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The Globalization of Household Production

Author : Kremer, M., & Watt, S.

Year: 2009

Acc. No: 261-S

Category: Soft Documents

Type of Resource: Globalisation, Migration, Labour force, Labour income, Welfare

ISBN: English

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Restrictions on migration of low-skilled workers to richer countries are arguably the largest distortion in the world economy and the most costly to the world‘s poor. Yet rich countries seem unlikely to eliminate these restrictions due to concerns about the impact of migration on inequality among natives, public finances, and native culture. A rapidly growing new type of migration may not be subject to these concerns. Many new rich countries issue special visas for foreigners, women in particular, to work as private household workers. Old rich countries often choose low levels of enforcement against illegal immigrants working in this sector. We argue that by allowing high-skilled native women to increase market labor supply, this type of immigration increases the wages of low-skilled natives and provides a fiscal benefit by correcting tax distortions toward home production. Calibration suggests programs, such as Hong Kong‘s or Singapore‘s, under which roughly 7% of the labor force are foreign private household workers, may increase the ratio of wages of native low-skilled to wages of high-skilled workers by 2.9% and increase native welfare by 0.9% of income, roughly 60 times the level estimated by Borjas. Paradoxically, however, even if these programs are pareto improving, they may conflict with ethical norms requiring stronger social obligations to long-term residents than to other foreigners. Short-term programs may be more acceptable.
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