Month: April 2018

Did Mass Immigration Improve Jordan’s Institutions?

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The following is from my article in the latest BYU Studies Quarterly:

Another objection [to immigration] is what is known as the “epidemiological case,” which argues that immigrants may bring with them foreign values that undermine the culture and institutions of the host country. In essence, immigrants transmit to rich countries those elements that make their source countries poor. What makes this rather prejudiced argument all the more jarring is the fact that it has virtually no supporting evidence. Unfortunately, very little empirical research has been conducted exploring the impact of immigrants on cultural, political, and economic institutions at all. However, the research that is available should calm fears and actually provide reasons for optimism. For example, there is no association between growth of total-factor productivity (TFP) in rich countries and the ratio of migrants from low-income countries, indicating that migrants do not “contaminate” their new homes with the low productivity of their source countries.

The Canada-based Fraser Institute publishes its oft-cited Economic Freedom of the World report annually. Its indicator—known as the Economic Freedom of the World (EFW) Index—defines economic freedom based on five major areas: (1) size of the government, (2) legal system and the security of property rights, (3) stability of the currency, (4) freedom to trade internationally, and (5) regulation of labor, credit, and business. According to the institute’s most recent report (which looks at data from 2015), countries with more economic freedom had considerably higher per-capita incomes and economic growth. Relying on this index, a 2015 study found that a larger immigration population marginally increases the economic freedom of the host country’s institutions. No negative impacts on economic freedom were found. Several authors from this study looked at Israel during the 1990s as a natural experiment in mass migration. During the 1990s, Israel’s population grew by 20 percent due to immigrants from the former Soviet Union. Yet, instead of experiencing decline, Israel shot up “from 15% below the global average [in economic freedom] to 12% above it and improv[ed] its ranking among countries by 47 places.” Similarly, a 2017 study found that higher diversity—measured by levels of ethnolinguistic and cultural fractionalization—predicts higher levels of economic freedom. While this particular study mainly discusses development economics,the correlation between high diversity and high economic freedom is an important aspect of the immigration debate. Barring members of different ethnolinguistic groups from entering the country may actually be holding back economic development (pg. 95-97).

Now, a new Cato working paper adds more evidence to the pile. The authors write,

In 1990 and 1991, about 300,000 Palestinians were expelled from Kuwait by Saddam Hussein’s invasion and could not return after the war (van Hear 1992, 5; Colton 2002). These Kuwaiti-Palestinians were forced to Jordan where, due to a quirk of Jordanian law, they arrived as citizens who could vote, work, own property, and otherwise influence the political and economic system of Jordan even though most of them had never lived in Jordan before. The surge of 300,000 Kuwaiti-Palestinians was equal to about 10 percent of Jordan’s pre-surge population. If such a proportionally large, sudden surge of immigrants entered the United States in 2015, it would be as if 31.6 million immigrants entered in a single year. To make it more challenging, the Kuwaiti-Palestinians arrived in the midst of a severe recession in a country with far weaker economic institutions. While this example does not speak directly to emigration from the developing world to the developed world, it does provide another example of how institutions change under migratory stress.

Natural experiments like these are valuable because they remove concerns about endogeneity and are more convincing than large cross-sections of many countries. Economists have successfully used natural experiments to study how exogenous immigration shocks affect labor markets (Card 1990; Hunt 1992; Carrington and de Lima 1996; Angrist and Krueger 1999; Friedberg 2001; Lach 2007; Kugler and Yuksel 2008; Alix-Garcia and Saah 2009; Cohen-Goldner and Paserman 2011; van der Vlist, Czamanski, and Folmer 2011; Glitz 2012; Ceritoglu, Yunculer, Torun, and Tumen 2017; Balkan and Tumen 2015; Borjas 2015). We turn these empirical methods to understanding how an exogenous surge of immigrants affects institutions (pg. 5-6).

Their findings?:

Jordan’s absolute economic freedom score was 5.43 in 1990 and rose rapidly to 6.14 in 1995 and then 7.06 by 2000 (Figure 1). It also increased relative to the average economic freedom score for all non-developed, OECD, and Organization of Islamic Cooperation (OIC) nations after 1990…Relative to all non-developed nations, Jordan went from having an absolute economic freedom score of 0.5 above all non-developed countries in 1990 to 1.1 points above in 2000. Relative to Organization of Islamic cooperation countries, Jordan went from 1 point ahead in 1990 to 1.5 points ahead in 2000. It also closed the gap with OECD countries from 1.3 in 1990 to around 0.5 in 2000. Jordan’s economic freedom score was slightly above those of the non-OECD world in 1975, but it converged with the economic freedom score of the OECD nations by the early 2000s…Relative to the OECD mean, Jordan’s economic freedom score gap widened from 0.50 points to 1.12 points from 1980 to 1990 but then narrowed to 0.57 in 2000 and 0.44 in 2002…Jordan’s economic freedom score climbed from one similar to the average of the non-OECD world in 1980 to one much closer to the OECD mean in 2002 (pg. 15-16).

 

Thoughts on Alfie Evans

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Anger is toxic, and it has no place in ordinary political disputes. I’m very reluctant to add to it.

And yet, it is less with anger and more with a sense of bone-deep bewilderment that I–reluctantly–read a few articles about Alfie Evans.

Aflie is a baby with a severe neurological affliction that–according to doctors–has left him in a vegetative state with no conceivable chance of recovery. This is tragic, and no one is to blame for Alfie’s condition.

The UK courts have decided that no further care should be given to Alfie because there’s no hope of his recovery. This is tragic, but also defensible. It’s not possible to expend unlimited resources on every tragic case, and hard calls have to be made.

But where things stop making sense to me is where the UK government has refused to allow Alfie to be transported to Italy for additional care. Alfie has been granted Italian citizenship, the Italian military sent a plane to UK to fly him to a hospital in Italy, and all of this was done–one guesses–largely in response to the Pope’s public support for Alfie.

The UK government’s response is, essentially, that Alfie’s parents don’t know what they’re doing. The doctors know better. That may be true. Even the Italian hospital admits it can do no more than keep Alfie alive while doctors study his case. No one things there is a miracle cure.

But here’s the thing: why does the UK government, or any group of doctors, get to decide?

It gets more baffling still. Now Alfie’s parents, haven given up on the Italian option, just want to take him home. But even that they cannot do unless the doctors say so. In what universe is that a morally defensible position to take? Quoting an anonymous British father:[ref]Corrected to reflect the fact that this quote wasn’t from Alfie’s father as I at first thought.[/ref]

When my son was born nearly 16 months ago, I found to my amazement that I could not take him home until a paediatrician had signed a small slip of paper, to be handed in at the exit, authorising his release. I joked to my wife that we were only parenting under licence from the State. It seems less of a joke now.[ref]American Conservative[/ref]

The last straw–and the cause of the anger I can’t deny I feel about this–is the insufferable arrogance of the UK politicians and medical experts. For example:

Lord Justice McFarlane said parents, like those of Alfie Evans, could be vulnerable to receiving bad medical advice, adding that there was evidence that the parents made decisions based on incorrect guidance.[ref]United Press International[/ref]

and:

Hospital officials at Alder Hey say they have received “unprecedented personal abuse” from the global backlash to Alfie’s case. The Liverpool hospital has faced several protests in recent weeks, organized by a group calling itself “Alfie’s Army.”

“Having to carry on our usual day-to-day work in a hospital that has required a significant police presence just to keep our patients, staff and visitors safe is completely unacceptable,” the hospital’s chairman, Sir David Henshaw, and chief executive Louise Shepherd said.[ref]United Press International[/ref]

Oh, is it “completely unacceptable” for people to protest what is essentially government-sanctioned kidnapping? I’m so sorry! I come from this crazy moral universe where parents–and not the government–are the guardians of their own children.

Or here’s another one:

Sometimes, the sad fact is that parents do not know what is best for their child,” Wilkinson said. “They are led by their grief and their sadness, their understandable desire to hold on to their child, to request treatment that will not and cannot help.[ref]CNN, this one added after the post was initially published.[/ref]

The UK was, in many ways, the birthplace of our political heritage of individual liberty and rights. It’s mystifying–and tragic–to see the sorry state of decay it has fallen into today.

So tell me, folks, am I missing some really vital aspects to this story that make it something other than a micro-dystopia?

“The Ugly Coded Critique of Chick-Fil-A’s Christianity”

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Stephen Carter at Bloomberg suggests the secular Left doesn’t realize who it’s mocking. Key points:

  • Women are more likely than men to be Christian.
  • PoC are more likely than white people to be Christian, and particularly more likely to be Christian traditionalists.
  • White Christians are aging while Christians of color are youthening.
  • Among Latinos and Asians, Christians are overwhelmingly first generation immigrants.

Read the full article here.

Do Mexicans Take or Create Employment in Texas?

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From Dallas Morning News:

Far from taking jobs away from Texans, Mexicans are helping create additional employment opportunities, providing valuable labor for a growing economy and helping the deepening integration with Mexico, according to the Texas-Mexico Center at Southern Methodist University.

…The study  relied on data from the U.S. Census Bureau and its Mexican counterpart, known as INEGI. The study, with contributions by the Bush School of Government at Texas A&M University, the Federal Reserve Board of Dallas and Colegio de Mexico in Mexico City, stressed the importance of labor from Mexico, which is in decline in many parts of the United States.

Underscoring the trends is the 1994 North American Free Trade Agreement, or NAFTA. The trade accord led to a dramatic economic transformation that fueled a shift in goods, products and movement of people, factors that over the years have impacted cities and regions. For instance, supply chains and cultural integration deepened in cities such as Dallas as Mexico-based companies moved into North Texas along with their products — from tortillas to pasta to  Topo Chico —  and, of course, more workers.

Some of the study’s findings include:

  • Trade with Mexico does not hinder interstate trading in the U.S. States are still more likely to trade among themselves than across the border with Mexico, which shows the border trade relationship supports both national and international trade.
  • Because of the integration across value chains, there is clear evidence that Mexican and U.S. workers are complements for each other rather than substitutes.
  • Revisions of NAFTA need to maintain cross-border integration.
  • Freer migration reduced Mexico´s wage inequality.

The preliminary findings can be found here.

Do Economists Think Tariffs Help or Hurt?

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Hurt. This isn’t even controversial among economists. Take the IGM Economic Experts Panel out of the University of Chicago. The panel was asked to respond with whether or not they agree with the following: “Imposing new US tariffs on steel and aluminum will improve Americans’ welfare.” And what do we get? A big fat nope.

But I’m sure people (and Presidents) will keep on saying and thinking things that aren’t true.

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DR Editor in BYU Studies Quarterly: “Ye Are No More Strangers and Foreigners”

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I’m excited to announce that my article “”Ye Are No More Strangers and Foreigners”: Theological and Economic Perspectives on the LDS Church and Immigration” has been published in the latest issue of BYU Studies Quarterly. From the abstract:

Issue 57:1 CoverImmigration policy is controversial topic in 2018. In response to refugee crises and legal situations that can break up families, the LDS Church announced its “I Was a Stranger” relief effort and released a statement encouraging solutions that strengthens families, keeps them together, and extends compassion to those seeking a better life. This article seeks to shed light on a correct understanding of immigration and its effects. Walker Wright gives a brief scriptural overview of migration, explores the public’s attitudes toward immigration, and reviews the empirical economic literature, which shows that (1) fears about immigration are often overblown or fueled by misinformation and (2) liberalizing immigration restrictions would have positive economic effects.

From the editors:

Walker Wright’s article on religious and economic perspectives about immigration, strangers, and refugees is marvelously timely. He approaches the debate over immigration through a double lens: the Church’s official statements and scholarly research on the economic effects of immigration. He demonstrates that the Church’s accommodating approach is overwhelmingly supported by the research. Migration is often impelled by external pressures, but it is ultimately the voluntary response of those fleeing to improve their lives. Immigrants come unassigned, so people can reach out to them without needing to be asked (pg. 5).

The article is divided into the following sections:

  • “I Was a Stranger”
  • Migration in Scripture and Sacred History
  • Strangers, the Sin of Sodom, and Zion
  • Public Opinion on Immigration
  • The Economy as a Whole
  • Global Poverty
  • Refugees
  • Common Objections to Immigration
    • “Stealing” Jobs
    • Depressed Wages
    • Culture and Institutions
    • Fiscal Burden and Welfare Cost
    • Terrorism and Crime

Check it out. You can also access it on my Academia.edu page.

 

Pro-science = Pro-nuclear energy

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Every time I see a meme like this…

…I can’t help but notice it’s missing a few lines. GMOs are safe. Humans begin as zygotes. And nuclear energy is efficient.

Ronald Bailey, the science correspondent for Reason, brought that last fact to my mind when he recently published the article “How We Screwed Up Nuclear Power.”

The Oyster Creek Nuclear Generating Station in New Jersey opened in 1969. It cost $594 million (in 2017 dollars) and took four years to build. America’s newest nuclear plant, at Watts Bar in Tennessee, opened in 2016. It cost $7 billion and took more than 10 years to complete.

What happened? Anti-nuclear activism and regulation.

In general, scientists are a lot less concerned about nuclear power than the general public is. According to Pew Research, 65% of AAAS members–including 75% of working engineers and 79% of working physicists Ph.D’s–favor building more nuclear power plants, compared to only 45% of the public. If we are defining “pro-science” as “recognizing and agreeing with the majority view of scientists in the field,” then being pro-science would include being pro-nuclear energy.

Total and Intangible Wealth: World Bank Report 2018

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I’ve mentioned the World Bank’s measurement of intangible assets before. Its recent report–The Changing Wealth of Nations 2018: Building a Sustainable Future–updates this measurement:

Image result for human capitalTotal wealth in the new approach is calculated by summing up estimates of each component of wealth: produced capital, natural capital, human capital, and net foreign assets. This represents a significant departure from past estimates, in which total wealth was estimated by (1) assuming that consumption is the return on total wealth and then (2) calculating back to total wealth from current sustainable consumption…In previous estimates, produced capital, natural capital, and net foreign assets were calculated directly, then subtracted from total wealth to obtain a residual.

The unexplained residual, called “intangible capital,” was largely attributed to human capital…as well as to missing or mismeasured assets and possible effects of social capital. But the unexplained residual accounted for 50–85 percent of the total wealth indicator, making it a weak indicator for policy. This approach was taken because of the lack of data for directly measuring human capital. We now have a method and data for estimating human capital directly and will measure total wealth as the sum of each asset category. The advantage of the earlier approach was that the residual included human capital, unmeasured assets, and the influence of institutions and governance on wealth. The disadvantage was that the various components of the residual could not be disentangled and it was calculated assuming the same return on assets in all countries.

Human capital in the past was not measured explicitly but included as part of the “residual,” accounting for 50–85 percent of total wealth in past estimates. We apply the well-known Jorgenson Fraumeni lifetime earnings approach to measuring human capital globally. We use a unique database developed by the World Bank, the International Income Distribution Database, which contains more than
1,500 household surveys (pgs. 38-39).

This report

shows for the first time that much of intangible wealth is actually human capital, estimated as the net present value of the population’s future labor earnings. Human capital turns out to be the most important component of wealth, even though its share in total wealth decreased from 69 percent in 1995 to 64 percent in 2014 (table 2.2). After 2000, this decline in the share of human capital wealth was entirely due to upper-middle and high-income OECD countries, which together account for more than 80 percent of global wealth as well as most human capital wealth. The factors that led to this decline include the aging of the labor force (which reduces the remaining years of earnings) in many high-income OECD countries, as well as in China, which dominates the upper-middle-income country group, and declining wage shares in GDP, particularly in many high-income OECD countries (ILO 2015). By contrast, in low- and lower-middle-income countries, which account for the majority of the world’s population, the share of human capital in total wealth is rising (pgs. 46-47).

The new report calculates total wealth as follows:

Total wealth = Natural capital + Produced capital + Human capital + Net foreign assets

“This represents a significant departure from past estimates,” the report explains,

in which total wealth was estimated by assuming that consumption is the return on total wealth, and then calculating back to total wealth from current sustainable consumption (“top-down approach”). In previous estimates, produced capital, natural capital, and net foreign assets were calculated directly, then subtracted from total wealth to obtain a residual. The unexplained residual, called “intangible capital,” was largely attributed to human capital as well as to missing or mismeasured assets. Now with a direct measurement of human capital,[ref]See Ch. 6 for an explanation of the methodology for measuring human capital.[/ref] total wealth can be estimated as the sum of all categories of assets (pg. 212).

In turns out that the U.S. has $983,280 total wealth per capita with human capital making up $766,470 (see pg. 232). Other findings include:

  • The report found that global wealth grew 66 percent (from $690 trillion to $1,143 trillion in constant 2014 U.S. dollars at market prices).
  • The top 20 countries with the fastest growing wealth per capita were dominated by developing countries—including two of the biggest—China and India, which were both classified by the World Bank as low income countries in 1995 and are now ranked as middle-income.
  • Countries with large gains in per capita wealth also included smaller countries like Chile, Peru, Vietnam, as well as countries rapidly recovering from civil disturbances like Bosnia-Herzegovina, Ethiopia, Rwanda, and Sri Lanka as well as some of the resource rich countries in the former USSR, like Azerbaijan.
  • Per capita wealth declined or was stagnant in more than two dozen countries in various income brackets. These include several large low-income countries, some carbon-rich countries in the Middle East, and high-income OECD countries affected by the 2009 financial crisis. Declining per capita wealth implies that assets critical for generating future income may be depleted, and the rents generated from natural assets depletion are not invested properly, a fact often not reflected in national GDP growth figures.
  • Human capital is the largest component of global wealth, accounting for two thirds of total wealth globally. This points to the need to invest in people for wealth creation and future income generation.
  • While natural capital accounts for 9 percent of wealth globally, it makes up nearly half (47 percent) of the wealth in low income countries. More efficient, long-term management of natural resources is key to sustainable development while these countries build their infrastructure and human capital.

Breaking News: Communism Makes People Worse Off

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From a recent study:

Our bivariate analyses show that the recent cultural factors examined—communist history and religion—are, taken alone, good predictors of the Human Development Index and its components (table 1). When incorporated alongside phylogeny and geography, phylogeny ceases to be a significant predictor of HDI or any of its components, meaning recent cultural factors combined with geography can account for covariation between HDI and cultural phylogeny (table 3). Communism significantly negatively predicts HDI, income and health indices, but religion ceases to be a significant predictor except for a negative correlation between Islam and education index. These results support a significant effect of communist history on the human development of countries, comparable to the effects of geography (which remains a significant predictor of HDI and income index), and more immediately important than cultural phylogeny or religion.

…Communist history shows a significant negative correlation with the national income of the countries in our dataset. Post World War II economic growth in communist countries was modest, especially during the 1970s and 1980s, relative to non-communist European countries [92], and the centrally planned economy of communist countries has long been held by economically liberal theoreticians to hamper conventional economic growth [93–95]. Although the countries in the dataset had abandoned communism for most of the years in the dataset, the residual effect of communism appears to still be detectable. Institutional and cultural traits produced by communism and by dictatorship may continue to retard growth today, with corruption still regarded as higher in Eastern than Western Europe [96] and linked to lower national income [97]. It should also be noted, however, that many of the former communist countries (largely those in the former Soviet Union) also suffered major economic turmoil following the demise of their communist governments [98], and that this too may play a role in explaining the apparent effect of communism on income. Moreover, it must be noted that the communist countries in the sample are all Eastern European and Central Asian, and that these areas were less wealthy than Western Europe even prior to communism [92,99], and indeed Russia saw rapid economic growth following the advent of communism, although this lessened over time [92,100]. For all these reasons the results presented here must be treated with caution, and are primarily intended as a control in the context of examination of deep cultural effects on human development, not as a thoroughgoing analysis of the effects of communism on development.

Communism also shows a significant negative association with health index (i.e. normalized longevity), although only at p = 0.05 level. This confirms the stagnation and even decline of life expectancy in Europe under communism during the 1970s and 1980s, corresponding to years of low economic growth (see above), which has continued to set formerly communist countries back in terms of life expectancy until today [101,102]. The proximate causes for this low life expectancy are complex, but high alcohol consumption, smoking and poor workplace safety, as well as low quality diet and living conditions associated with lower income levels are implicated [101]. Most of the same caveats also apply here as to the economic effects of communism however, with lifespan decreasing rapidly in the former Soviet Union immediately following post-Soviet collapse [101], and lifespan having increased strongly in the Soviet Union prior to and immediately after World War II [103].

Longevity greatly increased during recent centuries in Europe in part due to generally rising living standards (and thereby nutrition [104]), with increasing health and longevity interacting with the economy in a positive feedback loop [105]. Communist history may thus have also influenced longevity via its effect on income, with income being a significant predictor of health index (electronic supplementary material, table S1). Consistent with this explanation, we find that communism is no longer a significant predictor of health index when controlling for income index.

Communism lowers human well-being. Who knew?[ref]There’s more to the study (such as Islam’s negative correlation with education), but this jumped out at me.[/ref]

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The Peter Principle: Is There a Managerial Mismatch?

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From a new NBER working paper:[ref]Here’s an earlier ungated version, which is quoted.[/ref]

Image result for peter principleBecause managers and workers apply different skills, the best workers may not be the best candidates for managers. When this is the case, do firms promote someone who excels in her current position, or someone who is likely to excel as a manager? If firms promote based on current performance, then firms may end up with worse managers. Yet if firms promote based on traits that predict managerial potential, then firms may pass over higher performing workers, weakening the power of promotions to encourage workers to perform well in their current roles. Such promotion policies could also lead to perceptions of favoritism, unfairness, or that succeeding in one’s job goes unrewarded.

Using detailed microdata on sales workers in US firms, we provide the first large scale empirical evidence suggesting that firms prioritize current performance in promotion decisions at the expense of promoting the best potential managers. Our findings are consistent with the “Peter Principle,” which, in its extreme form, states that firms promote competent workers until they become incompetent managers (Peter and Hull 1969).

…Overall, our empirical findings are consistent with the Peter Principle: firms promote based on current job performance even though pre-promotion sales negatively predicts managerial performance and other observable characteristics positively predict managerial performance. We caution that our results do not imply that firms use suboptimal promotion policies or have mistaken beliefs. Promotion policies that favor strong sales performance may provide a variety of incentive benefits that justify the costs of managerial mismatch. For example, promoting based on current job performance may help preserve tournament incentives (Lazear and Rosen 1981). Prioritizing objective performance measures in promotions may also improve incentives by avoiding favoritism (Prendergast 1998) and maintaining fairness norms. Promotion policies based on verifiable performance metrics such as sales may also discourage the manipulation of other, more fungible performance metrics such as credit sharing and collaboration experience (DeVaro and Gurtler 2015). What our results do show is that the costs of not promoting the best potential managers are high: our estimates suggest that firms are willing to forgo up to a 30% improvement in subordinate performance to achieve better incentives or to avoid costly politicking.

…This study offers the first empirical tests of the Peter Principle using data on promotions across a large number of firms. Although theoretical work and reviews have hypothesized that promotions based upon current job performance may yield managerial mismatch (Fairburn and Malcomson 2001; Waldman 2003; Lazear 2004), scant empirical research has tested the Peter Principle directly. Our work is most closely related to Grabner and Moers (2013), which shows that a bank places less weight on current job performance when a promotion would be to a job performing dissimilar tasks. However, Grabner and Moers uses data from a single firm and does not attempt to estimate the cost of the Peter Principle. Understanding the costs associated with the Peter Principle is important because it helps explain a variety of organizational practices, such as the use of parallel job ladders for individual contributors and managers, or the use of separate evaluation criteria for performance (which are often tied to bonuses) and potential (which are often tied to promotions) (pgs. 1-5).

Being a good worker does not mean one will be a good manager.