Tuesday, September 26, 2006

Kremer on Immigration

My Harvard colleague Michael Kremer defends immigration. Here is a brief description of his new paper:

Immigrant workers serving as nannies, caretakers and housecleaners may be helping to improve conditions for native workers. A new paper, co-authored by a Harvard professor and a recent PhD graduate, concludes that the growing trend of immigrant household laborers is having the effect of raising salaries for native low-skilled workers, and reducing wage inequalities between workers overall.

The working paper titled “The Globalization of Household Production,” challenges many existing theories about the economic impacts of immigration. Co-authors Michael Kremer and Stanley Watt examine how immigrant household workers are affecting other labor trends, and how those trends are affecting the overall economy.

The authors document the rising numbers of women who are increasingly crossing international borders to work as private household workers. In Singapore and Hong Kong, for instance, foreign workers in private households comprise around 7% of the total labor force or more. The percentages are even higher in some “new rich” gulf countries.

Kremer and Watt argue that as more immigrant women serve in household positions, more high-skilled native women are therefore available to join the labor market, driving down relative wages among high-skilled workers and reducing the disparity in wages between low- and high-skilled workers. In addition, Kremer and Watt contend that as more native women return to the workforce, they contribute more tax dollars to the general coffers. This provides “a fiscal benefit for the population, even without considering the taxes paid by the migrants themselves,” they write. Assuming immigration levels of 7% of the total labor force, relative wages of native low-skilled workers are increased by 3.9%, and native welfare overall is increased by 1.2%, they claim.