population and economic change (summarize notes)

Econ/background to week 12.doc

Introduction to Migration

Migration is defined as any permanent change in residence from one region to another. In-migration (immigration) and out-migration (emigration) are the fastest ways in which a population can change its size and composition. Such rapid change can pose many challenges, including the challenge of socially integrating people from different backgrounds.

Governments do not usually keep track of emigration. They keep track of immigration, but some immigration is illegal and escapes detection. In this way both immigration and emigration pose measurement challenges.

The Net Migration rate (NMR) = 1000 x (immigrants – emigrants)/mid-year population.

If migration data are lacking, you can estimate the NMR using the demographic equation. If you know the change in population and births and deaths, you can infer the rate of increase due to net migration. If further you know the immigration rate, you can infer the emigration rate.

Another way the NMR can be estimated is by using a lifetable to predict the number of people in an age category on the basis of existing population and age-specific mortality rates. If the actual number of people is different from the prediction, and you have no cause to believe foul play, you can attribute the difference to net immigration or net emigration.

The migration ratio = (net immigration)/(natural increase) .

Migration Factors

People migrate because they are PUSHed out of their old place of residence and/or PULLed into their new place of residence.

PUSH factors include:

-imminent personal danger

-environmental degradation

-threat of destruction or confiscation of property

-discrimination, oppression against one’s religious, political, ethnic group etc.

-economic hardship

-military draft

-forced marriage

-indebtedness

-deception, enslavement, forced relocation

PULL factors include:

-higher wages, greater economic opportunity

-gifts of land

-greater safety and freedom

-adventure

Depending on the push or pull factors, those who migrate may share certain characteristics.

Leah Boustan and Ran Abramitzky studied men who migrated from Norway to the United States who had non-emigrating brothers. They found that men who migrated from rural areas did 93% better financially than their brothers, whereas men from urban areas made a 42% rate of return. They found that households with poorer economic prospects were more likely to send migrants to the US, and that within households, men with poorer prospects were more likely to migrate.

Simone Wegge has studied data on over 1000 villages in the German principality of Hesse-Cassel, for the years 1852-1857. Her data suggest that, up to a certain point of wealth, people with more money were more likely to immigrate than those without. After all, the trip to New York from Hamburg cost twice the yearly wage of a labourer. But at the highest levels of wealth, there was not the incentive to emigrate. The villages that experienced the most emigration were those with that practised unigeniture (first son gets entire farm), and those that had higher emigration flows in the past, fewer factories, and more religious minorities.

When migration is voluntary, the people most likely to migrate are possibly:

· The most entrepreneurial. (The check mark indicates this is a good thing for the recipient country)

· The most willing to change

· People with marketable education and skills

· People with existing connections to the new place

· People not desperately poor

· Young adults and retirees versus working age people

· Those who were minorities in their own nation

? Newly-weds versus longer married

x Those not wealthy

It is important to anticipate how an immigration policy and a global situation will select for a particular kind of immigrant.

Migration Policy

There is a lot of scope for migration policy, first because citizens have traditionally supported government's interference in matters of migration, and second, because economic factors – which governments can manipulate - are among the strongest push and pull factors governing migration.

Migration Policy is wide-ranging. Are citizens allowed to emigrate freely? Are aliens allowed to immigrate freely? If not, what kind of immigrant is permitted? How are immigrants treated? What programs and incentives are available to them? How do we deal with illegal immigrants? What measures do we take against human trafficking?

In the following chapters we will touch on all of these issues. As usual, a successful policy is well targeted, deals with binding constraints, attacks the relevant margin, and is conscious of the incidence of taxes and subsidies.

Consequences of Migration

Consequences of Emigration

Those who voluntarily emigrate must be doing so because they perceive that their lives will be improved by doing so. Unless they have been misinformed or have made wrong assumptions, they will benefit from emigration. The population left behind may also benefit from the emigration if its economy is characterized by a low capital:labor ratio. Wages will rise. Land and capital prices may fall. The population left behind may also benefit from remittances of cash which the emigrants mail back home. Before the current financial crisis, remittance flows exceed international aid donations by a factor of three.

The population left behind may be hurt by the emigration if the emigrants were better educated than average. This phenomenon is referred to as brain-drain. Canada is considered to suffer from brain drain to the United States. The country of origin can also be hurt if it loses citizens who were harder-working, richer, or more politically active than average. Finally, spouses, children, and parents of emigrants will miss their family members.

Consequences of Immigration

If they can realize their ambitions, immigrants benefit from the move. However, many are disappointed by the limited opportunity to use their skills in the new country. Countries like Canada impose serious restrictions on teachers, doctors, and other professionals. Many immigrants must pin their hopes for making a better life on their children.

The citizens in the host country can benefit from immigration if the immigrants bring scarce skills, scarce positive attitudes, entrepreneurship, new cultural pleasures such as recipes, and new technologies.

Immigrants may be welcomed for their help supporting an aging population. The idea is that immigrants decrease the age dependency ratio and pay taxes that support social programs. Whether this is true depends on immigrants not having large families that will increase the nation’s child dependency ratio, and on immigrants providing a net fiscal benefit i.e. paying more in taxes than they consume in services. In Canada, immigrants are eligible for free language training and free health care and public education. After one year of residence they may apply for welfare and subsidized housing. Grubel (2005) found that immigrants arriving in 1990 and 2002 cost the government 1.36 billion more than they paid in taxes. Immigrants also share use of the infrastructure and other public goods which they have not paid for.

The host country may have concerns about immigrants’ ability and willingness to integrate. We will discuss this in a later chapter.

By far the greatest concern regarding immigrants is their impact on the local wage. I suspect that much of the motivation behind the work restrictions placed on professional immigrants to Canada is the desire to protect the salaries of Canadian professionals.

How immigrants impact the standard of living in the host country

The standard of living, defined only in the simplest, material way, is Y/N, GDP per person. Y/N can be broken down into two components: Y/L, labour productivity, and L/N, which is the inverse of a dependency rate that ignores ages and focuses on participation in the workforce. Multiply productivity by L/N and you have GDP per person.

When the population increases, either by natural increase or by immigration, the consequence for the standard of living depends on the impact of the population increase on labour productivity and on dependency.

Labour productivity, like the wage, will rise if efficiency rises or if the capital:labour ratio improves.

Let Y = A K1/3L2/3, where A is efficiency, other wise known as "multifactor productivity"; L is raw labour, measured in person hours; and K is any kind of capital, including human capital like education, that workers can use.

Dividing Y by L we see that labour productivity Y/L = A (K/L)1/3.

The wage is very similar. The wage is equal to the derivative of Y with respect to L, multiplied by the price of the output. Or we could say that the real wage is equal to the derivative of Y with respect to L, which is 2/3 A (K/L)1/3.

Since the wage that employers desire to pay is inversely related to L, we can draw the labour demand curve – the horizontal summation of individual employers' demands for labour – as a downward sloping line in real wage/person-hours space. See Figure 36-1.

Figure 36-1. Labour Market with Immigration

Since Labour Demand is a function of efficiency (A) and the capital:labour ratio (K/L), any improvements in A or K will shift the Labour Demand curve to the right, resulting in higher employment.

We see in Figure 36-1 that, when the raw labour supply increases due to immigration or some other factor, such as women joining the workforce for the first time, the wage will fall. When immigrants join a labour market, native workers competing for the same jobs are hurt.

We are assuming that all workers compete with one another. However, in reality there are many occupations. Any category of worker that is complementary, rather than substitutable, with the immigrants’ skill types will actually find its wage rise with immigration. For example, translators and language instructors will no doubt benefit.

Let's have a closer look at Figure 36-1 again, where native-born and immigrant workers compete with one another. Before immigration took place, native workers earned the "old wage" and earned surplus equal to the two coloured triangles. (To calculate producer surplus, find the difference between the wage received and the lowest price the producer would have accepted, as registered on the supply curve. Producer surplus is the difference between the wage received and the lowest acceptable wage, for the entire quantity supplied at that received wage.)

Once immigrants join the labour market, the wage falls to "new wage". Where does the new wage meet the native supply curve? They meet at a lower level of employment, indicating that some native workers are not willing to work at the new wage. Those who are willing earn a lower wage, and their surplus falls to just the red triangle.

Employers are pleased with this lower wage. So are consumers, who pay lower prices for goods and services.

Refer to Figure 36-1. Now that the wage has fallen, employer/consumer surplus rises from triangle A-B-old wage to triangle A-C-new wage. In other words, consumer surplus rises by turquoise chunk and the dark blue triangle shown in Figure 36-2. Meanwhile, workers lost the turquoise chunk. There is a net gain to the host country, and that net gain is the dark blue triangle. The new money going to immigrant workers is shown in green.

Figure 36-2. Changes Due to Labour Supply Expansion

Hope for original workers

Although an increase in the supply of raw labour depresses the real wage, it is possible that the new workers bring with them some capital K or some new ideas A. In this case, labour demand will rise, mitigating the effects of a rising labour supply.

Even if the new workers do not have any K or A with them, K can be accumulated over time through education or investment. The following factors will help speed the real wage's recovery:

- access to affordable education

-subsidies for research and innovation

-ease of starting new businesses: few regulations and fees.

-access to affordable loans

-ease of hiring and firing

Like the real wage, labour productivity rises with increases in A or in K/L. Labour productivity grows at the same rate as the wage, for the two are proportional to one another.

The standard of living, Y/N, which applies to both immigrants and natives, depends on labour productivity and on dependency. Thus, immigration is most likely to be beneficial to the standard of living if a) immigrants bring new ideas and technologies with them, and a better work ethic; b) immigrants bring capital with them; and c) immigrants bring few dependents with them.

Table 36-1. Short Run Economic Consequences of Immigration

The change in population size due to immigration can mean a change of scale in production which can have either beneficial or harmful effects, or both. We discuss the economic consequences of population size and market scale in Chapter 36.

Case Study: Illegal migration to the United States

It is estimated that 500,000 illegal migrants enter the US each year, most from Central and South America, for a total of 12 million illegals, about 5 % of the civilian labour force (Hanson, 2009). In 2008, illegals made up 25% of farm workers, 19% of cleaners, and 17% of construction workers (Hanson, 2009). Politicians would like to extend privileges to those who are already here, to help with health care and education needs, but they are worried that this will encourage more illegal immigration. Senator Harry Reid is expected to propose a "Development, Relief and Education for Alien Minors Act" intended to help illegals who came to the US as children become citizens and obtain student loans, if they agree to attend university or enter the military (Illegal immigrants pin hopes on Dream Act, Globe and Mail, December 7, 2010).

In a 2007 paper, Gordon Hanson suggested that illegal immigrants willing to work in low-skilled jobs may be meeting a need: since 1960, the share of native-born workers with less than a high-school diploma has fallen from 50% to 12%. The counterargument is that, if less-skilled labor is scarce, wages for less-skilled work will rise, attracting more native-born Americans to those jobs. The rebuttal is that there is a stigma to those jobs. The counter-rebuttal is that high-paying jobs usually lose their stigma.

Professor Hanson argued that illegal immigrants are more likely than legal immigrants to be financially beneficial to natives because:

-they improve the dependency ratio. Most are of working age, and come only to work.

-they come and go according to the demand for their services

-their wages tend to be low, so their share of what they produce is not high

-they are ineligible for many public programs

-they end up paying taxes such as payroll, sales, and property.

Hanson estimated that illegal immigration costs native-born Americans less than 0.07% of GDP, a 0.10 percent fiscal cost set against a 0.03 percent GDP gain to native-born americans from the work of illegals. This is less than the cost of keeping illegals out, which is about 0.1 % of GDP. He does not estimate benefits of immigrants or the costs that might occur if the border was not patrolled.

Hanson has calculated the short run benefits of immigration to the host nation using a simple formula attributed to Borjas (1999). He multiplies labor’s share of GDP by the wage elasticity (the percent drop in wages due to a one percent increase in labor supply) and by the share of immigrants in the labor force squared and by 0.5. This works out exactly equal to the triangle of net gains to the host economy from an expanded labour supply, i.e. the dark blue triangle in Figure 43-b. It measures the gains of employers minus the losses of native workers. There will be a net gain since GDP rises when labour expands.

In a 2009 paper Hanson repeated these claims and recommended that the government expand the legal immigration opportunities for low skilled workers. The numbers admitted should rise and fall with the business cycle. He also suggested that employers or the immigrants themselves be taxed to help pay for their use of public services.

Canada’s Immigration Policy

In Canada today, 1 in 5 people is foreign-born. While this number is trending up, it is not yet so high as it was 1911-1931. Immigration today is much more inclusive of different ethnicities. In the late nineteenth century, visible minorities were not welcome, but tolerated if needed to perform work others would not do. For example, Chinese people were permitted to enter Canada to work on railway construction, but had to pay a $500 head tax from 1885 to 1923, after which time only special categories of Chinese, such as business people and students, were allowed to immigrate. To protect jobs during the Great Depression, Canada passed a law in 1931 that limited immigration to American citizens, British subjects, and agriculturalists with money. Clearly, the racism so prevalent at the time played a role in shaping this policy. After World War II, immigration rules were relaxed, until in 1967, discrimination on the basis of race was forbidden. For more detail, see the Canadian Council for Refugees' excellent summary article, "A hundred years of immigration to Canada 1900-1999."

Figure 38-1. Proportion of foreign-born population by projection scenario, Canada, 1871-2031.

Source: Statistics Canada

Canada today admits roughly four categories of immigrants: refugees, family members of Canadians, skilled workers and professionals, and business people. In 2007, 12% of immigrants were refugees and 28% were family members.

The skilled professionals are subject to a points system. Applicants are graded out of 100 points, where up to 25 points are given for English and French proficiency, 25 for education, 20 for years of work experience, 10 for age, 10 for "adaptability", and 10 for pre-arranged employment in Canada. 67 points is a passing grade.

The business category of immigrant is intended to attract immigrants who will become employers, rather than employees, providing capital and ideas and shifting labour demand to the right. In 2011 there were three categories of business people: investors who make an $800,000 interest-free loan to Citizenship and Immigration Canada, to be repaid after five years; entrepreneurs, who have $300,000 and business experience to back it up; and the self-employed, who have experience in culture, recreation, or agriculture.

In contrast to Hanson’s recommendations, Canada has made it more difficult for lower skilled people to immigrate to Canada. Concerned about worsening immigrant poverty in the 1980s and 1990s, Canada actively selected higher skilled immigrants beginning in 1993. In 1992, only 17% of immigrants had a university degree, but by 2004 the number was 45%. The skilled worker class accounted for 29% of immigrants in 1992 but 51% in 2004. Unfortunately, the program was not successful in reducing poverty, as a 2007 study reported. In 1992, immigrants in Canada 10 years or less were twice as likely to have low income than native-born. In 2004 the ratio was even worse, with immigrants about 2.5 times more likely to have low income. In fact, by 2000 the skilled worker class of immigrant was more likely to experience low income and chronic low income than was the family class of immigrant. University-educated immigrants were earning no more than the high school-educated. Clearly, skilled workers have difficulty translating their skills into employment. They also may lack the social support that immigrants in the family class enjoy.

Others have suggested that the way the ethnicity of immigrants has changed -fewer European and more Asian – accounts for some of the difficulty finding employment. Language acquisition or social adaptation may be more difficult. Racism may also be a factor. Another important issue is that university degrees earned in Asian universities are discounted by Canadian employers and professional associations.

Figure 38-2. Canada’s Immigrants

Data Source: Statistics Canada, population censuses, 1971-2001

While immigrants to Canada have higher poverty rates than the Canadian-born, immigrants' children typically fare better than Canadian-born. 2001 Census data indicate that second-generation immigrants 25 to 37 years of age are, on average, more highly educated and earn more income than non-immigrants.

Rural-Urban Migration

Migration is not all international. Besides cross-border migration, we have patterns of migrations within countries, such as settlement of new areas, establishment of retirement havens, rural-urban migration, and flight [from the inner city] to the suburbs.

The most obvious intra-national pattern, common to all countries, is urbanization. In 1900, about 90% of the world’s population lived in rural areas, compared to 50 % today. The UN expects the urban population to grow at 1.8% in the next twenty years, compared to 1% for the rural population.

Figure 39-1. Proportion of Canadians living in rural areas.

Source: Statistics Canada, population censuses 1851-2001.

Though Canada is increasingly urban, this does not mean that Canada’s rural areas are not also growing in absolute population size. As reported by Martin Mittelstaedt in the Globe and Mail (“Paradise Lost”, December 19, 2009), between the last two censuses Ontario, Quebec, Manitoba and Alberta’s rural populations have grown significantly. Ontario’s rural population grew 33% since 1971; Alberta’s, 36%.

What is “urban”? John Weeks defines an urban area as a spatial concentration of people whose lives are organized around non-agricultural activities.

Urban areas grow by natural increase, international immigration, and domestic migration, as well as amalgamation, which is more of a technical matter. Between 2005-6, about 22% of Calgary’s population growth came from net migration within Canada. See also http://www.statcan.gc.ca/pub/91-214-x/2006000/4181349-eng.htm for a visual breakdown of the components of population change for other Canadian cities.

Figure 39-2. Calgary’s Population Growth, by Process

Data source: City of Calgary, 2009 Civic Census Overview.

The same push and pull factors that drive international migration drive rural-urban migration. The most usual motive is the pull of higher wages in the city.

Wages are usually higher in the city. As described by their champion and defender, Jane Jacobs, cities are engines of economic growth. Normally located at crossroads, borders, and ports, they serve as trading depots, transportation hubs, information hubs, education hubs, financial centres, and centres of experimentation and innovation. Firms in the city can benefit from internal economies of scale, which means their average costs fall as they expand their production lines to serve more customers. Firms can also achieve external economies of scale, which means their average costs fall because they can take advantage of the infrastructure, suppliers, and employment markets already set up for similar industries in the city. With more customers and middlemen, there are more opportunities for trade and specialization. With denser location, there is more opportunity for brainstorming, competition, and cooperation.

Firms locate in the city to achieve these advantage. Their access to technology, ideas, and loans in the city means there is more capital for each worker to work with, making the worker more productive.

The rural area, by contrast, may be stuck in a Malthusian trap where output per person stagnates at a low equilibrium level. Perhaps the residents have no personal identification or title to their land, and so cannot get loans. Perhaps it is the isolation and transportation costs that explain their low levels of capita per worker and lack of innovation.

The expected real wage

It is not enough to know that the average city wage is higher than the average rural wage. A would-be migrant must multiply the average city wage by the probability (less than one) that he or she will succeed in finding a job. The migrant calculates the

expected real wage, formed by multiplying each possible real wage by the probability of achieving it, and summing the total. By real wage, we mean the wage divided by an index of the cost of living.

Consider a hypothetical city in which there are two sectors, a formal sector where wages are recorded and taxes are paid, and an informal sector. Let e1 be the probability that the migrant can find work in the formal sector. Sometimes we just use the employment rate in the formal sector, i.e. the fraction of the labour force that is employed in the formal sector. Similarly, let e2 be the probability the migrant can find work in the informal sector. The unemployment rate is 1-e1-e2.

Workers going to the city earn the formal sector real wage -net of taxes- multiplied by e1, plus the informal sector real wage multiplied by e2, plus nothing at all or some welfare payment multiplied by the probability of not finding a job in either sectors (1-e1-e2). Workers will be motivated to flow to the city as long as this expected wage exceeds the after-tax rural area wage.

As workers stream into the city looking for work, the employment rate in each sector is likely to fall, and the wages are likely to fall as the capital:labor ratio falls. Thus the expected urban wage will fall until it is equal to the rural wage. If the actual wage cannot go that low, perhaps because of legislation or unionization, there will be unemployment in the city. The unemployment rate drives down the expected wage in the city, because the expected wage is a function of the employment rate.

If two cities have the same employment rate and the same wage, but one of the cities has a much large labour force than the other, your expected wage is higher in the larger city, because the presence of a new arrival does not change the employment rate as much in a larger city. If the large city is 10x the size of the small city, 10x as many people will migrate to the larger city to keep expected wage the same. The unemployment rate in each city will then be the same.

If one city offers higher average wages, the unemployment rate in that city must be higher or else migration to that city will continue.

Consequences of rural-urban migration

The consequences of rural-urban migration are the same as those discussed for international migration, but there are some special considerations:

· The geographic concentration/ population density implied by urbanization may overwhelm the infrastructure.

· The population density makes unemployment or underemployment more visible.

· There may be no legal way to prevent the migration. It is more difficult to keep people out of a city than out of a nation.

How could one stem a tide of rural migrants? Force is sometimes used. Since 1958 China has had a system of residency permits called "hukou". The permits specify from which region you are allowed to enjoy schooling, housing, medical, and other subsidies. Permits for major cities are highly sought after , but usually only temporary residence permits can be obtained, with which it is not possible to have one's children schooled or to have the same quality of life as permanent residents. In 2009, when per capita income in China was about $2,000 USD, the black market price of a Beijing hukou was $5,900 USD.

Using instead a market approach to discourage rural:urban migration would require the city to be made less attractive to migrants, or the rural area more attractive.

Cities can be made less attractive by removing wage supports such as the minimum wage, and by increasing taxes. Municipal services could also be reduced. Rural areas could be made more attractive by lowering taxes, improving infrastructure, improving access to loans, and improving government services.

The government of Canada effectively pays citizens to live “up north”. The Northern Residents Deduction (see Canada Revenue Agency Form T2222) is an income tax rebate for people living in qualifying areas. The federal government also provides home heating subsidies to seniors and others in northern communities.

Similarly, tying treaty benefits to residence on a reserve serves to keep First Nations Canadians on the reserves, for better or for worse.

Urbanization, Economic Development, and Population Growth

We have described some of the labour productivity benefits of cities. Indeed, urbanization is correlated with economic development and prosperity. Which comes first? Economic development or urbanization? The traditional view is that, at a certain level of development and population growth, settling down and specializing tasks becomes possible. But Jane Jacobs (1969) argues eloquently that only in cities will economic development occur. The traditional view says that when agriculture is productive and yields a surplus over and above needs, then urbanization can begin. Jacobs is convinced that innovations in agriculture began in cities.

Urbanization is not all good. Cities are crowded. Contagion and conflict are likely. Only in cities can pandemic disease agents survive and evolve. Sanitation and pollution are likely. It is believed that during the early years of the Industrial Revolution, population growth was less than it otherwise could have been because the concurrent urbanization compromised health and safety.

Population growth may give greater impetus to city growth. City growth leads to innovation and improvements in the standard of living, but also adds mortality risk factors such as disease and crime. Fertility rates tend to be lower in cities.

Domar's Hypothesis

We must not neglect to study the dark side of migration: forced migration or forced confinement. Throughout history various groups have had their movements controlled, with economic and demographic consequences for them and other groups.

Evsey Domar (1970) examined the history of Russian serfdom and hypothesized that the following three things cannot co-exist: free land, free peasants, and an upper class that does not work. Where there is free land and an upper class that wants to make its living by owning the means of production, there will be servitude and slavery. Basically, free land means that holding land is not profitable; profit is found in the relatively scarce workers, who become the objects of the upper classes’ profit motive.

As Domar describes it, in the late 1400s, the Russian government was at war and

facing a shortage of soldiers and arms. It decided to give lands away in return for men

and weapons The new landowners lent money to peasants to work the land and pay rent, but they found that the incomes earned by peasants from land, and the rents that could be charged, were too low, given the abundance of land being offered for rent. “Hence it was the ownership of peasants and not of land that could yield an income to the servitors or to any non-working landowning class.”

The Russian government gradually restricted the freedom of the debt-ridden peasants until they were enserfed by the mid 1600s. Though serfs could not be sold, they

were tied to property which could be sold. However, they had the right to life, the right

to marry and have families, and the right to own personal property.

In opposition to Domar’s hypothesis, European peasants gained rights after the Black Death (see Chapter 17) made labour very much more scarce relative to land. Domar believes that political developments were the reason. We might also add that European

peasants were less isolated than Russian serfs, and better able to assert their wishes.

Another factor may be that, although the number of workers per acre of land declined, the number of workers per landlord may not have declined: landlords too died in the plague.

The case of the Egba in Nigeria

Fenske (2009) describes the case of the Egba of south-western Nigeria and finds it fits with Domar’s hypothesis. Indenture and slavery were present in this land-abundant economy. Fenske also makes a connection between land-abundance and lack of credit.

The Egba are Yoruba-speaking Nigerians who first settled their current territory in 1830. Their military success expanded their base so much that, by 1911, population density was still only 142 people per square mile.

Between 1830 and 1914 the Egba followed a system of extensive agriculture which involved clearing forest, farming the land for five or six years without fertilizer, and moving on to new land. Land, especially land far from settlement and without many palm, kola, or cocoa trees, could be acquired for very little if any payment. Property rights over cleared land were loosely defined and rarely permanent. In 1914, the British were renting over 26,000 acres from the Egba at less than one shilling per acre.

Since every Egba man could have all the land he required, no Egba man was willing to work for another farmer and earn less than his total product. Since the technology was very simple, and there were no large fixed costs to farming, there were no economies of scale to make a farm with many workers more productive than a farm with one worker. Consequently, wage labor was rare. Wage labour became stigmatized.

The second consequence of land abundance was that land was not very valuable and did not serve well as collateral. It was difficult for the Egba to get loans. The record shows that people pawned themselves and their children in exchange for loans, and that people took draconian measures to achieve payback from their borrowers.

In a society without credit and without a social safety net, when all you have is yourself and your family, slavery is a way to escape starvation. It is a way to pay debt, including debt to a community because of crime. When someone saves your life, you may have no means to repay this person other than by paying this "life debt" with a life of service. In a way, a life of service is the one inalienable thing each human being has to offer in trade. Perhaps this is why slavery was accepted as an institution for thousands of years. In ancient Israel, where lending at interest to a fellow Israelite was forbidden, buying an Israelite slave or taking a debtor as a slave was permissible for up to 6 years. The Lord Jesus did not preach against slavery – or any other institution - in particular, and the writings of St. Paul recommended for the Christian community mutual respect between master and slave.

In their situation of land abundance, labour scarcity, and credit scarcity, the Egba accepted slavery and pawning. They also practiced polygyny and brideprice. Polygyny is the practice of having multiple wives. When land is cheap, and when women work the land, there is little cost to having more wives. In fact, wives are a net material benefit as agricultural workers, and command a bride price, a payment from the groom’s family to the bride’s family at marriage.

Slaves may have made up as much as one fifth of the population. They were generally strangers who were captured in war, sold to pay debt, or criminals being punished. Slaves provided scarce labor, reduced the uncertainty around labour availability at harvest time, and also served as productive “assets” in an economy where there were few opportunities to save or invest.

Fenske writes, “Understanding the existence of forced labor is of particular relevance to Africa, given the large-scale export of human beings from an under-populated region - a trade which had the effect of keeping the continent’s population stagnant over the course of several centuries.” Usually, an economy exports goods which make intensive use of whatever resource the country has in abundance. In the case of Africa, heat-loving crops, gold, or ivory would be obvious choices. But the very fact that Africa was under-populated meant that humans were the most valuable thing around and vulnerable to disenfranchisement and commoditization by one another. Another, more important factor was the demand by Europeans for crops grown in plantation style, which required gang labour. We discuss this more in Chapter 41.

The Economics of Bondage

We have seen that slavery is likely to arise when labour is scarce relative to other factors.

Slavery is also associated with a particular kind of work, namely, work that is intense and demeaning.

Work that is particularly intense and demeaning is work that no one wants to do. The wage offered may be higher than the average wage, but the non-pecuniary factors cause individuals to feel better off without that kind of employment. Plantation-style agricultural work, manufacturing under sweatshop conditions, mining in hazardous conditions, and prostitution come to mind as examples of work that many people will not do unless coerced.

When this kind of work is profitable, there is an incentive for humans to be trafficked to provide the labour. Ironically, bondage sometimes increases the material welfare of the person bonded, but it takes its toll in shame, restricted opportunities, and vulnerability to the caprices of the master and the master’s class.

African Slaves in the United States

Between 1500-1660, about 9.5 million Africans were enslaved and brought to the

Americas. 57% went to Latin America, 40% to the Caribbean, and only 6% to the \

United States. Most of these slaves were employed on sugar plantations, except in the

United States, where sugarcane was not grown.

Eventually, the United States became the major holder of slaves and opponent of

abolition, owning 36% of all slaves in the West. This was not because of high importation of slaves but because of a high rate of natural increase in the slave population (25% per decade).

In the Caribbean, by contrast, the slave population was not able to maintain itself

because of harsh treatment, poor food, diseases, a high sex ratio (1.5) among new slaves,

and disruption to private life. Not until the 1800s did the fertility rate equal the mortality rate. Until then, the rate of natural increase was about -20% per decade.

Indentured Europeans were brought to the West Indies to work sugar fields shortly after Columbus arrived However, indentured Europeans defected in response to the difficult work, hot weather, and tropical disease, and new recruits could not be persuaded to come in great numbers.

Financial aspects of the African slave trade.

In the Caribbean, the material benefit from owning an unskilled slave depended was the slave's output in sugar and the price of any children a female slave might be expected to bear. Demand for slaves and slave prices rose much more rapidly than did the price of sugar, suggesting that the productivity of slaves in sugar production grew strongly.

The supply of slaves was fairly responsive to slave prices except for the 1750-1775 period, and after 1791.

Fogel and Engelman (1974) argue that slavery was associated not with agriculture in general, but with plantation agriculture -large scale and labour-intensive - in particular. They claim that plantation-style agriculture was about 50% more productive than other methods of growing sugar and cotton. However, nowhere could free men be induced to work on plantations, not even for 50% higher wages. “For it was only by force that it was possible to get blacks to accept gang labor without having to pay a premium that was in excess of the gains from economies of scale…After the slaves were freed, many planters attempted to reconstruct their work gangs on the basis of wage payments. But such attempts generally foundered, despite the fact that the wages offered to freedmen exceeded the incomes they had received as slaves by more than 100 percent.”

The treatment of African slaves in the United States

Fogel and Engerman argue that, while force was necessary to get gang-style labour, the use of force had its costs, and there were diminishing returns to using force. That is why slaves also earned money. They claim that the average U.S. field hand earned 15% more than a free agricultural worker (but had to endure the gang-style labour and loss of freedom). Slaves “shared” in the gains from the economies of scale. What the slaves were paid was, of course, not enough to compensate them for the unpleasantness of their working situation. Fogel and Engerman write: “For every dollar gained by a typical consumer of cotton cloth [in lower cotton prices], there was a slave laboring somewhere under the hot southern sun who would lose at least $400 [in non-pecuniary costs].”

Fogel and Engerman believe that cruelty to slaves was not the norm. According to the 1850 US Census, maternal mortality was less for slaves than for southern white women. The infant mortality rate was roughly the same. Fogel and Engerman provide evidence that slaves had 10% more calories in their diet than the average white. They also argue that 90% of slaves’ earnings were returned to them in the form of maintenance or cash. However, this contradicts their report that freedmen were offered wages 100% higher than what they had received as slaves. If slaves were already paid 90% of their earnings, offering freedmen 180% of earnings would bankrupt employers.

The ban on trading in slaves, which came before the ban on slavery, was not a trivial step toward freedom, but may have done much to improve their treatment, forcing would-be owners to compete for slaves, raising the price of slaves, and raising the incentive to treat them well.

When slaves are freed, they are able to choose work more amenable to them…if they are not prevented by racism. The system of slavery was predicated on a disdain for blacks that restricted their opportunities after emancipation, such that they were worse off economically. After emancipation, black nutrition, health, and life expectancy declined. Whereas slaveowners had put blacks in jobs where they were most productive, after emancipation blacks were pushed out of skilled trades, and their wages relative to southern whites declined.

The demographic consquences of slavery include the settlement of blacks in the Americas, and resettlements such as Caribbean blacks in New Orleans and American blacks in Liberia. The legacies of these migrations include racial bullying by both whites (USA and Canada) and light-skinned elites (Haiti and Liberia), unrest and inequality, but also, eventually, understanding and cultural enrichment.

The British "Home Children" in Canada

As described by Joy Parr, in the late nineteenth century about 30% of the

British population lived in poverty. In city slums the infant mortality rate was

25%, and life expectancy at birth was about 36. In the event of a financial crisis, children were sometimes brought to the parish authorities. Administrators of the Poor Law placed children in apprenticeships, rural factories (restricted after 1830), industrial schools, or workhouse s. The workhouses became increasingly crowded after the Irish Potato Famine (late 1840s) and the recession of the late 1860s.

In response to lobbying efforts, the government agreed to allow children to be

sent to Canada. Most were sent by municipalities, about 20% by evangelical

church groups who had spearheaded the lobbying, and the rest by other religious denominations or charities. Sometimes children were sent abroad against the wishes of their parents. The first two distributional homes were at Niagara-on-the-Lake and Belleville, Ontario. Other major centres were Toronto, Peterborough, Brockville, Ottawa, Montreal, Sherbrooke, and Halifax. There is a reference to a “Barnardo boy” in the classic novel Anne of Green Gables. A total of 80,000 British children were compelled to come to Canada between 1868-1925.

What motivated the forced migration of these children? Besides a desire to help them, there must have been a belief that land-rich Canada, with a scarcity of labour, would welcome these children for the labour that they could provide. And indeed, for children over 8 years old, that seemed all that Canada was willing to do. Joy Parr argues that, for these children, a formal work obligation helped protect them.

Very young children were placed in trial adoptions, but the placement agencies

found that children over the age of 8 were usually not accepted as part of the

family. Because of this, indenture seemed preferable to an attempted adoptive relationship, because indenture defined the rights of the child and spared them fantasies of achieving birth child status in the family. Parr writes, “Formal apprenticeship indentures did more to define the rights of British immigrant children than to extinguish their liberties.”

What transpired is that children 6-10 were boarded out for a fee paid by the

agencies. Between 11-14 children usually boarded for free in return for their

chores, and between 15-18 they were indentured to work for pay that the agency collected.

Younger children were more popular in isolated areas, where there was little

off-farm opportunity for the farmwife, and where it was more difficult to market

farm produce for cash. “Home children” would bring in cash and could be fed on

farm produce. As children grew in skill and stature, they were relocated to more

prosperous areas which could offer more pay. In one sample, boys were moved

an average of 3 times, girls even more frequently. This must have been

disruptive to their development.

Human trafficking today

We have seen that slavery and forced migration is more likely when labor and credit are scarce. Human trafficking is likely in industries where workers’ conditions are intense and dangerous. Slaves welcome liberty, but sometimes their material standard of living deteriorates once they are freed.

In the world today, humans are trafficked to supply sex, to work in sweatshops, and to work on plantations (e.g. cocoa farms in West Africa). Some victims are conned by people offering to sneak them into a better country. Others are duped by pimps acting as friends, and brought from rural areas or reservations to big cities within the same country. A 2004 RCMP publication estimated that 600-800 people are trafficked into Canada per year, and 1,500-2,000 pass through Canada to the United States. Countries of origin include Eastern Europe, China, Southeast Asia, and Latin America. The US believes that 80% of people trafficked into the US are female.

A dear friend of mine came all by herself from Hong Kong to Vancouver in the 1980s to attend high school. Her contact was a former piano teacher, with whom she stayed. This woman soon had my friend doing household chores. She then began to bring men around the house and make suggestions. Before anything worse happened, my friend, penniless and in tears, boarded a bus and blurted out one of the few English words she knew: “YMCA”. I’m happy to say that things took a turn for the better at that point.

This story illustrates the sad reality that often, when a group is exploited, one of its own members is collaborating.

To combat human trafficking we need to uncover and prosecute it. It is also important to understand the push and pull factors.

Push Factors

-unemployment and poverty

-lack of credit and opportunities to improve one’s life

-abuse in the home or the home community

-ignorance and credulity

Pull Factors

-deceit and predation

-profits for the trafficker due to demand for gang-style labour

-lack of concern in the host community, possibly due to racism.

-lack of detection in the host community, possibly due to race and class differences.

To fight human trafficking we need to educate potential victims and potential host communities. We must ensure that people have a fair chance to develop their potential, and to safely move to areas where they have more economic opportunity. We must also spend resources finding human traffickers. Traffickers must then be given a significant punishment.

Criminalization

Criminalization of an activity raises the costs of that activity. Costs include the fines and jail time that are incurred with various probabilities, and the cost of avoiding detection. The two main results of these higher costs are that 1) the activity is discouraged; and 2) the activity is driven underground.

There is no question that criminalizing an activity will reduce its incidence. When costs rise, the supply curve shifts toward the origin. Higher prices are charged to cover the higher costs, and this discourages use. If suppliers fight among themselves for control of the market, and one succeeds in monopolizing the market, prices will rise even more, and output will fall even more. Monopolists always keep prices above the free market price.

So far so good. But we have not addressed the consequences of the activity being driven underground. This gives rise to all kinds of negative external costs. As previously mentioned, the suppliers are able to conduct turf wars underground, and violent crime is likely to escalate, at least among the criminal class. The criminals who succeed may use their monopoly profits to branch into other criminal activities or to corrupt politics.

Another consequence of an activity being driven underground is that the activity can change. Buyers can suffer if sellers contaminate the product, which is unregulated. And workers will suffer if they are forced into more isolated and less safe working environments.

Prostitution is an especially tough case. Legalizing brothels will lead to more prostitution. But criminalizing brothels forces prostitutes into the cars of potentially murderous strangers. Criminalization must be paired with a program to protect prostitutes and help them leave the trade if that is what they want.

Human trafficking is something so simply exploitative that we cannot legalize it without tearing the heart out of our society. However we must recognize that as long as the push:pull factors are there, human trafficking will be hiding somewhere.

� EMBED MSGraph.Chart.8 \s ���

� EMBED MSGraph.Chart.8 \s ���

Box 40-1. Polygyny in Canada. A polygamous community in southeastern British Columbia came into the spotlight in 2007, when a senior leader was charged with being an accomplice to rape of a minor but was later discharged for lack of evidence. It seemed that the two groups which comprise this community would continue their illegal marital practices - underage marriage, polygyny, and the probable coercion of brides - in their remote location. Now, however, changes to property rights are developing that could change the incentives faced by powerful men in this community. The land used by this branch of the Fundamentalist Church of Jesus Christ of Latter-Day Saints (FLDS) is owned in trust by FLDS leadership in Utah, but the Canadians want to hold their land in their own names. So the State of Utah has appointed a trustee to privatize the land. This would involve putting names on leases and property titles. The trustee is looking for names of all wives, and finding it difficult to collect the information, but he intends to make all spouses equally owners of any land a husband has claim to. If there is a chance that the women might actually make use of these ownership rights, men’s incentive to have multiple wives will be reduced. (“Wives to be named on leases”, Robert Matas, Globe and Mail, July 11, 2009)

� Labour’s share of GDP is wL/GDP. Wage elasticity is dw/dL multiplied by L/w. Let dL = the number of immigrants.

� For the latest regulations, see � HYPERLINK "http://www.cic.gc.ca/english/immigrate/index.asp" ��http://www.cic.gc.ca/english/immigrate/index.asp�

� Canadian Council for Refugees, � HYPERLINK "http://www.ccrweb.ca/en/hundre-years-immigration-canada-1900-1999" ��ccrweb.ca/en/hundre-years-immigration-canada-1900-1999� Downloaded July 28, 2011.

� Statistics Canada, Report on the Demographic Situation in Canada, 2005 and 2006, Table 4.2.

� "Canada's changing immigration checklist: Youthful trades workers wanted." Globe and mail, Feburary 18, 2011.

� Picot et al. (2007)

� M. Corak (2008)

� "China's outdated residence permit system", UPI Asia.com, Feb 20, 2009, downloaded March 3, 2011.

� Workhouses were not usually places of hard work but were places where the poor could be housed. They were usually crowded and provided minimal food. There were attempts to find employment for residents of workhouses, and sometimes the working-age residents were forced to do work at the workhouse itself.

� RCMP (2004).

� Stewart and Gajic-Veljanoski (2005)

� US Department of State (2004), as reported in Stewart and Gajic-Veljanoski (2005).

�A report based on 2003 data found that East Asian homestay students in British Columbia were at greater risk for abuse and self-harm than immigrants and Canadian-born students of East Asian heritage. See Wong et al. (2010)