Globalization with Labor: Is the Future Robots or Rosalie Lant Pritchett November 2, 2007 Center for Development Economics Williams 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 20 th century, Ethiopia the 13 th … India, $ China, $ Ethiopia, $688 ~ Year Mexico, $8165

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

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 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

But even deep liberalization with borders does not make the world “borderless”… Source: McCallum, 1995

The world is not flat—there are big hills separating even the liberalized countries—prices are not equalized Source: Bradford and Lawrence, 2004

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 countries In 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

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 `

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

Which is facetious? `

“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

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….

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…

While voters closed borders in the early 20 th 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?