This course will focus on facets of globalization that affect a country´s economic perspectives and decisions. Globalization has recently been the predominant subject in many political debates, and this course will go into the determinants of globalization. It will be separated into four modules; the first module will explain exchange rates. It will cover what determines exchange rate and how different exchange rates affect the economy and the reality of currencies. The second module will explore trade, the reality of free trade, and what occurs to a country´s economy with protectionism. The third module will go into the balance of payments, it will help you understand how economic transactions between a country and the rest of the world work. The fourth module will focus on Immigration, which is probably one of the most controversial subjects today. It will explain how migration affects host countries and it will cover current migration trends.
How does migration affect the economy? Part 2
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Do curso por IE Business School
Trade, Immigration and Exchange Rates in a Globalized World
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(Im)migration
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Gayle AllardProfessor
Economics
[MUSIC]
Let's move on then to see what the effect is on the host
country when migrants come there, okay?
So in the example that we were working with, this would be the United States
in the case of Mexicans migrating to the United States.
We looked at the effect on Mexico, let's look at the effect on the United States.
And again, we're going to use the same diagram.
May I encourage you to use these diagrams when you're thinking about
economic issues, particularly this one which is so poorly understood.
And we're going to come to some really surprise conclusions here.
And you're going to want to repeat it on your own because you're going to
say that's not possible, that's not what the politicians are telling me,
this is not what public discourse is telling me.
Anyway, we've got the same diagram.
We've got our average supply curve, which slopes upward.
This is all production in the economy.
And remember it can be affected by investment,
the amount of capital goods we have, by our infrastructure,
by the number of workers we have, by how well educated they are, okay?
So that's an upsloping aggregate supply curve.
Here's our downsloping aggregate demand curve.
This is all spending in the economy, consumption, investment,
government spending, net exports.
We've seen this elsewhere in the course.
Remember we've got the price level here, we've got GDP down here.
And let's say that this is our equilibrium.
This is the US.
And then Mexican migrants begin to arrive, okay?
The first thing that's going to happen is that aggregate supply shifts, but now,
it's going to shift outward to the right, okay?
Remember in Mexico it shifted inward to the left because they lost workers.
But here the labor force is expanding, okay?
And so aggregate supply shifts outward to the right.
Okay?
Now we have to remember, and again, there's a lot of confusion about this.
We have to remember that this occurs whether those migrant workers are skilled
or unskilled.
Okay?
And again, just like we saw with the home country, if they're very skilled,
it might shift more, right?
Because they bring a lot of productivity, a lot of brainpower.
But if they're unskilled, it also shifts, right?
Because we do need people, and any of you who come from countries
with a large number of migrants, there are migrants working in the restaurants,
working in the hospitals, working in all kinds of jobs, skilled and unskilled.
And often there aren't natives to cover those jobs,
that are willing to cover them, okay?
So aggregate supply would shift outward to the right,
allowing us to produce more than we could just with our own labor force, okay?
Now at the same time, aggregate demand will also shift outward to the right
because the migrants are adding to consumption, or
domestic demand in the country, because they have to buy a house, they have to buy
a car, they have to buy their food, they have to buy their clothing.
Now, they will be sending some money home, but obviously,
they have to spend quite a bit of money in the host country.
So aggregate demand increases as well.
Now we have to remember, and we'll be talking about this elsewhere in this
section, we have to remember that maybe as the migrants arrive,
they will compete with the natives, and the wages of the natives will go down.
Okay? That would mean
the natives have a little less money to spend.
So it could be that this aggregate demand curve goes out and then comes in a little,
if the natives don't find another job or they don't find a well paying job.
So let's assume that that happens and let's move the curve in a little.
So now we have our new aggregate supply, which is this one.
We have our new aggregate demand, which we shifted out and then brought in.
So when we look for the equilibrium, we find something that is very surprising,
which is that, we have more GDP than we did before.
And in fact, we have more GDP with less inflation because the migrants
are allowing us to produce goods and
services at a lower price than we would if we used just the native labor.
So that a person pays less, if they're unskilled migrants, they pay less to have
their house cleaned, to have their garden done, to buy their restaurant food.
If they're skilled migrants, they do compete with the native workers as well,
and this helps keep a lid on wages, say in the high tech industry or
the medical industry.
So what we find is a total win situation for
the host country, more than we found for the home country.
And I'm sure this probably surprises you.
And I want you to keep something else in mind as well,
which you will know if you studied understanding economic policy making.
More GDP, moving in this direction, means more jobs.
So unemployment goes down as we move to the right along this axis.
Okay? Now less GDP would mean fewer jobs and
unemployment would go up.
Okay? We often hear that immigrants
cause unemployment to rise.
But if you look at this analysis and
you walk your way through it, you find that the presence of immigrants actually
is going to ultimately cause unemployment to fall.
Because GDP will grow more, the price level will decline,
there's going to be more capacity in the economy, and
more demand in the economy, therefore, unemployment will tend to fall.
And we do see proof of this.
Some of the countries that receive the most immigrants in the word,
among them the United States, the UK, Canada,
Sweden, they are countries with very low unemployment rates.
So the story that receiving immigrants hurts you,
takes away your jobs, is not a true story.
[MUSIC]
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