war when 40 percent of GDP was spent on munitions, the military made most of the allocation decisions in the economy, over 15 percent of the workforce was in harm's way in the military, there were widespread wage and price controls, and rationing ruled the day.  In essence, the World War II deficit experience tells us more about fiscal stimulus in the Soviet Union's command economy during the Cold War than it does about the modern U.S. mixed economy.

From Ethan Ilzetzki, Enrique Mendoza, and Carlos Vegh, here is a new paper (gated) on fiscal multipliers (shorter, ungated version here, powerpoints here, slides here, ungated but slightly older version here):

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

That's zero as in "two times zero equals zero," or "1/2 times zero equals zero too" or even "-0.5 times zero equals zero."  I don't think the multiplier is zero for the United States, but very likely it's zero in a bunch of places.