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**ThisIsOK** · 01-01-2010, 09:34 PM

Getting to work for Goldman Sachs

Depressing prices of native workforce

Could you please explain to me why depressing the wages of the "native workforce" is a bad thing when the portion of the "native workforce" I have an impact on is in the top 1% of the income distribution of the US?

When an exogenous supply shock (me!) causes the wages of a certain portion of the labour force go down the real wages of everybody else go up (the things I produce are produced more cheaply, allowing others to purchase more of them with the same nominal wage). The economic effects of this are the same as the effects of an exogenous demand shock for labour caused by technological innovation. In other words, if somebody invented a robot which could do my job with the operational cost per year equal to my salary, would you say this was a bad thing because it "depresses the wages of the native workforce"? If so, then you're nothing more than a Luddite. And at least the Luddites protested the displacement of workers who were not paid ridiculous sums of money.

Importing skilled workers is beneficial in every way:

1) It increases the general welfare of the natives of the country (allows more to be produced with less)
2) It reduces income inequality amongst the natives of the country (transfers wealth from highly-skilled, highly-paid workers to lower-paid workers)
3) It benefits the imported worker

For the country losing the skilled worker, the effects are generally negative. However, it's been hypothesized that when the country in question is very poor relative to the country gaining the skilled worker, the prospect of "winning the lottery" (getting to work in a high-income country) causes much more human capital investment than would otherwise be the case, increasing welfare there as well. Likely the biggest losers in skilled worker migration are countries which already have high human capital development (so the elasticity of supply is not strong).

Russia and much of the Eastern Bloc are enormous losers when it comes to skilled labour migration. They had a highly-educated workforce, so foreign demand has little effect on educational levels. Meanwhile, they are rather poorer than are countries with similar cultures and languages (it's easier for Russians to learn English than it is for Chinese to learn English) so the incentives to migrate are high and the impediments low.

01-01-2010, 09:34 PM	#5
ThisIsOK Join Date Oct 2005 Posts 515 Senior Member	Getting to work for Goldman Sachs Depressing prices of native workforce Could you please explain to me why depressing the wages of the "native workforce" is a bad thing when the portion of the "native workforce" I have an impact on is in the top 1% of the income distribution of the US? When an exogenous supply shock (me!) causes the wages of a certain portion of the labour force go down the real wages of everybody else go up (the things I produce are produced more cheaply, allowing others to purchase more of them with the same nominal wage). The economic effects of this are the same as the effects of an exogenous demand shock for labour caused by technological innovation. In other words, if somebody invented a robot which could do my job with the operational cost per year equal to my salary, would you say this was a bad thing because it "depresses the wages of the native workforce"? If so, then you're nothing more than a Luddite. And at least the Luddites protested the displacement of workers who were not paid ridiculous sums of money. Importing skilled workers is beneficial in every way: 1) It increases the general welfare of the natives of the country (allows more to be produced with less) 2) It reduces income inequality amongst the natives of the country (transfers wealth from highly-skilled, highly-paid workers to lower-paid workers) 3) It benefits the imported worker For the country losing the skilled worker, the effects are generally negative. However, it's been hypothesized that when the country in question is very poor relative to the country gaining the skilled worker, the prospect of "winning the lottery" (getting to work in a high-income country) causes much more human capital investment than would otherwise be the case, increasing welfare there as well. Likely the biggest losers in skilled worker migration are countries which already have high human capital development (so the elasticity of supply is not strong). Russia and much of the Eastern Bloc are enormous losers when it comes to skilled labour migration. They had a highly-educated workforce, so foreign demand has little effect on educational levels. Meanwhile, they are rather poorer than are countries with similar cultures and languages (it's easier for Russians to learn English than it is for Chinese to learn English) so the incentives to migrate are high and the impediments low.
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