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September 2002, Volume 9, Number 9

Trade and Migration

Hatton and Williamson deal with the causes and consequences of migration in the late nineteenth and early twentieth centuries in their book, The Age of Mass Migration: An Economic Analysis. After laying out the issues and findings, three chapters cover the causes of migration and four examine the effects of migration. The book concludes that the factor price equalization theorem was proven correct in the late 19th century North Atlantic; trade and migration explain the narrowing of the wage differences that stimulated migration: "Mass migration by itself may explain about 70 percent of the real wage convergence in the late 19th century Atlantic economy." (Williamson, 1998, 60).

Estimates of the loss of workers through emigration and the gain through immigration find that the US labor force in 1910 was 24 percent larger than it would have been without immigration between 1870 and 1910. Similarly, the labor force of Germany was four percent smaller because of emigration; the UK was 11 percent smaller; Sweden, 20 percent smaller; Italy, 39 percent smaller; and Ireland, 45 percent smaller. The largest impacts of immigration were in Argentina, whose labor force in 1910 was 86 percent larger due to 1870-1910 immigration; Canada, 44 percent larger; and Australia, 42 percent larger.
Wages did not converge as fast as they might have in the late 1800s because European capital chased labor across the Atlantic. Using newly developed real wage series, the model concludes that migrants moved from areas with lower wages to places with higher wages; important secondary explanatory variables included social networks, or friends and relatives abroad. The model helps to explain why emigration rates were higher in Ireland and Scandinavia than in France.
In theory, trade and migration lead to a convergence in living standards. The first question is how to measure convergence: is it similar levels of per capita GDP, or wages? Hatton and Williamson argue that the best convergence indicator is real wage rates for urban unskilled workers. By this standard, convergence occurred. They show that real wages began to converge about 1870, and that wage gaps declined until World War I. Wage convergence was especially fast during this period in Scandinavia and very slow for Spain and Portugal, which had relatively little trade and migration.
The second half of the book concludes that immigrants in the US quickly closed the earnings gap with US-born workers. With immigrants competing in the US labor market, the model estimates that American wages would have been five to six percent higher in 1910 in the absence of immigration after 1890.
The book concludes that migrants move from lower to higher wage areas and that immigration policy is more sensitive to the labor market effects of immigration than to the number of immigrants. Williamson noted that the major immigration countries became increasingly restrictionist early in the 20th century, and that restrictionism was not abrupt: "The Quota Act of 1921 was preceded by 25 years of active Congressional debate...The United States did not make an abrupt regime switch around World War I away from free immigration to quotas, but rather evolved toward a more restrictive immigration policy." (Williamson, 1998, 63).
Other immigration destinations also became restrictive, often by withdrawing subsidies for immigrants, leading Hatton and Williamson to several hypotheses: (1) immigration policy is slow to change, so that indicators such as the unemployment rate may not be useful for predicting long-run trends in immigration policy; (2) that the critical variable is the ratio of wages at the bottom of the labor market to average incomes; and (3) that immigrant "quality"--measured as wages for unskilled workers in the source country--is more important in explaining policy changes than the race or ethnicity of the immigrants.
The final prediction of economic theory is that landowners in Europe should have protested the loss of labor. They did, and in several countries they succeeded in several countries getting tariffs raised to restrict grain imports from the New World. Thus, the Williamson summary of 19th and early 20th century concludes that "factor price convergence planted, however, the seeds for its own destruction," as rising inequality in the US due to immigration led to a restrictionist backlash. (Williamson, 1998, 69). Williamson does not forecast a similar evolution in reaction to today's migration because the numbers are smaller, and "governments have far more sophisticated ways to compensate losers than they had a century ago." (Williamson, 1998, 69).

Wong's 14-chapter 700 page book, International Trade in Goods and Factor Mobility, is the first textbook that treats both trade in goods and factor mobility.

Hatton, Timothy and Jeffrey Williamson. 1997. The Age of Mass Migration: An Economic Analysis. New York. Oxford University Press. Williamson, Jeffrey. 1998. Globalization, Labor Markets and Policy Backlash. Journal of Economic Perspectives. Vol. 12. Wong, Kar-yiu. 1995. International Trade in Goods and Factor Mobility. Cambridge. MIT Press.