Globalization with Labor: Is the Future Robots or Rosalie

Lant PritchettNovember 2, 2007Center for Development EconomicsWilliams College

Are the nurses of the future Robots or Rosalie?

Five Points

Gaps in income/wages across nation-states are much larger than ever in history

The current globalization is qualitatively different a “proliferation of sovereigns” and “everything but labor”

EBL globalization will not reduce (all) inequalities

It is labor versus capital for the future What was, was, what can be, could be

Currently we have historically massive gaps in income per capita and wages

Steady growth of the economic leaders have left the follower countries far behind…India has not yet reached the 20th century, Ethiopia the 13th…

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$10,000

$20,000

$30,000

$40,000

1700 2000

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India, $2990

1851

China, $5332

1898

Ethiopia, $688 ~ Year 12501929

Mexico, $8165

Historically it mattered who you were, now where you were born

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10.0%

20.0%

30.0%

40.0%

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1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

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But liberalization has yet to touch labor—wage for equivalent labor are enormously larger than those that set in motion the first globalization’s migration

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Wage gaps of 2:1 to 4:1 drove massive migrations prior to 1920

Wage gaps today between potential migration partners are 6:1 to 9:1—but with much smaller (relative) flows

Current “globalization” is qualitatively different: (Proliferation of sovereigns (POS), Everything but labor (EBL)--POSEBL)

Now that was globalization: the Roman Empire and Mobility…Emperors from Spain, Levant, North Africa, Europe

Pax Americana: the proliferation of sovereigns with modest amounts of cross-border everything but labor liberality

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94

ssa mena

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But even deep liberalization with borders does not make the world “borderless”…

0

0.5

1

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2.5

British Columbia's exports to:

Bil

lio

ns

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Texas

Predicted with Texaswithout a border

Source: McCallum, 1995

The world is not flat—there are big hills separating even the liberalized countries—prices are not equalized

0

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Source: Bradford and Lawrence, 2004

Percentage of Foreign-Born Population in the Labor Force

0

2

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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

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Germany

Italy

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Until very recently it was EBLG (Everything but labor globalization)

Will POSEBL globalization eliminate global inequalities: The guiding myth of the post WWII globalization and “development”

All problems can be solved in place without any movement of people across borders

Why ever would you think so? History and experience within most large countries suggest massive population movements

Does globalization of goods and capital eliminate the need for labor mobility?

Simple supply and demand: If there are large region specific shocks to labor demand then…

Population

Wages

Elastic labor supply (mobility allowed)

Inelastic labor supply (mobility restricted)

Large fall in region specific labor demand

Supply elastic: populations fall

Supply inelastic: wages fall

Huge differences across countriesIn output per capita growth

Small differences in net migration

If supply is inelastic (e.g. across countries)—little labor mobility, big differences in growth

If labor supply is elastic—(e.g. across regions in large integrated countries)…large differences in population growth,

small differences in growth

Labor mobility is much larger than growth differences within these countries, vice versa across countries

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G o n z a l e s

G ra y

G ra y so n

G re g g

G ri m e s

G u a d a l u p e

H a l e

H a l l

H a m i l to n

H a n sf o rd

H a rd e m a n

H a rd i n

H a rri s

H a rri so n

H a rt l e y

H a ske l l

H a y s

H e m p h i l l

H e n d e rso n

H i d a l g o

H i l l

H o c kl e y

H o o d

H o p ki n s

H o u st o n

H o w a rd

H u d sp e t h

H u n t

H u t c h i n so n

I ri o n

J a c k

J a c kso n

J a sp e r

J e f f D a v i s

J e f f e rso n

J i m H o g g

J i mW e l l s

J o h n so n

J o n e s

K a rn e s

K a u f m a n

K e n d a l l

K e n e d y

K e n t

K e rr

K i m b l e

K i n g

K i n n e y

K l e b e rg

K n o xL a m a r

L a m b

L a m p a sa s

L a S a l l e

L a v a c a

L e e

L e o n

L i b e rty

L i m e sto n e

L i p sc o m b

L i v e O a k

L l a n o

L o v i n g

L u b b o c k

L y n n

M c C u l l o c h

M c L e n n a n

M c M u l l e n

M a d i so n

M a ri o n

M a rt i n

M a so n

M a ta g o rd a

M a v e r i c k

M e d i n a

M e n a rd

M i d l a n d

M i l a m

M i l l s

M i t c h e l l

M o n t a g u e

M o n t g o m e ry

M o o re

M o rr i s

Motley

N a c o g d o c h e s

N a v a rro

N e w to n

N o l a n

N u e c e s

O c h i l t re e

O l d h a m

O ra n g e

P a l o P i n to

P a n o l a

P a rke r

P a rm e r

P e c o s P o l k

P o t te r

P re si d i o

R a i n s

R a n d a l l

R e a g a n

R e a l

R e d R i v e r

R e e v e s

R e f u g i o

R o b e rts

R o b e rtso n

R o c kw a l l

R u n n e l s

R u sk

S a b i n e

S a nA u g u st i n e

S a nJ a c i n t o

S a n P a t r i c i o

S a n S a b a

S c h l e i c h e r

S c u rryS h a c kl e fo rd

S h e l b y

S h e rm a n

S m i t h

S o m e rv e l l

S ta rr

S te p h e n s

S te rl i n g

S to n e w a l l

S u t to n

S w i sh e r

T a rra n t

T a y l o r

T e rre l l

T e rry T h ro c km o rto n T i t u s

T o mG re e n

T ra v i s

T ri n i t y

T y l e r

U p sh u r

U p t o n

U v a l d e

V a l V e rd e

V a nZ a n d t

V i c to ri a

W a l ke r

W a l l e r

W a rd

W a sh i n g t o n

W e b b

W h a rto n

W h e e l e r

W i c h i t a

W i l b a rg e r

W i l l a c y

W i l l i a m so n

W i l so n

W i n kl e r

W i se

W o o d

Y o a ku m Y o u n g

Z a p a ta

Z a v a l a

R ed = C o u n ty D ec lin ed ; N et D ec lin e b e tw een 0 an d 5 ,0 0 0P u r p le= C o u n ty D ec lin ed ; N et D ec lin e b e tw een 5 ,0 0 0 an d 1 0 ,0 0 0Blu e= C o u n ty D ec lin ed ; N et D ec lin e g r ea te r th an 1 0 ,0 0 0G r een = C o u n ty I n c r eas ed b y m o r e th an 1 0 ,0 0 0

The emptying of the heartland and the Delta (only green shaded counties had substantial population increase over a 60 year period)

Ghosts and Zombies

Post WW II world has run a huge natural experiment—(a) expand dramatically number of sovereign states (borders, flags, currencies), (b) encourage mobility of capital and labor but freeze labor in place (POSEBL globalization)

How will this turn out? Hinges on views of the role of region specific labor demand: Small shocks—all good Big shocks, flows accommodate—all good in long run Big shocks, policy and ‘institutional’—not so good, can

be fixed Big shocks, really geographic: lets not think about it

—What would be ghost countries are zombies

Is anything other than POSEBL globalization possible?What was, was,What can be, could be

Value of annual savings from debt relief versus existing remittances

3 7.3

135

Bil

lio

ns

Flows from HIPC debtrelief

Remittances to Sub-Sahran Africa

Net developingcountry remittances

`

Gains to developing country residents from “globalization” options on and off the table

79.5 86

305

Bill

ion

s

Doubling net ODA

Net gains to developingcountries fromliberalization in Doharound

Value of welfare gains tocurrent developing countryresidents (including gainsto movers)from 3% ofOECD labor force increase

`

Which is facetious?

3 79.5 86 305

8000

Bill

ion

s

Flows from HIPC debtrelief

Doubling net ODA

Net gains to developingcountries fromliberalization in Doharound

Value of welfare gains tocurrent developing countryresidents (including gainsto movers)from 3% ofOECD labor force increase

Gains from open borders(assuming proprotionallydistributed)

`

“You see that that Mr. Anderson?... That is the graph of demographic inevitability... It is the sound of your death... Goodbye, Mr. Anderson... “ (The Matrix, adapted)

Europe’s disappearing act—compared to the “Muslim tier” that surrounds it

0

200

400

600

800

1000

1200

1400

1950 1970 1990 2010 2030 2050

Year

Po

pu

lati

on

(m

illi

on

s)

0

1

2

3

4

5

6

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

France

Germany

Italy

Japan

United States

Support ratios (workers to retirees)--rule of thumb: what cannot happen will not—but what will happen?

“Hard core non-tradables” (non-outsourceable services) are the major labor growth of the future who will do these jobs? With a declining labor force what is the face of the future labor force?

The historically huge decrease in the cost of capital and the rise in returns to education—unskilled labor is threatened by skill biased technical change—lack of labor mobility exacerbate this problem?

What is the future?

Moore’s law (increased computing power)

Robotics Increase in very high skilled

researchers in rich countries plus hugely distorted labor costs—

Robots displace Rosalie(ATMs, automated checkout, self-service

parking garages)

What could be, can be

Will the world choose people?

Globalization cannot include migration because voters are against it….

In favor of reducing migration "a little" or "a lot"

0

1020

3040

50

6070

80

Italy Austria Spain

There is similar, or higher, opposition to trade, but this is a problem to be handled with globalization and free trade, but an insuperable objection…

0

10

20

30

40

50

60

70

80

Italy Austria Spain

In favor of reducingmigration "a little" or "alot"

In favoring of restrictingtrade "a little" or "a lot"

While voters closed borders in the early 20th century, the huge historical spread in incomes raises the question: are the median voter in rich countries and an unskilled migrant really substitutes?

Source: Author’s calculations with many assumptions

Are the nurses of the future Robots or Rosalie?