Last edited Sat Apr 2, 2016, 02:53 PM - Edit history (2)
provisions in trade in services agreements- This one is about GATS which was signed in 1995.
This would be a disaster for US working people .
The falling wages described would not even go to them.
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Which Like trade in goods, labor mobility can create losers as
well as winners. In the overall balance, gains usually
exceed losses by a wide margin, but political sensitivities
focus on those who lose. In simple theoretical terms,
migration can be modeled as an increase of supply in the
labor markets of developed countries and a decrease of
supply in developing countries. Here, we use that frame-
work to examine the effects of those supply changes on
the incomes of capitalists and workers, in both the send-
ing and the host countries, and on the incomes of the
migrants themselves.
Effect in developed countries. Given the restrictions on
labor mobility, the equilibrium in the labor market is at
point A in figure 13.2. After liberalization, the equilibrium
moves to point B, reflecting an increase in the number of
hours worked and a decrease in the wage per hour. The loss
for native workers is shown by area ACDE. The gain for
capitalists is shown by area EABD, with most of this gain
coming from the loss for native workers. Since the gain for
capitalists is larger than the loss for native workers, the lib-
eralization of mode 4 leads to an overall gain, shown by
area ABC.
Effect on developing countries. The effect of the liberal-
ization of mode 4 on developing countries is the exact
opposite to that for developed countries. With restrictions
on mode 4, the equilibrium in the labor market is at point
B in figure 13.3. After liberalization, the equilibrium point
moves to point A, reflecting an increase in the wage per
hour and a decrease in the number of hours worked.
As will be apparent later, the gains for migrants in
developed countries are much larger than the loss that
their departure inflicts on developing countries. Nonmi-
grant workers also experience gains, shown by area ACDE
in figure 13.3, since the wage rate has increased in devel-
oping countries. But nonmigrant capitalists experience a
very large loss, shown by area ABDE (most of the loss cor-
responds to the wage gain for nonmigrant workers).
Because the loss for nonmigrant capitalists is larger than
the gain for nonmigrant workers, the group of nonmi-
grants as a whole experiences an overall loss of income,
shown by area ABC. In other words, the effect on total
welfare of liberalizing mode 4 is negative for nonmigrants
in developing countries. Income per capita, however, is
likely (although not guaranteed) to rise as marginal pro-
ductivity increases.
Overall outcome. Migrants lose their erstwhile wages in
developing countries but enjoy larger wages in developed
countries. They therefore experience a gain, measured by
the wage difference between the destination and source
countries.
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Box 13.2. Quantitative Estimates of Overall Gains from Greater Labor Mobility
Complete liberalization of mode 4 would result in very large gains.
Hamilton and Whalley (1984) use a partial equilibrium (PE) model and 1977 data to estimate the benefits from the complete
elimination of all immigration restrictions, for skilled and unskilled labor alike. The potential gains are enormous, ranging from 60
to almost 205 percent of world gross domestic product (GDP). Millions of workers would move from low-productivity to high-
productivity jobs in countries with high salaries, until wages in labor-sending and labor-receiving countries equalized. Iregui (1999)
revisits the question using a computable general equilibrium (CGE) model and more precise measures of elasticities and population
characteristics. Here again, the gains are large, ranging from 15 to 67 percent of world GDP. Moses and Letnes (2004), using more
precise values for productivities, confirm large gains, ranging from 4.3 to about 112 percent of world GDP in 1977. According to
these authors, the ‘’most reasonable’’ gain would be 7.5 percent of world GDP.
The large differences between these estimates, both within and between studies, can be explained by the differences in
modeling frameworks (partial versus general equilibrium) and assumed parameters. Some estimates assume that migrants can
achieve the average productivity of workers in the destination country; others assume that additional education and training will be
needed.
Gains from less than complete liberalization of mode 4 are still large.
Because full liberalization is politically unacceptable, some economists have estimated the potential outcome of more modest
liberalization of mode 4. Moses and Letnes (2004) estimate the gains from eliminating 10 percent of the wage inequality between
countries and find that potential gains would still be large, corresponding to around 2.2 percent of world GDP. Walmsley and
Winters (2002) estimate the potential gain from a 3 percent increase in the workforce in developed countries, a movement of 14.2
million workers, and a 50 percent increase in the current number of immigrants in developed countries at US$156 billion in 2002,
representing 0.6 percent of world GDP. World Bank (2006) reaches a very similar result.
Most of the gains come from the movement of unskilled labor.
According to Iregui (1999), the potential gains from the migration of skilled labor only are much smaller: 3 to 11 percent of world
GDP, in comparison with 13 to 59 percent for all skills. Walmsley and Winters (2002) show that the potential gain from the
movement of unskilled workers would account for US$110 billion, or 70 percent of the total. This reflects the fact that inequality in
wages worldwide is larger for unskilled than for skilled workers.
Source: Annex table 13A.1.
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According to the theoretical model, the liberalization of
mode 4 has the following distributional consequences:
• In developed countries, most of the gains for capitalists
are balanced by losses to native workers.
• In developing countries, most of the losses to capitalists
are mirrored by gains to nonmigrant workers.
• In developed countries, the gains for capitalists are
larger than the losses for native workers. Therefore, total
income in developed countries rises.
• In developing countries, the losses for capitalists are
larger than the gains for nonmigrant workers. There-
fore, total income in developing countries falls.
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