1. An Auction Approach to High-Skills Immigration Jānis Ošlejs October 2008

2. Solow residual accounts for 70 to 90 per cent of growth Free markets for movement of labor and capital therefore account for only 10 to 30 per cent of growth Once economies pass from efficency to innovative econmies (@ around 9000 USD per capita) Solow residual grows

3. Innovation explains Solow residual For rich Innovative countries and for Transition to Innovative economy countries like Latvia policies must be directed towards innovation, not so much towards making more of labor or capital

4. Immigration: cross-fertilization of ideas Blocked within EU Blocked from outside EU Why?

5. Two types of immigrants: – High skills – Low skills Differing wage outcomes Differing value-added outcomes for host communities

6. There are undisputed benefits from high-skill immigration Are all high-skill immigrants employed at their potential within EU? Are the benefits from low- skill imigration as high?

7. Hanson, University of California (San Diego) – “Immigrant labour reduces prices of services” Borjas, University of Harvard – “Immigrants reduce wages at the lower skill level”

8. Lewis,Federal Reserve, Philadelphia “Mariell immigrants created a pool of low- skilled labour” “The technical sophistication of enterprises in Miami still lags US average”

9. The wine industry is highly mechanized in Australia, whilst in California it is highly labour – intensive Large pools of low-skilled workers provide disincentive for mechanization, automation and innovation in work methods

10. Immigration of low skilled labour – Reduces technological sophistication – Increases inequality in society High-skills immigration – May be highly beneficial to economy

11. Labor and Capital are commodities Production can be anywhere Asia benefits from low labor cost Only innovative economies with highly creative labor force can benefit from expansion of Asian middle class

12. Sadly overturned in Laval case By setting the demand to pay sector-wide average wage for all immigrants provides disincentive for undue attraction of immigrants with substandard skills The free movement of labour in Sweden allowed for importing of innovative practices Swedish model was the best combination of market forces with incentives to develop sophistication of economy

13. Other old EU countries either had no regulation and now have backlash against immigration (UK) or are operating a bureaucratic barriers to entry (Finland) or are outright prohibiting labour from new EU countries (Germany, France) Points based-systems Hiring of non-EU workers difficult

14. A nation would decide on amount of immigration it feels comfortable with Then a quota is generated and sold to interested companies on basis of offered wage Highest wage corresponds to highest value- added and biggest market need

15. Wage auction-based approach – Rewards above-average productivity – Measures true value added – Is easy to run – Can be outsourced to private sector – Does not hurt local workers Benefits innovation Dicourages race-to-bottom

16. Government regulation of immigration stiffles innovation Free market will produce optimal outcomes Visa auction is a free-market approach Wage is the best indicator of innovative potential and thus should form the basis of auction

17. THANK YOU!

18. Creativity: new associations between existing ideas or concepts Innovation: creativity practically applied Regulation of employment: bad, if it stiffles creative people to innovate