1、TRADE, TRADE AGREEMENTS, & IMMIGRATION,Simple Trade Model Logic behind trading blocs Trade Organizations & U.S. Trade Agreements Trade Agreements and Labor Labor Standards Immigration,WHY NATIONS TRADE?,Differences in factor endowmentsCountries differ in endowments in natural resources, infrastructu
2、re, capital availability, human capital accumulation Benefits from economies of scaleBy specializing, countries can produce on a large scale,Simple trade model,Assumptions: 2 good world: e.g., food and clothes 2 types of inputs capital and labor Regions differ in their endowments of each Both capita
3、l and labor are of fixed quantity and immobile Constant returns to scale Consumers in both countries have same taste Can combine capital and labor to produce some mix of food and clothes: result is a production possibilities function.,Ehrenberg & Smith Production Possibilities Diagram,Comparative Ad
4、vantage,Regions (countries) differ in the quantity/quality of inputs Costs of producing one good expressed in opportunity costs or foregone production: - I.e., The cost of producing one unit of A means foregoing the production of x units of B Country X is said to have a comparative advantage in prod
5、ucing Good A if the foregone output of Good B is lower than the foregone output of Good B in Country Y. Note: No $ Discussed,Trade as Mutually Beneficial,Notion is that countries differ in the relative costs of production. Free trade does not lead to all production being shifted to the lowest cost l
6、ocation,Predictions of Simple Model (Heckscher-Ohlin hypothesis),Countries will export goods in which they have a comparative advantage and import those in which they do not. Free trade leads to specialization of production according to comparative advantage Maximized Consumer Welfare (lower product
7、 prices),Implementing Free Trade,Introduction to Trading Blocs,Trading Blocs,Definition: Preferential trading agreements Members of bloc favored over non-members Expected Advantages to trading blocs Creation of new markets for producers Lower priced goods/services for consumer Promote political stab
8、ility & economic prosperity Much of world divided into regional trading blocs,4 TYPES OF TRADING BLOCS,Trade Preference Association: Members lower govt. barriers on goods from other members only (e.g., Preferred nation designation). Free Trade Area: Members eliminate barriers against other members b
9、ut maintain individual barriers against goods from non-members (e.g., NAFTA).,4 TYPES OF TRADING BLOCS, CONT.,Customs Union: Members eliminate govt. barriers against members imports and establish common tariffs against non-members (e.g, EC, Mercosur). Common Market: Barriers to all transactions remo
10、ved b/n members, incl. transfers of labor, capital, & services. Common barriers against non-members (e.g., EU).,THEORETICAL PROS & CONS OF TRADING BLOCS: Advantage,Trade Creation: Members import goods they previously did not import Efficiency enhancing: Specializing production according to comparati
11、ve advantage Lower product prices for consumers in bloc Efficiency enhancing Economies of Scale Larger markets allow producers to enjoy economies of scale - lower production costs Efficiency enhancing,THEORETICAL PROS & CONS OF TRADING BLOCS: Disadvantage,Trade Diversion: Members now import goods fr
12、om other members that were previously imported from outside of bloc Assumed that switch is from more efficiently produced to less efficiently produced goods Not efficiency enhancing,Features of Trading Blocs,One or more small countries linked to larger country (or bloc itself) Small countries often
13、trying to make internal reform Ultimate goal of deeper integration Degree of liberalization relatively modest Smaller countries usually making greater concessions,EMPIRICAL RESULTS ON TRADE CREATION,Trade creation more likely to occur the: Higher pre-bloc tariffs & trade barriers More member countri
14、es More competitive the countries prior to forming bloc Closer the countries geographically,WHY PUSH FOR BLOCKS IF BENEFITS MIXED,Product of political process where beneficiaries represented Way to reduce political conflicts Way for developing countries to reduce dependence on developed countries Id
15、eological commitment,U.S. Trade Agreements,Free Trade Agreement (FTA) United States/Canada (1/1989) North American Free Trade Agreement (NAFTA) (1/1994) United States/Canada/Mexico Fast Track FTAA, CAFTA,Fast Track Authority,Executive branch delegated authority to negotiate terms of trade, enter int
16、o agreements and change write legislation to reform federal laws as needed Congress can suggest goals but can only vote on entire agreement Recent Use Used to negotiate NAFTA Requested and Denied, March 1999 Requested and Approved 2002: expected bilateral pact with Singapore and inclusion of Chile i
17、n NAFTA Slow down in momentum for western hemispheric free trade agreements despite US 2005 deadline,Barriers reduced or eliminated by FTA and NAFTA,Fiscal Barriers: Eliminates or reduces taxes on partner goods and subsidies to native goods Quantitative Barriers: Quotas on Imports of partner goods e
18、liminated Transaction costs associated with Trade: Checking goods at border, paperwork, etc. Some Non-tariff Trade Barriers,Reasons for agreements,FTAPromote bilateral trade Improve climate for bilateral investment Resolve specific trade difficulties,NAFTA Expand goods mkt. Expand invest. opp Stabil
19、ize Mexico for US investment Reduce illegal immigration Develop both sides of border,WORKPLACE ISSUES IN TRADING AGREEMENTS: AN AFTERTHOUGHT,Canada: Expect slight increase in US employment from more competitive firms & goods substitution Mexico: US employment increase from “trickle-down”: Increased
20、demand in Mexico for US goods = increase in US employment.,LABOR STANDARDS IN FREE TRADE AGREEMENTS,Link b/n fair labor standards & trade policy Notion of “social dumping” - League of Nations in 1927 Policies to “harmonize” and eliminate competition based on failure to respect international standard
21、s - ILO in 1950s Worker rights not part of Uruguay talks and tangential to NAFTA,WORK UNDER NAFTA,North American Agreement on Labor Cooperation (NAALC):Labor side agreementPoint: to protect national sovereignty & right to issue labor standards Agreement to protect: right to bargain, minimum labor st
22、andards, safety & health Disputes resolved by multi-step arbitration process,Jobs, Labor Standards & Free Trade,Economic Framework: THEORY OF ECONOMIC LOCATION,Basic premise of location theory: Firm locates at minimum cost location Considers production function, spatial variation in factor prices an
23、d capital availability, proximity to inputs & markets, transportation costs,Labor as a Locational Attribute,Cost Compensation and Labor Standards Will affect “demand” for a location Heterogeneity Skill heterogeneity: will encourage specialization Labor Standards Social contract between nation & its
24、workforce,THEORY OF ECONOMIC LOCATION, CONT.,Labor Mobility with NAFTA: Severely restricted Some professional services mobile Implication of Labor Immobility Labor as a locational attribute thus part of each countrys comparative advantage,Conceptual Bases for Labor Standards,2 Bases for defining lab
25、or standardsRights-based Labor standards as codification of human rights Reflect world-wide norms for treatment of laborEconomic Regulation Modifying economic behavior; limits choices of producers &/or consumers Usually penalties for non-compliance Set in context of comparing importing and exporting
26、 countries,Rationale for Labor Standards,Use of police power of state to abridge individual liberties if there is a public benefit Poor conditions of employment associated with weak bargaining power of employees - a social ill that could be addressed by state intervention,DEFINITION OF LABOR STANDAR
27、DS,A governmentally established procedure, term or condition of employment, or employer requirement that has as its purpose the protection of employees from treatment at the workplace that society considers unfair or unjust. They are mandatory - governmentally imposed and enforced,3 Basic Models of
28、Labor Standards,Within-Country Legislation or Collective Bargaining Cross-National Legislative, Trade sanctions, Multilateral agreement Voluntary Standards Codes of corporate conduct,WHY ARE LABOR STANDARDS-RELATED ISSUES IMPORTANT?,ECONOMIC PERSPECTIVE PRODUCERS: Cost concernsEMPLOYEES: Compensatio
29、n & Welfare POLICY PERSPECTIVES STRATEGIC QUESTIONS: International competitiveness SOVEREIGNTY QUESTIONS: Ability to make laws consistent with national welfare and values,Empirical Research on Labor Standards,Global Organizations Canada United States Comparison Block & Roberts United States European
30、 Union Comparison Block, Roberts, & Berg,Global Trade Organizations: WTO,World Trade Organization (WTO) Established 1995; 142 countries Objectives: facilitate liberalization of trade; eliminate most favored trade status arrangements; encourage competition; help with development of developing countri
31、es. Advocate of multi-lateral agreements,Global Trade Organizations: ILO,International Labour Organization (ILO) Established by Treaty of Versailles in 1919; 175 member countries. Purpose: promotion of social justice and internationally recognized human and labor rights Mechanism: Conventions ratifi
32、ed by member countries,Fundamental ILO Conventions,Freedom of Association (# 87, 98) Abolition of Forced Labor (#29, 105) Equality (#111, 100) Elimination of Child Labor (#138, 182),U.S. Canada Comparison: Key Questions,ARE THERE DIFFERENCES IN CANADIAN AND U.S. LABOR STANDARDS? IF SO, WHAT IS THE M
33、AGNITUDE OF THOSE DIFFERENCES?,Difference in Statutory Basis between U.S. & Canada,U.S For most standards, Federal govt. is mandatory floor Some standards set at state unjust dismissal Canada Provincial sovereignty on most standards Exceptions: Employment (unemployment) insurance & standards governi
34、ng sectors that operate inter-provincially,LABOR STANDARDS ANALYZED,STANDARDS THAT REQUIRE EMPLOYER PAYMENTS TO EMPLOYEES OR TO GOVERNMENT MINIMUM WAGE OVERTIME/HOURS OF WORK PAID-TIME OFF UNEMPLOYMENT INSURANCE WORKERS COMPENSATION,STANDARDS THAT CONSTRAIN EMPLOYER ACTIONS COLLECTIVE BARGAINING EQU
35、AL EMPLOYMENT /EMPLOYMENT EQUITY UNJUST DISMISSAL OCCUPATIONAL SAFETY AND HEALTH,SIX LABOR STANDARDS HIGHER IN CANADA THAN IN U.S.,SUBSTANTIALLY HIGHER IN CANADAPAID-TIME OFF COLLECTIVE BARGAINING UNJUST DISMISSAL,SLIGHTLY HIGHER IN CANADA WORKERS COMPENSATION EQUAL EMPLOYMENT / EQUITY OCCUPATIONAL
36、SAFETY AND HEALTH,TWO STANDARDS COMPARABLE IN CANADA AND U.S.,MINIMUM WAGE UNEMPLOYMENT INSURANCE,ONE STANDARD HIGHER IN U.S. THAN IN CANADA,MAXIMUM HOURS FOR OVERTIME,U.S. versus EU: Prevailing views,Trade-off between worker protection and unconstrained (and therefore efficient) market forces In re
37、lative terms: U.S. seen as placing higher value on market EU seen as placing higher value on worker protection,Differences in political structure,U.S. sovereign country Federally-set standards binding lower bound in all states Enforced (usually) by federal agencies EU political union of member count
38、ries European directives issued centrally Member countries each pass legislation and structure enforcement.,Standards analyzed: Those promulgated at federal or council level,Wage rates (min. wage) Working time Paid time off Unemployment insurance Collective bargaining Anti-Discrimination,Unjust dism
39、issal Occupational safety & health Large scale layoffs Employee involvement Parental/family leave Transfers of ownership,Results,EU higher: Collective Bargaining Unjust dismissal Occupational Safety & Health Employee involvement Transfer of Ownership Paid time off,U.S. higher: Minimum wage Unemploym
40、ent insurance About the same: Discrimination Large scale layoffs Parental leave,Understanding Offshoring,Why now: India and China have long had wage advantage May be improving in education, though still developing countries Driver: lower transportation and communication costs Off-shoring concentrate
41、d in IT, phone & on-line services,LABOR IMMIGRATION,Brief history of U.S. Law Who migrates and why Effect of Immigration on U.S.,Recent History of Immigration Law,Immigration Acts of 1921 and 1924 1924 - U.S. Border Patrol established Immigration & Nationality Act of 1952 Set basic U.S. immigration
42、law framework Defined categories of non-U.S. born individuals 1965 Amendments Abolished quotas & changed priorities Immigration Reform and Control Act of 1986 Major reform of immigration law Created amnesty program & employer sanctions Marriage penalty (separate law),Current Law,Immigration Act of 1
43、990 Major reform: set cap on number of immigrants (675K) 1993 Lottery for green cards permanent resident visa Priorities: Family reunification, special skills, refugees,Current Statistics,Downward trend since 1991: 1.8 Million to 660,000 in 1998 Large increase in employment based immigration: 3.7% i
44、n 1990 to 11.7% in 1998 Largest sending regions: North America, followed by Asia Largest receiving states: CA by far, then NY, then FL,Neoclassical Framework (Push-Pull),Migration as function of relative attractiveness of 2 areas Attractiveness = f(wages) Migration as equilibrating process Distance
45、as market imperfection Non-zero transaction cost,Models of Immigration,Basic Neoclassical Framework Migration as an equilibrating process Roy ModelExplains net flows from one country to another Migration as a Human Capital DecisionExplains individual level decision making,Roy Model Basics,Assumes 2
46、countries with different income distributions Country A: Wide dispersion, low mean County B: Narrow dispersion, high mean Model Predictions Low end of A will move to B, but high end of A will not High end of B will move to A, while low end of B will not,Roy Model: Income Distributions,Country B,Coun
47、try A,Migration as Individual Human Capital Investment,Same framework as with education:PVB = S (Bjt - Bot )/(1+r)t Where: Bjt are the benefits associated with destination countryBot are the benefits associated with sending countryt is length of time expected to be in destination country and r is di
48、scount rate Move if PVB/C = 1C are the direct costs associated with immigration borne by the individual,Who migrates to U.S. and why?,Older or younger More or less educated Closer countries or further,Two types of employment-based migrants,Target earners Migration to high wage region for specified p
49、eriod of time to make “target” money to send home Permanent migrants Chain migration Family migration: Evidence of longer investment time horizon,Is Immigration Good for the US?,Two Perspectives Immigrants as substitutes for US workers Increase unemployment Immigrants as complements to US workers: T
50、ake jobs US workers do not want Help sustain economic growth,Immigration as hurting US workers,D,SD,SF + D,E1,E3,ED,W1,W2,Simplistic versus likely version of immigrants as hurting US workers,Single market Common argument that immigrants substitute for US workers on one-for-one basis More likely reality: addition of immigrants depresses wages below what they would be. If immigrants deported, would be an insufficient supply of domestic workers at new wage.,
