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Globalisation's last frontier

By Jeff Madrick

THE UNITED States President, George W. Bush's recent proposal to grant temporary legal status to illegal immigrants is not yet fleshed out enough to judge how effective it will be. Six million to eight million illegal workers would qualify, as would future immigrants hired by companies that could show that Americans were not willing to take the jobs.

One serious concern is that immigrant workers would be tied indefinitely to the company that sponsors them. Teresa Ghilarducci, an economist at Notre Dame, warns that this would give the company undue power over wages and other worker rights, and a result could be a permanent class of low-wage employees.

But if the Bush plan raises more questions than it answers, it is still an encouraging first step that focusses needed attention on an issue that will become more urgent in coming years. For one thing, there will probably be no stopping the steady march of unskilled and skilled labour across borders. The U.S. has been unable to stanch flows of illegal immigrants from Mexico, for example.

But economists of varying political views also say that the limited migration of skilled and unskilled workers, if properly harnessed, can be a vital source of economic growth in developed and developing nations.

"This is the last unexplored frontier of globalisation," says Dani Rodrik, an economist at Harvard's Kennedy School. "We have to start taking labour mobility seriously." In fact, theoretically, the bigger the differences in wages for similar work across the world, the greater the potential rise in incomes to the receiving and sending nations. It is analogous to the benefits from international trade when goods are cheaper in one country than another.

A team of British economists led by L. Alan Winters of the University of Sussex has developed a traditional model to estimate such gains. In general, the model assumes that developed nations generate higher profits and more investment as labour costs are saved. As for developing nations, their migrant workers now make far more money and send a large part of it home.

Mr. Winter and his colleagues have found that if the Organisation for Economic Cooperation and Development (OECD) nations increase by 3 per cent their quotas of migrant labour, both skilled and unskilled, world income would rise by a considerable $156 billion a year, or 0.6 per cent of total world income today.

But if the theory is convincing, the practical issues are considerable. Absorbing lower-wage workers in host nations means that domestic wages are at least somewhat undermined. More immigrants will also put pressure on already overburdened social programmes.

A temporary limited migration programme similar in principle but different in important details to what the Bush administration seems to have in mind can minimise such problems. By providing migrant workers legal status, including eligibility for domestic social programmes, businesses could not easily pay wages below the going rate or ignore their payroll taxes and other benefits, as they now can for illegal immigrants. For these reasons, some labour unions are beginning to support such legalisation.

What is critical to the equitable distribution of benefits, however, is that workers return home after a few years. Cycling workers would allow more poor workers from a wider range of nations to migrate.

But simply requiring workers to return home is not enough. Attractive incentives must be provided as well, and those in the Bush plan are inadequate. Devesh Kapur, a professor of government at Harvard, who with his colleagues has done comprehensive research in the field, suggests that one possibility is to have the U.S. retain part of the wages paid to new legal migrant workers in an investment account that is given back to the workers only when they return to their home countries.

As for the power of businesses over their recruits in the Bush plan, Mr. Kapur says employees should have to work for their sponsoring company for only a limited time, and then be allowed to look for other jobs.

For all its benefits, however, greater labour mobility is no panacea in itself. In the U.S., for example, a Bush-style immigration programme could work best in tandem with a reasonable increase in the minimum wage. As for sending nations, Mr. Rosenzweig points out that returning money in the form of remittances is most productive when the economy can channel them to useful investment and social programmes.

Moreover, some older policies work at cross-purposes. Mr. Kapur notes that one reason so many Mexicans flee to the U.S. is that the North American Free Trade Agreement subjected them to low-price American agricultural competition that is subsidised by the government.

More labour mobility is an exciting potential source of growth for all, but it will work only in conjunction with proper safeguards and fair and productive social policies. — New York Times News Service.

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