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  1. 1. American Institute forResearch Report Contemporary German Studies The Johns Hopkins University AICGS Research Report No. 10 RESPONSES TO GLOBALIZATION IN GERMANY AND THE UNITED STATES Seven Sectors Compared Edited by Carl Lankowski
  2. 2. American Institute for Contemporary German Studies The Johns Hopkins University AICGS Research Report No. 10 RESPONSES TOGLOBALIZATION INGERMANY AND THE UNITED STATESSeven Sectors Compared Edited by Carl Lankowski i
  3. 3. The American Institute for Contemporary German Studies (AICGS) is a center foradvanced research, study, and discussion on the politics, culture, and society of theFederal Republic of Germany. Established in 1983 and affiliated with The Johns HopkinsUniversity but governed by its own Board of Trustees, AICGS is a privatelyincorporated institute dedicated to independent, critical, and comprehensive analysisand assessment of current German issues. Its goals are to help develop a newgeneration of American scholars with a thorough understanding of contemporaryGermany, deepen American knowledge and understanding of current Germandevelopments, contribute to American policy analysis of problems relating to Germany,and promote interdisciplinary and comparative research on Germany.Executive Director: Jackson JanesResearch Director: Carl LankowskiDevelopment Director: Laura RheintgenBoard of Trustees, Cochair: Steven MullerBoard of Trustees, Cochair: Harry J. GrayThe views expressed in this publication are those of the author(s) alone. They do notnecessarily reflect the views of the American Institute for Contemporary GermanStudies.©1999 by the American Institute for Contemporary German StudiesISBN 0-941441-44-XThis AICGS Research Report is made possible through a generous grant from theGerman Program for Transatlantic Relations and the Fritz Thyssen Foundation.Additional copies are available at $5.00 each to cover postage and processing from theAmerican Institute for Contemporary German Studies, Suite 420, 1400 16th Street, N.W.,Washington, D.C. 20036-2217. Telephone 202/332-9312, Fax 202/265-9531,, Web: ii
  4. 4. CONTENTSFOREWORD............................................................................................vABOUT THE AUTHORS.......................................................................ixTHE POLITICS OF GLOBALIZATION IN GERMANY AND THEUNITED STATES U.S. IMMIGRATION POLICY Philip Martin and Susan Martin.............................................................1IMMIGRATION POLICY IN INTEGRATEDNATIONAL ECONOMIES Thomas Bauer and Klaus F. Zimmermann..........................................15GLOBALIZATION AND LABOR MARKETS:A VIEW FROM THE UNITED STATES John Schmitt......................................................................................31GLOBALIZATION AND LABOR MARKETS:A VIEW FROM GERMANY IN THE EUROPEAN UNION Reiner Hoffmann..................................................................................47HIGHER EDUCATION IN AN ERA OF GLOBALIZATION Daniel Fallon and Mitchell Ash..................................................................67INNOVATION AND GLOBALIZATION:A U.S.-GERMAN COMPARISON David B. Audretsch and Maryann P. Feldman......................................79GLOBAL CAPITALISM AND THE POLITICS OF SOCIAL POLICYREFORM IN GERMANY AND THE UNITED STATES Elmar Rieger...................................................................................101TAX POLICY IN A GLOBAL ECONOMY:ISSUES FACING EUROPE AND THE UNITED STATES Gary Hufbauer.....................................................................................121CHALLENGES OF GLOBALIZATIONFOR GERMAN TAX POLICY Ullrich Heilemann and Hans Dietrich von Loeffelholz............................131 iii
  5. 5. INFRASTRUCTURES FOR GLOBALIZATION:TRANSPORT, TELECOMMUNICATIONAND ENERGY SUPPLY Rudolf Petersen................................................................................147INFRASTRUCTURES FOR GLOBALIZATION Henry L. Michel...............................................................................169 iv
  6. 6. FOREWORD This research report is the first of two that will issue from an eighteen-month project undertaken with the generous support of the Fritz Thyssen Foun-dation. The sequel, to be published later this year, is Governing Beyond theNation-State: Global Public Policy, Regionalism or Going Local?, which,as the title implies, focuses specifically on governance issues. Though integralto the project funded by Thyssen, the five corresponding papers were presentedas a group at a special workshop in March 1999 and for that reason is publishedseparately. A condition and a set of challenges. Globalization was never restricted tothe economic dimension. After all, for most of this century, a world politicalsystem existed prior to a world economy. In ways both subtle and direct, cul-tural influences conveyed through film and mass media are contributing to thecreation of global consumer markets. The technology of mass international com-munication is facilitating the development of transnational societies. Temporarytrans-border travel made possible by developments in transportation infrastruc-ture is taken for granted by a growing number of individuals, either as businesspeople, tourists, migrant workers, or family members. Indeed, the shape oftomorrow’s economy will be contingent upon developments in all of these di-mensions and more. Yet, there is no point in denying the centrality of economicglobalization to the whole process. Mobile capital is transforming the spatialconfiguration of the economy and the relationship between public and privatesectors, and is compelling adaptation in all institutions. The Euro-Atlantic area, by which I mean primarily EU-Europe togetherwith the United States and Canada, is a crucible and platform for these dynamicdevelopments. All of the dimensions to which allusion has just been made arepresent in unparalleled density in this area. In that sense, this project can claimto generate insights with at least modest claim to generalizability within andeven beyond the Euro-Atlantic world. Because of their economic size, interna-tional position and geographical location, Germany and the U.S. will play a cen-tral, if not necessarily a “leading” role in achieving fruitful adaptations of theinstitutional nexus most important for their welfare and democratic stability. Globalization has created a political challenge of the first magnitude and it ismainly for political reasons that national governments are called upon to act.Publics have come to hold politicians accountable for the performance of theeconomy as a surrogate for sustaining a way of life. But measured against thegains accruing to an increasingly broad middle class from ca 1950 to ca 1975,politicians are ever less able to capture and redistribute the fruits of economic v
  7. 7. development for their constituencies. Moreover, other aspects of globalizationhave raised questions about the shape and identity of the polity to be served.Consequently, systemic change is on the agenda, i.e., change in the aims, mo-dalities and interrelationships among key institutions. With these papers, we hope to contribute to providing a more accuratepicture of the dimensions of globalization and the challenges it addresses in thefirst instance to Germany and the United States. We are also interested in theiradaptive capacities as seen in the range of institutional responses to the condi-tion of globalization. Part of this adaptive capacity consists in the ability of thepolitical system to project and adopt credible reforms, wherever needed. Andwe are also interested in the role to be played by supra-national organizationsand/or regimes in strategies of governance. Following our core interest in institutional adaptation, this report offers analy-ses of seven key sectors. A very brief signal pointing to the insights and/orrecommendations to be found in the papers in this volume is given along withthis list of the sectors selected for analysis: Immigration. Philip Martin and Susan Martin demonstrate that national conceptions of immigration differ significantly, but in each case the rhetoric of debate requires moderation. Thomas Bauer and Klaus Zimmermann call for greater attention to high-skilled immigrants—among this group “virtual immigration” via telecommuting may come to play a much greater role as a substitute for moving, thus confounding conventional concerns. Labor markets. So far, a coalition of political forces supporting further integration in world markets has eluded American politicians and one of the reasons may be that the gains from trade are actually smaller than conventional wisdom believes, argues John Schmitt. To Reiner Hoffmann a national solution to unemployment does not seem likely in Germany; the EU will play a decisive role, but reform should strive for re- rather than de- regulation. Education. Mitchell Ash and Daniel Fallon argue that, overall, the two countries face common problems and will share a similar future that nevertheless permits cultural differences. Germany is entering the era of mass higher education, a stage achieved in the United States in 1968. Germany’s challenge consists in differentiating both the structure and financing of its institutions of higher education. America’s lies in accepting some international standardization of credentials and curricula. Innovation. David Audretsch and Maryann Feldman point out that the vi
  8. 8. transatlantic economic debate mistakenly suggests a trade-off between jobs and welfare. There is a third option that combines German traditions of know-how and skills acquisition with American institutions facilitating commercialization of knowledge through entrepreneurship. Welfare institutions. Because the trend toward increased international market integration is reversible, Elmar Rieger implies that social programs should be evaluated in terms of the support they generate for this process. Germany has done better here. But Germany and America remain divided on the ethos of labor markets as well as the scope of entitlements, factors that, when taken together, go a long way toward explaining the paralysis in discussions addressing needed social policy reform in Germany. Taxation. There is disagreement over whether tax bases in all important revenue categories are becoming more mobile. Gary Hufbauer thinks they are and foresees that neither technical fixes nor international cooperation (even within the EU) will affect this trend. Tax systems will be redesigned to attract mobile firms that provide good jobs and financing public pension systems will become increasingly difficult. Ullrich Heilemann and Hans Dietrich von Loeffelholz see little change in Germany’s tax structure that is attributable to globalization, but agree with Hufbauer that provision of public goods must be factored in. They part company again in the high value they attach to such goods as skilled labor, local amenities and social peace. Infrastructure. Rudolf Petersen’s paper is a critical assessment of the trend he identifies toward increasing globally oriented infrastructure. From the perspective of resource economics, policies that encourage it are misguided. He emphasizes pathological synergies between the components of infrastructure created by the advent of global information technology. Petersen welcomes the increased attention devoted to such resource issues in a global perspective by the new “Red/Green” German government. From an American perspective, Henry Michel approaches the same topic with an entirely different mood. He fully embraces the “globalization game” and identifies the infrastructure deficits that must be addressed in order to play that game well. A joint and multidisciplinary team. The German and American participantsin this project were trained in economics, political science, law, and engineering.Whatever their academic training, one characteristic of the group is the seasoningthat comes from significant experience in policy settings. I meant to exploit this vii
  9. 9. resource and this mix of qualifications comprises an essential strength of thesurvey. Project participants were charged with producing interpretive essaysthat considered their subjects broadly. As a result, the reader will not find typicallyacademic studies in this volume. Participants drew upon the insights of theirdisciplines, but often ventured further in making sense of globalization in theirassigned sectors. No attempt was made to impose a single definition ofglobalization on the team. The approach was rather to encourage each author totell us what globalization means as he or she worked through his/her sector. In addition to the Fritz Thyssen Foundation, Responses to Globalization inGermany and the United States also received support from the GermanMarshall Fund of the United States, Lufthansa Airlines, and the German Programfor Transatlantic Relations. AICGS is grateful to each of them for their help inrealizing this project.Carl Lankowski November 1999Research Director viii
  10. 10. ABOUT THE AUTHORSMitchell Ash is professor of Modern History at the University of Vienna,Austria. He is the editor of German Universities Past and Future: Crisis orRenewal? (Berghahn Books, 1997), the first volume in the AICGS series,“Policies and Institutions: Germany, Europe and Transatlantic Relations.”David B. Audretsch is the Ameritech Chair of Economic Development anddirector of the Institute for Development Strategies at Indiana University. Beforecoming to Indiana University, he was research professor at the Science Centerfor Social Research, Berlin. He is founder and editor of Small BusinessEconomics: An International Journal.Thomas Bauer studied economics at the University of Munich and received hisdoctorate in 1997. From 1997-1998 he visited Rutgers University under theauspices of a Feodor Lynen Fellowship of the Alexander von HumboldtFoundation. In September 1998 he joined the Institute for the Study of Labor(IZA) in Bonn as senior research associate.Daniel Fallon is professor of Public Affairs and professor of Psychology at theUniversity of Maryland, College Park. He is the author of numerous articles onhigher education and comparative higher education, including The GermanUniversity: A Heroic Ideal in Conflict with the Modern World (ColoradoAssociated Universities Press, 1980).Maryann P. Feldman is a research scientist at the Institute for Policy Studiesat the Johns Hopkins University, where her primary focus is technological changeand economic development. She has served as a consultant to local, state andfederal government as well as private industry.Ullrich Heilemann is the vice-president of the Rhenish-Westphalian Institutefor Economic Research (RWI) in Essen, Germany. He is also professor ofEconomics at the University of Duisburg.Reiner Hoffmann is the director of the European Trade Union Institute, theresearch division of the European Trade Union Confederation, Brussels. Beforecoming to ETUI, Mr. Hoffmann worked for the Economic and Social Committee(ECOSOC) of the European Community. ix
  11. 11. Gary Hufbauer resumed his position as Reginald Jones Senior Fellow at theInstitute for International Economics in September 1998, a position he heldbetween 1992 and 1997. From June 1997 until September 1998, he was theMaurice R. Greenberg Chair and Director of Studies at the Council on ForeignRelations in New York. Before joining the Institute for International Economics,he was the Marcus Wallenberg Professor of International Financial Diplomacyat Georgetown University.Philip Martin is professor of Agricultural and Resource Economics at theUniversity of California-Davis and chair of the University of California’sComparative Immigration and Integration Program. He also co-chairs MigrationDialogue, a not-for-profit organization dedicated to providing timely andnonpartisan migration analysis.Susan Martin is director of the Institute for the Study of International Migrationat Georgetown University. She served as executive director of the U.S.Commission on Immigration Reform and director of Policy Research andPrograms at the Refugee Policy Group. She has taught at Brandeis Universityand the University of Pennsylvania.Henry Michel, a retired engineer, is chairman emeritus of ParsonsBrinckerhoff, Inc. He was recently honored with one of engineering’s mostdistinguished commendations, Honorary Membership in the American Society ofCivil Engineers. Michel is also a senior lecturer at the Massachusetts Institute ofTechnology and an industry professor at New York Polytechnic University.Rudolf Petersen heads the Transportation Division at the Wuppertal Institutefor Climate, Environment and Energy. Dr. Petersen has participated in studies onthe environmental aspects of passenger and freight transportation and thereduction of urban air pollution. He is also a lecturer on the environmental effectsof combustion engines at the University of Essen.Elmar Rieger is presently working as a research professor at the Center forSocial Policy at the University of Bremen. Prior to this appointment, Dr. Riegerwas John F. Kennedy Fellow at Harvard University. His main areas of interestare comparative and historical welfare state research, European integration andagriculture. He recently finished an evaluation of the proposals of the EuropeanCommission for reforming the Common Agricultural Policy. x
  12. 12. John Schmitt is a labor economist at the Economic Policy Institute, Washington.Dr. Schmitt has written extensively on inequality, unemployment and theminimum wage and is a co-author of The State of Working America 1998-99(Cornell University Press, 1998).Hans Dietrich von Loeffelholz is head of the Public Economics Division of theRhenish-Westphalian Institute for Economic Research (RWI) in Essen,Germany. He is also visiting professor at the Ohio Wesleyan University (OWU),Delaware, Ohio, and adjunct professor of public economics at the Universities ofBochum and Dortmund.Klaus Zimmermann is the newly appointed director of the German Institute forEconomic Research (DIW) in Berlin. He also serves as director of the Institutefor the Study of Labor (IZA) in Bonn and as co-director of the Labor EconomicsProgram of the Center for Economic Policy Research (CEPR) in London and isa professor of Economics at the University of Bonn. xi
  13. 13. xii
  14. 14. THE POLITICS OF GLOBALIZATION IN GERMANY AND THE UNITED STATES: U.S. IMMIGRATION POLICY Philip Martin and Susan Martin INTRODUCTION Immigration policies are the mix of international, national and local rulesand programs that aim to facilitate the admission and integration of someforeigners and prevent the entry and stay of others. This paper examines U.S.policies on legal immigration, refugees and asylum seekers, and unauthorizedmigration to highlight similarities and differences in the migration challengefacing the industrial democracies. There is dissatisfaction with immigration and integration policies in bothGermany and the U.S. Immigration and integration issues were second only tounemployment among the domestic issues debated in the 1998 Germanelections, and immigration and integration issues have been contentious instates such as California, which approved Propositions 187 (illegalimmigration) in 1994 and 227 (bilingual education) in 1998. About 7.3 million foreigners lived in Germany in 1998, making foreignersabout 9 percent of the German population. By comparison, the U.S. had about27 million or 10 percent foreign-born residents. If current trends continue, theforeign/foreign-born share of residents is expected to rise in both Germany andthe U.S. in the 21st century, to 17 percent in Germany and 15 percent in the 2030. On a normal day, some 70,000 foreigners arrive in the United States. Mostare welcomed at airports and borders: over 60,000 are nonimmigrants whocome to the U.S. as tourists, business visitors, students, and foreign workers.Another 2,500 arrivals are immigrants and refugees, persons that the U.S. hasinvited to join American society as permanent residents. Finally, there are about5,000 unauthorized aliens. About 4,000 are apprehended every day, most alongthe U.S.-Mexican border just after entry, but at least 1,000 elude detection at theborder, or slip from legal to unlawful status after legal entry, as when a touristgoes to work. The United States is a nation of immigrants. Under the motto “e pluribusunum,” from many one, U.S. presidents frequently remind Americans that theyshare a common experience: they or their forebears left another country to beginanew in the U.S. Immigration permits immigrants to better themselves andstrengthens the U.S., which is why the U.S. Commission on ImmigrationReform spoke for most Americans when it asserted in 1997 that “a properly 1
  15. 15. Responses to Globalization in Germany and the United States: Seven Sectors Comparedregulated system of legal immigration is in the national interest of the UnitedStates.” Despite the generally rosy view of America as a land of immigrants, thearrival each day of the equivalent of a small city has become a contentiouspolicy reflecting basic ambivalence about current immigration. Oftenforgetting how contentious immigration was when their ancestors arrived in theU.S., Americans fear that the country has lost its absorptive capacity. Immigration often becomes an issue in which the loudest voices sometimescome from the extremes of “no immigrants” and “no borders.” For example, theFederation for American Immigration Reform (FAIR) calls for a five-year stopto “mass immigration” so that, during the pause, recent arrivals and Americanswould have time to adjust to each other. At the other extreme, the Wall StreetJournal advocates a five-word constitutional amendment: “there shall be openborders.” The editorials of the leading U.S. business paper advocate high levelsof immigration chiefly for economic reasons, while ethnic and religiousorganizations advocate more immigration for other reasons. There are middle-of-the-road remedies for immigration problems. Weargue that a better understanding of the facts promotes fine-tuning rather thanradical changes in immigration policy. Toward that aim, this paper first sets outthe global contexts in which decisions on U.S. immigration policy are taken,and it then outlines specific issues to be considered in six principal areas: legalimmigration, including permanent and temporary admissions; refugee andasylum policy; unauthorized migration; integration of immigration; the federalimmigration system; and relations with source countries of immigration. GLOBAL CONTEXTS Three global trends have particular importance for decision-making onimmigration matters: growing economic integration and globalization;changing geo-political interests in the post-Cold War era; and increasingtransnationalism as migrants are able to live effectively in two or more countriesat the same time. Economic trends influence both legal and illegal migration patterns. Forexample, growth in multinational corporations puts pressure on governments tofacilitate the inter-country movements of personnel. At the same time, and in amuch more disturbing trend, alien smuggling has emerged as a multinationalcorporate activity that reaps an estimated gain of $5-7 billion per year. Suchregional and international trade regimes as NAFTA and the General Agreementon Trade and Services (GATS) also affect migration trends, permitting freermovement of persons providing international services from signatory countries. 2
  16. 16. Philip Martin and Susan MartinFurther, the development of new technologies facilitate both virtual and actualmigration of people, ideas and work and, at least in the information technologyfield, creates a seemingly insatiable demand for infusion of foreignprofessionals with state-of-the-art skills. The post-Cold War era also presents new opportunities as well as newchallenges for migration regimes, particularly regarding refugee movements.While many refugee situations have been resolved as Cold War inspiredconflicts came to an end, thereby permitting large-scale repatriation, rabidnationalism and government collapse continue to cause massive flight. At thesame time, the principles of asylum and non-refoulement (non-return to placesof persecution) appear to be under growing attack in Europe and NorthAmerica. The third trend affecting migration policies is transnationalism. Partlybecause of the technological revolution discussed above, migrants can far moreeasily today live in two societies at the same time, maintaining contacts withtheir home communities very inexpensively. Perhaps the most visible aspect oftransnationalism is the growing acceptance of dual nationality. Money flowbetween immigrants and those who remain at home is another important aspect.Remittances often exceed any other form of trade, investment or foreign aidavailable to the source countries of migrants. Given these significant economic, social and foreign policy trends, the U.S.and other nations face new challenges and must begin to think more creativelyabout their migration policies. In the following sections, we set out the majorU.S. policy issues in need of such attention. PERMANENT IMMIGRATION The United States admits about 900,000 legal immigrants each year, upfrom about 600,000 per year in the 1980s (not counting those legalized underthe 1986 amnesty), 450,000 per year in the 1970s, and 330,000 per year in the1960s. As immigration was increasing, the major countries of origin changed,from Europe to Latin America and Asia. Immigrants are persons who are entitled to live and work permanently in theU.S. and, after five years, to become naturalized U.S. citizens. The fourprincipal bases or doors for admission are family reunification, skills, diversity,and humanitarian interests. By far the largest admissions door is for relatives ofU.S. residents; in 1996, two-thirds of the 916,000 immigrants were grantedentry because family members already resident in the U.S. formally petitionedthe U.S. government to admit them. The second-largest category of immigrantsin 1996 was humanitarian: 14 percent of the immigrants were refugees and 3
  17. 17. Responses to Globalization in Germany and the United States: Seven Sectors Comparedasylees (see below for further discussion). The third group, about 13 percent,were immigrants and their family members admitted for economic oremployment reasons; the U.S. in 1990 raised the annual quota on immigrantsadmitted for economic reasons. Finally, the fourth door admitted diversityimmigrants; 6 percent of the flow were foreigners from countries that have notrecently sent large numbers of immigrants to the U.S. America continues to celebrate its immigrant heritage, with massnaturalization ceremonies on July 4, the annual celebration of U.S.independence, associating immigration with the founding of the United States.More practical benefits of immigration are argued as well: • Immigrants contribute to the economic well-being of the U.S. through their skills, hard work, entrepreneurial instincts, social security tax payments, and/or willingness to take jobs unwanted by Americans. • Immigrants invigorate the social and cultural life of the country, as witnessed by the diverse cuisine, literature, music, dance, and other art forms brought by newcomers. • Immigrants are a constant reminder to natives of what is special about the U.S. as a country that attracts so many foreigners. • Immigrants renew city neighborhoods that have often fallen upon bad times, creating new businesses, buying homes, and promoting community cooperation. • Immigration strengthens U.S. economic and political ties with other nations and our ability to compete in a global economy and provide international leadership. Of course, immigration is not without its detractors, who make one or moreof the following arguments: • Immigration adds to U.S. population growth and, therefore, to environmental and related problems. • Immigrants depress wages and working conditions, especially hurting unskilled U.S. workers, including previously arrived immigrants who can easily be displaced by new immigrants willing to work at lower wages. 4
  18. 18. Philip Martin and Susan Martin • Immigrant workers willing to work at low wages can slow the modernization and globalization of the U.S. economy. • Some immigrants want public support to retain their language and culture, provoking concerns that programs—such as bilingual schooling and preferences for minorities—contribute to the “dis-uniting” of America. While the debate about overall admissions is often framed in pro- and anti-immigration terms, the reality is different. Immigration can be more effectivelyseen as a series of trade-offs between competing goods. For example, it is oftenargued that large-scale immigration is necessary to “save” social securitysystems in the industrial countries. Immigration can play a role in increasingsocial security revenues by adding more taxpayers than beneficiaries, but muchhigher levels of immigration would be needed to make a difference in thedemography of the country. Yet, if the composition of the immigrant flowremains unchanged, and many more unskilled immigrants enter, immigrationmay make it harder for some disadvantaged U.S. workers, including theimmigrants already in the U.S., to climb the job ladder. In this case, thecompeting goods are high levels of benefits for retired persons who are livinglonger, versus the competing good of restricting immigration to protectespecially low wage workers. Deciding how to weigh the competing goods ofbenefits for retirees and protecting U.S. workers can be a contentious issue. Many of those concerned about immigration are more concerned about thecomposition of the flow than the number of immigrants. During the past twentyyears, there have been persistent calls for a shifting of admission numbers fromfamily categories, under which many immigrants with less than a high schooleducation enter, to skills-based ones that attract more highly educatedimmigrants. In particular, reformists propose limiting immigration to nuclearfamily only.1 Proponents of extended family migration counter that admissionof extended family serves not only humanitarian purposes but economic ones aswell. Extended families often work or live together, strengthening thehousehold economy of members who would otherwise live in poverty. In the U.S., most of the immigrants admitted for economic reasons arechosen by U.S. employers. There are some clear advantages to such a system.Not surprisingly, rates of employment among these immigrants are very highsince they already have jobs and, generally, a supportive employer. It is alsoargued that employers are the best judge of the economic contributions anindividual can make. A checklist, as used in a point system, may identifywould-be migrants with academic skills, but these individuals may not have the 5
  19. 19. Responses to Globalization in Germany and the United States: Seven Sectors Comparedmore difficult to measure capabilities, such as an ability to work in teams, thatemployers find valuable. To hire a foreign worker as a permanent resident, the employer mustundertake a recruitment process that meets Department of Labor (DOL)guidelines and demonstrate that no minimally qualified U.S. worker isavailable. The process normally requires an attorney’s help, and the wait forapproval can be several years, first at DOL and then at the Immigration andNaturalization Service (INS). Employers and immigrants are frustrated by thedelays, and tend to use temporary visa categories to bridge the gap between thedecision to hire the worker and the government’s grant of permanent residentstatus. As a result, the recruitment process is often a farce, the employer havingalready hired the foreign worker. Hence, the current system serves the needs ofneither employer nor the domestic U.S. work force. A federal Commission on Immigration Reform (CIR) proposed a trade-off:employers could more quickly and easily hire the immigrants they wanted ifthey paid a substantial ($10,000) fee to a fund that would provide scholarshipsfor U.S. workers willing to be trained to fill the jobs going to foreigners. CIRargued that market forces would be a better determinant than the unwieldybureaucratic process of a business’ need for the foreign worker. TEMPORARY WORKERS Temporary work categories are increasingly important as the vehicle foradmission of foreign workers, particularly professionals, executives andmanagers. Each year, almost 300,000 visas are issued to temporary workers andtheir family members. In addition, an unknown number of foreign students areemployed either in addition to their studies or immediately thereafter inpractical training. The growth in the number of foreign professionals admitted for temporarystays reflects some of the global economic trends discussed above. In fastchanging industries, such as information technology, having access to a globallabor market of skilled professionals is highly attractive. Also, as companiescontract out work, or hire contingent labor to work on specific projects, theappeal of temporary visas rather than permanent admissions is clear. Someforeign firms, understanding that it may not be possible to undertake an entireproject off-shore, obtain temporary work visas to the U.S. so their employeescan complete the job at the U.S. client’s facilities. The temporary programs alsogive employers and employees a chance to test each other before committing topermanent employment. Multinational corporations find the temporary 6
  20. 20. Philip Martin and Susan Martincategories useful in bringing their own foreign personnel to work or receivetraining in the U.S. As with other immigration matters, there are trade-offs in using temporaryadmission categories. While they may help increase business productivity andeven generate job growth, they also render the foreign workers more vulnerableto exploitation and may, thereby, depress wages and undermine workingconditions for U.S. workers. Generally, the foreign worker is tied to a specificemployer who has requested the visa. Loss of employment may also mean thethreat of deportation. Moreover, because the temporary visa is so often a testingperiod, the foreign professional may put up with any conditions imposed by theemployer, fearing loss otherwise of the chance at permanent resident status. The trade-offs are even more apparent with regard to admission of unskilledworkers. There have been persistent calls for a large-scale guest-workerprogram to meet the seasonal needs of U.S. perishable crop agriculture, whichis now heavily reliant on unauthorized workers. Consumers want to pay lowprices for fruits and vegetables, and they also want farm workers to have decentwages and working conditions. Are the savings on fresh produce due to immigration worthwhile?Immigrant farm workers earning low wages by U.S. standards are nonethelessbetter off in the U.S. than at home. Over time, though, their point of comparisonis the U.S. standard of living, not what they left in their home country. are also better off now, enjoying higher profits and therefore higherland prices. But, with ready availability of cheap labor, farmers may berefraining from investing in technology that might reduce still further the costsof produce. The critical issues are which of the two goods is more valuable—cheaper food or higher farm wages—and what time frame should be used inassessing impacts—today or some time in the future. The way these questionsare answered is a major determinant of U.S. immigration policy, especially withrespect to Mexico. REFUGEES AND ASYLESS The United States remains one of the major countries offering permanentresettlement to refugees in third countries as well as asylum to those arrivingdirectly. The number of refugees resettled in the U.S. varies each year,determined annually by the president in consultation with Congress. For FY99,for example, the president has authorized admission of up to 78,000 refugees:48,000 from Europe, divided almost evenly between nationals of the formerYugoslavia and the former Soviet Union; 12,000 from Africa; 9,000 from eastAsia; 4,000 from the near east/south Asia; 3,000 from Latin America/ 7
  21. 21. Responses to Globalization in Germany and the United States: Seven Sectors ComparedCaribbean; and 2,000 geographically unallocated. Actual admissions in FY98numbered 76,786, with ex-Yugoslavs and ex-Soviets representing about 70percent of entries. In the U.S., asylum applicants may apply directly to the INS (calledaffirmative applications) or during a removal hearing in immigration courtwhen apprehended at a port of entry or in the interior of the U.S. (calleddefensive applications). In the case of affirmative cases, INS may grant asylumor refer the case to an immigration judge for further adjudication. Althoughthere are no limits on the number of persons who can obtain asylum (with theexception of those applying under a special program for Chinese protestingChina’s coercive population control policies), the U.S. permits a maximum of10,000 asylees to adjust to permanent residents each year. In FY97, the latest year for which complete statistics are available, about50,000 asylum cases were filed with INS as affirmative cases. These new casescame on top of a pending caseload of more than 450,000 cases. About 20percent of the cases that reached final decisions in FY97 were approved by INS.In total, INS granted asylum in slightly more than 10,000 cases, representingalmost 16,000 individuals. During the same period, the immigration court received almost 84,000cases. The majority (75,000) were referred by the INS asylum office, with amuch smaller number applying as a result of apprehension. The immigrationcourt approved about 30 percent of all of the cases in which it made a finaldetermination on the merits. Admission of refugees and asylees is governed by the Refugee Act of 1980,as amended. The Refugee Act had three principal aims: 1) to place U.S. policymore firmly in compliance with international standards for protecting refugees,in part by dropping the Cold War-driven definition of a refugee as someonefleeing a communist state; 2) to institute permanent mechanisms for makingresettlement and asylum decision, rather than maintain reliance on ad hocstatutory and discretionary processes; and 3) to establish rules regarding theeligibility of refugees for assistance and the reimbursement to be afforded statesand private agencies for services provided to refugees. Despite the statutory changes to de-link refugee decisions from ideology,even after the fall of the Soviet Union and the collapse of communism in mostparts of the world, U.S. refugee admissions continued to reflect Cold Warpriorities. Until very recently, more than 80 percent of refugees admitted to theU.S. came via orderly departure programs directly from Indochina or the formerSoviet Union. Only a very few slots were available for refugees referred forresettlement by the United Nations High Commissioner for Refugees(UNHCR). 8
  22. 22. Philip Martin and Susan Martin The asylum system, in particular, came under increasing criticism for theseeming ideological basis for decisions to grant asylum, with the U.S.government appearing to grant refugee status readily to Nicaraguan asylumseekers and denying refugee status to El Salvadorans and Guatemalans.2 Themigration of many Central Americans to the U.S. in the late 1980s produced anasylum crisis, which was eventually “resolved” by having the U.S. governmentagree to re-examine rejected asylum applications filed by Salvadorans andGuatemalans, and to permit those who did not file because of the low approvalrates to apply for the first time. In addition, an Asylum Officer Corps wasestablished in April 1991, so that independent trained adjudicators within INSwould hear asylum claims. Mounting backlogs of cases and concerns aboutfraudulent applications led to further reform in 1995, particularly a streamliningof processing to permit new cases to be heard within six months. The reformswere implemented on a “last-in, first-out” basis in order to send a clear messagethat strong cases would be quickly approved but abusive ones would be asquickly rejected. As a result, the cases in the backlog remained withoutadjudication. Most of the 400,000 Central Americans caught in the U.S. asylum system—neither accepted nor rejected—had by then been in the U.S. for a decade ormore. Many had been granted various statuses that permitted them to remain inthe U.S. during the conflicts in their countries. These temporary, ad hocstatuses were extended after peace came to their countries, largely because theirremittances were so important to the economic recovery of their homelands. For many years, however, no steps were taken to regularize their status inthe U.S. despite a clear unwillingness to remove them. Experience shows that,in the U.S. case, failure to make hard decisions at one point in time simplyrequires even harder decisions later. By the time the U.S. decided to endtemporary protection for Central Americans, many had been in the U.S. formore than a decade and had U.S.-born citizen children, U.S. employers, andother ties to the U.S. that made it difficult to promote repatriation. It was not until 1998 that the Nicaraguan Adjustment and Central AmericanRelief Act (NACARA) was enacted to give many of the Central Americans theopportunity to become permanent residents. NACARA, originally introducedas the Victims of Communism Act, reflected the long-standing ideologicalstrains of U.S. policy. Under NACARA, about 150,000 Nicaraguans and 5,000Cubans who arrived in the United States by December 1, 1995 were granted fullamnesty. By contrast, the estimated 200,000 Salvadorans and 50,000Guatemalans covered by NACARA had to demonstrate that it would be anextreme hardship if they were forced to return home. 9
  23. 23. Responses to Globalization in Germany and the United States: Seven Sectors Compared UNAUTHORIZED MIGRATION In October 1996, there were an estimated five million illegal aliens who hadestablished long-term residence in the United States, and their number wasgrowing by 275,000 a year. About 60 percent of the unauthorized migrants inthe U.S. were believed to have slipped across the Mexico-U.S. border, enteringthe United States without inspection. The other 40 percent entered the UnitedStates legally, often as tourists, and then violated the terms of their entry bystaying too long or working in the United States. In addition, about one to twomillion migrants enter and often work illegally during the course of any year,but do not establish long-term residence. These data suggest that over 2 percent of U.S. residents are unauthorizedmigrants, but they are concentrated in a few states. Some two million of theunauthorized foreigners in 1996 were in California (40 percent, making 6percent of California residents unauthorized), followed by 700,000 in Texas (14percent), 540,000 in New York (11 percent), 350,000 in Florida (7 percent),290,000 in Illinois (6 percent), and 135,000 in New Jersey (3 percent). The INSestimated that there were about 2.7 million unauthorized Mexicans in the U.S.,followed by 335,000 El Salvadorans, 165,000 Guatemalans, and 120,000Canadians; there were an estimated 70,000 illegal Poles. The U.S. has tried a number of measures to reduce illegal immigration, buthas not yet found an effective formula for reducing unauthorized entry andemployment. Two extremes mark the ends of the control spectrum. At the oneend are so-called island strategies, in which control efforts are focused onborders and ports of entry, and there is little enforcement inside the country. Atthe other extreme are the continental strategies that evolved in Western Europe,in which border controls are buttressed by internal residence and work permitsystems. The U.S. abandoned the pure island model in 1986, when the ImmigrationReform and Control Act for the first time made it unlawful for U.S. employersto knowingly hire illegal foreign workers. Employer sanctions did not deterillegal entries and employment, primarily because the INS was slow to establisheffective strategies and assign inspectors to enforce them, and becauseunauthorized workers found it easy to purchase false documents to present toemployers and thus satisfy the letter of the law. External controls still dominate. The INS has a budget of $3.8 billion forFY99, which supports 29,000 employees, of whom two-thirds work inenforcement, including almost 9,000 as Border Patrol agents. Most INSenforcement efforts are aimed at deterring illegal entries along the Mexico-U.S.border. Beginning with Operation Hold the Line in El Paso in 1993, the INS has 10
  24. 24. Philip Martin and Susan Martinmoved agents to the border, and used their presence, plus lights and fences, todeter illegal entries, rather than to apprehend those who enter the U.S. It is very hard to evaluate the effectiveness of the four INS intensive bordercontrol operations—Gatekeeper in California, Safeguard in Arizona, Hold theLine in west Texas, and Rio Grande in east Texas. Early evaluations in El Pasoconcluded that the unauthorized entrants most likely to cause local problemswere deterred, including street merchants, teens and car thieves, but thatmigrants headed toward the interior of the U.S. simply went around the placeswith intensive controls. It is clear that the cost of entering the U.S. illegally hasincreased; smugglers fees have risen from $300 to $500 to $600 to over $1,000,but it is not clear that migrants intent on illegal entry have been deterred.However, in a particularly unfortunately consequence of the new strategy, moremigrants attempting entry are dying after being abandoned by smugglers in thedesert. The U.S. and Mexico have greatly increased their cooperation to reducecrime in border areas, to discourage the transit through Mexico of non-Mexicans attempting to illegally enter the U.S., and to better understand thedynamics and characteristics of Mexicans in the U.S. Mexico has specializedpolice forces, including Grupo Alpha and Beta, that aim to reduce crime againstmigrants waiting to illegally enter the U.S., but they also can detect and reporton third country nationals attempting entry into the U.S. In Summer 1998, theU.S. and Mexico cooperated on a public affairs campaign that warned of thedangers of attempting illegal entry through the desert. CONCLUSION As this review has shown, making durable immigration policies is difficultbecause immigration involves trade-offs between competing rights or goods,but immigration debates are often conducted in starkly absolute terms.Positions are characterized as pro-immigration or anti-immigration with littleconsideration to nuance. Moreover, the debate is marked too often byexaggerated claims that make it hard to win broad public support for anysensible immigration policies. There are clear similarities and differences between the U.S. and Germanyin how each country assesses the trade-offs. Clearly, national conceptions ofimmigration differ significantly. Immigration is an integral part of U.S. historyand culture. Even with concerns about today’s immigrants, most Americanswould agree that immigration overall has been in the national interest of theUnited States. The U.S. debate tends to be about how many and whichimmigrants, not whether to have immigration. By contrast, and despite similar 11
  25. 25. Responses to Globalization in Germany and the United States: Seven Sectors Comparedproportions of foreign born populations, Germany does not see itself as acountry of immigration and still debates whether to admit immigrants. These differences are clear in the statements of national leaders: • SPD Interior Minster Otto Schily, in December 1998: Germany has “reached the limits, the point where we have to say we cannot bear any more. The majority of Germans agree with me: Zero immigration for now. The burden has become too great. I would not even dare publish the costs that stem from immigration. The Greens say we should take 200,000 more immigrants a year. But I say to them, show me the village, the town, the region that would take them. There are no such places.” • President Clinton in June 1998: “I believe new immigrants are good for America. They are revitalizing our cities. They are building our new economy. They are strengthening our ties to the global economy, just as earlier waves of immigrants settled the new frontier and powered the Industrial Revolution. They are energizing our culture and broadening our vision of the world. They are renewing our most basic values and reminding us all of what it truly means to be an American. [Americans] share a responsibility to welcome new immigrants, to ensure that they strengthen our nation, to give them their chance at the brass ring.” Despite these differences in approach, both countries find themselvesdealing with global trends that have brought large-scale migration to theirshores. Both countries are also constrained by their democratic systems andconstitutional principles in the choice of ways to regulate and control thismigration. Hence, even with their different conceptions about immigration,they have much to share in terms of specific policies, practices andadministrative structures. Even more, both countries would benefit from a morenuanced policy debate that permits full discussion of the trade-offs inherent inimmigration as well as the global contexts in which 21st century immigrationpolicies will be made.BIBLIOGRAPHYCastles, Stephen and Mark Miller. 1998. The Age of Migration. New York: Guilford Press.Cornelius, Wayne A., Philip L. Martin and James F. Hollifield. Eds. 1994. Controlling Immigration: A Global Perspective. Stanford, CA: Stanford University Press. 12
  26. 26. Philip Martin and Susan MartinFuchs, Lawrence H. 1990. The American Kaleidoscope: Race, Ethnicity and the Civic Culture. Hanover, NH: Wesleyan University Press of New England.Isbister, John. 1996. The Immigration Debate: Remaking America. West Hartford, CT: Kumarian Press.Migration News. Monthly since 1994. Summary of the most important world wide immigration and integration developments of the preceding month: or, Alejandro and Ruben G. Rumbaut. 1996. Immigrant America: A Portrait. Berkeley: University of California Press.Smith, James and Barry Edmonston. Eds. 1997. The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington: National Research Council.U.S. Commission on Immigration Reform. 1997. Becoming an American: Immigration and Immigrant Policy. Washington: U.S. Commission on Immigration Reform.ENDNOTES1 Others agree that the extended family categories should be curtailed but they argue fortheir transfer to nuclear family categories that are heavily backlogged. Currently,spouses and minor children of legal immigrants must wait at least forty-two years foradmission as permanent residents.2 In actuality, most Nicaraguans were also denied asylum, but the INS often did notrecord the denials in order to postpone making a decision on removal. 13
  27. 27. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared 14
  28. 28. Thomas Bauer and Klaus F. Zimmermann IMMIGRATION POLICY IN INTEGRATED NATIONAL ECONOMIES Thomas Bauer and Klaus F. Zimmermann1 INTRODUCTION The current debate on the growth of the global economy has mainly dealtwith the increased trade flows in the 1980s and 1990s induced by globalreductions of trade barriers, the rapid transmission of technology acrosscountries and highly mobile capital. A growing literature analyzes variousaspects of the effects of integrated economies, i.e., the effects of globalizationon welfare, the labor market and inequality. (See for example the 1995symposium on “Income Inequality and Trade” and the 1998 symposium on“Globalization in Perspective” in the Journal of Economic Perspectives.)However, the question of increased mobility of labor has been widely neglectedin the debate on integration in the world economies. Migration is an essentialpart of globalization. Comparable to increased world trade flows, OECD countries experiencedrising immigration flows in the 1980s and the beginning of the 1990s. However,since then the immigration numbers have been decreasing. Figure 1 indicatesthis development for selected OECD countries. In all countries immigrationincreased strongly in the late 1980s up to about 1993. Then the growth inimmigration stopped and almost all countries exhibit a negative trend inimmigration flows. Given these numbers and the growing discussion about theeconomic effects of globalization, several questions arise. Is there a linkbetween the increased international mobility of goods, technology, and capital,and the development in international migration? Are there similarities in theeconomic effects of globalization and labor migration? Can we trace recentchanges in immigration policy to the economic effects of globalization? In the following section we discuss theoretical and empirical investigationsof the link between the growth of the global economy and the mobility of labor,and provide an account of the labor market effects of globalization and theimmigration of labor. In the third section we analyze German immigrationpolicy in the last decade with a special reference to the concerns of the mostimportant German political parties. In the final section we discuss animmigration policy that seems necessary to deal with the economic effects of aglobalized economy. 15
  29. 29. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared GLOBALIZATION AND THE MIGRATION OF LABORThe Effects of Integration on Labor Migration The development of increasingly integrated economies is largelycharacterized by the reduction of global trade barriers resulting in increasedtrade of commodities, high capital mobility, the transmission of technologyacross countries, and the development of multinational firms which canproduce and hire labor almost all over the world. In the following, we discussthe theoretical links between these developments and labor migration andsurvey the existing empirical evidence on the relationship between trade andmigration. According to the standard trade model, trade is a substitute for internationalmigration. According to the Heckscher-Ohlin model of factor priceequalization, the removal of trade barriers leads to country specialization inproducing the goods for which countries have a relatively abundant supply ofinput factors and thus have a comparative cost advantage. Assume twocountries, a developed country with relatively many skilled workers, and adeveloping country with relatively many unskilled workers. Assume furtherthat there are two goods, one that is produced by skilled workers and one that isproduced by unskilled workers. Producers in both countries have the sametechnology. In this setting trade is determined by the factor endowments of thetwo countries: the developed (developing) country will import the good that isproduced by unskilled (skilled) workers and specialize in the production of thegood produced by skilled (unskilled) workers. Trade between these twocountries will reduce the wages of unskilled workers in the developed countryand increase the wages of skilled workers, and vice versa for the developingcountry. In the long run and under specific assumptions (see Bhagwati andDehejia (1994) and Martin and Taylor (1996) for a discussion of theseassumptions) factor prices for skilled and unskilled workers across the twocountries are equalized. In general, the basic trade model states that trade or themobility of production factors between countries will result in equalized factorprices. However, if factor prices are equalized, the incentive to migratedisappears and trade can be seen as a substitute for international migration. The empirical evidence regarding factor price equalization and thesubstitutional relationship between labor migration and trade is not as clear asit appears in the theoretical model. (See Schiff (1996) for a discussion of thestandard trade model and the question whether there is a substitutional orcomplementary relationship between trade and migration.) Several empiricalstudies have found that trade and migration are complements instead ofsubstitutes, at least in the short and medium run. (Rotte and Vogler (1998) 16
  30. 30. Thomas Bauer and Klaus F. Zimmermannprovide a recent review). Two lines of argumentation have been broughtforward to explain these empirical results. First, our understanding of thedeterminants of international migration is far from being complete. (See Bauerand Zimmermann (1998) for a recent survey of theoretical and empiricalanalyses of migration.) The existing empirical evidence shows that expectedwage differentials have a significant effect whenever we observe largemigration flows between two countries. However, the reverse conclusion is notobvious, since we cannot observe large migration flows whenever huge wagedifferentials are present. Furthermore, theoretical models of migrationdecisions suggest that the desire to overcome capital constraints and incomerisks in less developed countries could lead to international migration flowseven in the absence of expected wage differentials (Stark, 1991). Second, the assumptions underlying the factor price equalization theoremare questioned frequently and empirical studies on the effect of increased tradeon factor prices provide no clear picture of the relationship between increasingtrade and equalization of factor prices. (See Freeman (1995) for a recentsurvey.) One of the most restrictive assumptions is that developed and lessdeveloped countries have access to the same production technology. Politicalstability, the infrastructure, technological advantages, or scale economies canoffset the comparative advantage of developing countries in the production oflabor-intensive commodities. On the other hand, political instability and marketimperfections in developing countries can hinder factor price equalization andprovide additional migration incentives. Finally, as predicted by the basicmodel, trade liberalization creates new employment and higher earnings in thedeveloping countries, giving individuals and families the means to financemigration that they could not afford in the past. Furthermore, there is increasingevidence that, once individuals have migrated from a particular sending to aparticular receiving country, migration becomes a self-perpetuating process,because the costs and risks of migration are lowered by social and informationalnetworks (Bauer and Zimmermann, 1998; Massey, 1990). Finally, there areforces in the globalization process that could diminish the substitutionalrelationship between trade and migration. New informational technologies andtrade itself provides potential migrants with more and better informationconcerning the cost and potential benefits of migration. The availability ofbetter information reduces the risks and costs of migration and therefore fostersmigration.Comparing the Economic Effects of Globalization and Labor Migration In the last two decades the development of labor markets in advancedcountries was marked by a declining demand for low-skilled workers. In the 17
  31. 31. Responses to Globalization in Germany and the Unite States: Seven Sectors ComparedUnited States this development manifested itself in falling real wages of low-skilled workers and increased income inequality. Due to relatively inflexiblelabor markets, this development resulted in increased unemployment of low-skilled workers in Europe. Public debate on both sides of the Atlantic identifiesglobalization of the world economy and immigration pressure as two of themain sources of this development. With respect to the globalization debate, the Heckscher-Ohlin model hasbeen used to explain the unfavorable development of the unskilled labor market.If developed countries import commodities from developing countriesproduced by unskilled labor and export commodities produced by skilled laborto these countries, the factor price equalization theorem predicts decreasingwages of unskilled and rising wages of skilled workers in the developedcountries. In the case of downward rigid wages, as in the European context,trade will lead to rising unemployment of unskilled workers and a shortage ofskilled workers. However, both explanations of the reduced demand forunskilled labor relative to skilled labor are qualitatively similar to the effects ofa skill-biased technological change, and, as we will see below, to the effects ofthe immigration of unskilled labor. Empirical analyses of the effects of trade on the labor market essentiallyfollow two different approaches. (See Freeman (1995) for a detailed descriptionof these approaches and a discussion of their advantages and problems.) Oneapproach is to use data on the factor content of import and export industries toestimate the change in factor endowments which is due to trade. The empiricalevidence of these kind of studies is mixed (see Borjas, Freeman and Katz, 1992;Sachs and Shatz, 1992; and Wood, 1994, 1995). The second approach is to useprice data to explore whether increased imports from less-developed countriesreduce the price of goods produced by low-skilled workers in the developedcountries. If this is the case, the demand for unskilled labor in the developedcountries will fall and decrease their wages or increase their unemployment.The empirical results using this approach (see Freemann (1995) for a survey)suggest that trade has only a minor impact on the wages and employment ofunskilled workers. The effect of trade on the German labor market has been investigated byLücke (1996), Haisken-DeNew and Zimmermann (1997) and Winter-Ebmerand Zimmermann (1998). Lücke (1996) cannot identify relevant effects of therelative price of unskilled-labor intensive goods on wages. Haisken-DeNew andZimmermann (1997) study wage and mobility effects of trade and migration.They find that wages are negatively affected by a relative increase in imports(relative to exports). Winter-Ebmer and Zimmermann (1998) find that tradedoes not affect wages at all, and hardly affects employment. 18
  32. 32. Thomas Bauer and Klaus F. Zimmermann Complicated economic processes determine whether one can expect gainsfrom immigration and which groups will receive them. Assuming aqualitatively homogeneous labor force, the standard competitive frameworkpredicts that immigration will increase the overall supply of labor. This shift canreadily increase total welfare, but also tends to drive down the wage rate. Underthe assumption that labor is heterogeneous, the key issue for the evaluation ofthe wage and employment effects of immigration on natives is whether foreignworkers are substitutes or complements to native workers. In general, one mightexpect that the higher the substitutability of foreign for domestic workers, themore likely an increase in immigration would cause a decline in the domesticlabor force’s wages. More sophisticated theoretical models analyze the labor market effects ofimmigration with imperfect labor markets in the receiving countries (Brecherand Choudhri, 1987; Schmidt, Stilz, and Zimmermann, 1994; Bauer andZimmermann, 1997). In the case of minimum wages, which already causedunemployment in the receiving country, increased immigration may just widenthe gap between the minimum wage and what would have been the marketwage, leading to higher unemployment. Of particular importance in the Germancontext is the case where wages may not be downwardly flexible due to thebehavior of unions. In the theoretical model developed by Schmidt, Stilz andZimmermann (1994), which considers heterogeneous labor and downwardlyrigid wages due to the behavior of unions, the labor market effects ofimmigration depend on the reaction of the union and the degree to which skilledand unskilled labor are complements. In this model, immigration of unskilledlabor produces gains for skilled natives, but wages decline and unemploymentincreases for unskilled natives. To what extent natives benefit in the aggregatefrom unskilled immigration depends on the concrete situation, i.e., the reactionof the unions and the degree of complementarity between unskilled and skilledlabor. In the case of immigration of skilled labor, both wages andunemployment of natives will decline, and total income of natives will increase. The existing empirical literature on the labor market effects of immigrationcould be differentiated into studies using simulation methods and those usingeconometrics. (See Bauer (1998), Bauer (1998), and Zimmermann (1994,1995, 1997) for various surveys.) Calibrating the model of Schmidt, Stilz andZimmermann (1994) using German data for 1993, Bauer and Zimmermann(1997) showed that in the case of unskilled immigration of 10 percent of theGerman labor force in 1993, income losses of natives could approach as muchas 5 percent of national income. In the case of skilled immigration there couldbe substantial gains due to the improvement of the employment possibilities ofunskilled natives (up to 4 percent of national income at the unemployment rates 19
  33. 33. Responses to Globalization in Germany and the Unite States: Seven Sectors Comparedof 1993). Furthermore, they showed that the distributional effects ofimmigration could be quite dramatic. It appears that capital always benefitsfrom immigration and that these benefits increase with the share of skilledimmigrants. Both types of labor could lose substantially from immigrationdepending on the respective substitution coefficients. For instance, if 10 percentof the native work force immigrates and all immigrants are skilled, skillednative workers win 5.4 percent of their initial income. The loss of unskillednative workers is calculated at DM 62 billion or 21 percent of their initialincome in the case of unskilled immigration. An increasing literature analyzes the wage and employment effects ofimmigration using econometric techniques. Most studies find that immigrationhardly affects native wages and employment, at least not negatively, but ratherexhibits a positive correlation (Bauer et. al., 1998). It should be noted thatsimilar studies in the U.S. were mostly unable to find remarkably negativeeffects of immigration on the labor market situation of natives (Friedberg andHunt, 1995). GERMAN MIGRATION POLICY Increasingly, economic historians argue that the convergence of livingstandards across countries in the period between 1850 and 1914 has been theresult of a globalization process similar to the process we observe since the1980s (Williamson, 1998). This literature also shows that the economic effectsof this globalization were similar to those we have observed in the 1980s and1990s, namely a significantly increasing inequality. Williamson (1998) arguesthat this development caused a more restrictive immigration and trade policyprior to World War I. From 1988 to 1992 Germany experienced a sharp increase in immigrationflows (see Figure 1). Figure 2 shows the structure of the immigration flow toGermany since 1988 by immigration status. It appears that immigrationbetween 1988 and 1996 has been dominated by east-west migration and by aheavy inflow of asylum seekers and refugees. A large part of the east-westmigrants were ethnic Germans, who moved directly to Germany. Since 1989Germany also receives so called “New Labor Migrants” which consists oftemporary migrants (Werkvertragsarbeiter, Seasonal Workers, andGastarbeitnehmer) who immigrate through special bilateral agreementsGermany signed with several East European countries. (See Bauer andZimmermann (1997) for a detailed discussion of this type of temporaryimmigration.) 20
  34. 34. Thomas Bauer and Klaus F. Zimmermann Since 1992, immigration to Germany has decreased again due to a morerestrictive immigration policy of the German government, consisting of acoalition between the CDU/CSU and the FDP. Figure 2 shows that this decreasemainly can be traced to a decreased number of asylum seekers and Aussiedler.In the case of Aussiedler and asylum seekers there have been explicit changesin immigration policy. In 1993, the government amended the constitution andchanged the asylum law, giving Germany the possibility of sending backasylum seekers immigrating from member states of the European Union or fromother safe countries defined in the new law. As Germany is surrounded by safecountries, asylum seekers theoretically could enter Germany only by air or sea.The decrease in the immigration of Aussiedler is due to administrative barriersset up by the German government since 1990. Since July 1990, ethnic Germansmust apply for immigration in their country of origin. In 1993, a new law waspassed, which sets a quota of 225,000 Aussiedler per year. Finally, in 1996 aGerman language test was introduced for potential ethnic German immigrantsfrom the former USSR. Under the new legislation, ethnic Germans only receivean immigration permit if they can prove a certain command of the Germanlanguage (Dietz, 1998). In the case of the “New Labor Migrants” the quota ofimmigration permissions under the bilateral agreements have been reducedsteadily since 1992. Finally, the decreased number of refugees can be explainedby the end of the civil war in one part of the former Yugoslavia. Particularly, German asylum policy must be considered with jointmigration policy of the European Union in mind. EU migration policy since1988 has been marked by two developments. First, since the original Treaty ofRome of 1957, internal migration within the EU has been liberalized steadily,finding its conclusion in Article 8a of the Single European Act. This Actrequires the achievement of free movement of people, capital, goods andservices from January 1, 1993, which implies the abolition of controls at theinterior borders of the EU. Second, with respect to immigration from outside theEU there have been increasing efforts to establish a collective and morerestrictive policy. (See Zimmermann (1994, 1995) for a comprehensivediscussion of the immigration policies of the EU and its individual members.)The necessity of a common EU migration policy is founded primarily on therequirements of a common European market, as the abolition of interior bordersresults in a dependency of each member state on the immigration policy of theother states. The EU path towards a joint migration policy started with theSchengen Accords of June 1985 (Schengen I) and June 19, 1990 (Schengen II)and the Dublin accord of June 15, 1990, and have been continued with theMaastricht Treaty, ratified in 1993. 21
  35. 35. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared The main objectives of these initiatives have been the elimination ofinternal border checks, consistent and tighter external border controls, a unifiedvisa policy, and the coordination of different national asylum policies. Thelatest major step in the evolution of this policy is the Treaty of Amsterdam,which came into force in May 1998. Article 63 of the treaty mandates a closercooperation in the fight against illegal migrants, the elaboration of joint normsregarding the acceptance of asylum seekers, the definition of prerequisites forthe immigration and residence of persons from countries outside the EU, and therights and conditions under with immigrants of one EU member country canreside in another member country. However, the Amsterdam Treaty explicitlyrejected setting a fixed time schedule for the adoption of these measures. It is interesting to examine the migration concepts of the German politicalparties. Until 1998, the CDU/CSU (the conservatives) had governed Germanytogether with the FDP (the market-oriented liberals), while the SPD (the SocialDemocrats) and Bündnis 90/Die Grünen (the Greens) formed the majoropposition parties. In 1996, the FDP and Bündnis 90/Die Grünen, actingseparately, proposed new immigration laws. Both concepts called for animmigration quota and selection of immigrants following the Canadian andAustralian point system (Frankfurter Allgemeine Zeitung, 1996; SüddeutscheZeitung, 1995, 1996). This point system was supposed to consider humanitarianand economic interests, demographic developments, as well as the situation ofthe German labor and housing markets. Differences in the proposals of the twoparties can be found only in the importance of different policy interests to whichthe points should be allocated. Bündnis 90/Die Grünen gave priority tohumanitarian motives and family reunification over economic interests. Incontrast, the proposal of the FDP favored social and economic aspects. The SPD has no uniform proposal for immigration policy. Instead, there aretwo groups within the SPD which adhere to different concepts. One group is infavor of an immigration law similar to the point system proposed by the FDPand Bündnis 90/Die Grünen. Regarding the allocation of points among differentgroups of immigrants, the position of this group lies somewhere between thepositions of the FDP and that of Bündnis 90/Die Grünen. The position of theother SPD group is more similar to that of the CDU/CSU, arguing that there isa necessity neither for a new immigration law, nor for additional immigrants.According to their view the existing immigration regulations guaranteesufficient control of the immigration flows. Furthermore, an immigration lawwould imply the acceptance of additional migrants, but in the face of the highunemployment rates in Germany, immigration in addition to the immigrationguaranteed by the existing laws (the immigration of ethnic Germans, warrefugees, asylum seekers, and individuals immigrating through the family 22
  36. 36. Thomas Bauer and Klaus F. Zimmermannreunification program) could not be justified (see also Kanther, 1996;Hailbronner, 1996). After the SPD election victory of September 1998, the newminister of the interior, Otto Schily, referring to the above arguments,announced that the new government will not prepare a new immigration law inthe near future. The tendency of the major German parties towards a more restrictiveimmigration policy leads to the question of whether the recent globalizationprocess and the huge immigration flows in the early 1990s resulted in risingtensions in the German population against additional immigration and whetherthese tensions could partly explain changes in migration policy. Table 1 showsthe share of Germans asking for a total stop of immigration for differentimmigrant groups for the period from 1990 to 1996. It is of particular interestthat the development of the tensions against additional immigrants is differentbetween western and eastern Germany. Whereas the share of West Germansopting for an immigration stop is constant or decreasing between 1990 and1996, the share of East Germans opting for a total stop sharply increases for allgroups of immigrants. Since East Germans experienced a sharp increase ofunemployment and inequality since unification, the latter result seems tosupport Williamson’s arguments (1998). Empirical studies of attitudes towardsforeigners in Germany (Gang and Rivera-Batiz, 1994) and the UK (Dustmannand Preston, 1998) show that negative attitudes towards foreigners decreasewith education and occupational status and increase with age. However, theresults with respect to the effect of being unemployed are mixed. INTERNATIONAL COMPETITION FOR HIGH-SKILLED WORKERS – AN IMPORTANT NEW FACTOR IN MIGRATION POLICY REFORM So far, the discussion has shown that the globalization process most likelywill result in increased immigration flows to the developed countries, at least inthe short and medium run, and that trade and immigration could lead toincreased income inequality or a rise in the unemployment of unskilled workers,even though the empirical evidence regarding the latter is mixed. Mostcountries facing this development have reacted with increasing restrictions onimmigration. However, we must ask whether this restrictive policy is the rightway to deal with the effects of globalization. A comprehensive ban on free labormobility would not solve the problems of unskilled workers resulting fromliberalized trade, since it would not alter the effects of liberalized trade.Furthermore, such a policy would lead to increased immigration pressure,resulting in high costs for the respective countries to protect their borders. 23
  37. 37. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared Instead of restricting migration, one alternative would be to allow freemobility of labor across countries. In the short and medium run this would mostlikely lead to increased immigration of unskilled workers, resulting in increasedinequality and/or higher unemployment of unskilled workers in the developingcountries. In the long run, factor prices across countries could be expected toequalize and the incentives for migration to disappear. However, it is doubtfulwhether the increasing social tensions arising from such a development wouldallow the respective governments to sustain such a policy long enough for factorprices to equalize. Again, this policy is not able to solve the problems ofincreased inequality or increased unemployment for unskilled workers. A second alternative would be selective immigration that would restrict theimmigration of unskilled workers while promoting the immigration of skilledworkers. This policy would lead to an increased supply of skilled workers,which lowers wages for this type of workers and decreases the excess demandfor skilled workers caused by liberalizing trade. If unskilled and skilled workersare complements, the increased employment of skilled workers will increasethe demand for unskilled workers, increasing the wages of the latter, or, in morerigid labor markets, decreasing their unemployment. Two major questions remain for the case of a selective immigration policy.First, how should such a selective migration policy be organized? In general,there are two possibilities. (See Bauer (1998) and Bauer and Zimmermann(1999) for a detailed discussion.) The first is to adapt a point system, similar tothose in Canada, Australia, and, more recently, in Switzerland. The maindeficiencies of such policies are that (i) the existing management techniques ofa point system are not able to address unexpected events, like recessions; (ii) thetime lag between collecting and analyzing labor market data on occupationalshortages and the actual landing of immigrants could lead to the selection of thewrong migrants; and (iii) that there are no reliable empirical techniques toidentify shortages in particular occupations. The second possibility is to auction the right to immigrate to potentialmigrants or native firms. To economists, the idea that the right to immigrateshould be given out by an auction is quite appealing, because an auction selectsmigrants according to their ability and willingness to pay. This selectionmechanism will efficiently identify those migrants who have a large capacity toproduce goods of high economic value while working in the receiving country.A point system also discriminates among migrants by their economic value, butan auction will in addition self-select those persons who have the best chance tobe economically successful. In general, this observation holds irrespectivewhether the immigration visas are auctioned to potential migrants or to nativefirms. 24
  38. 38. Thomas Bauer and Klaus F. Zimmermann The second main question is whether the receiving country should allowpermanent or only temporary migration. Permanent migration normally impliesthat selected high-skilled workers will immigrate together with their family.However, empirical evidence suggests that family members could end up asunskilled workers, an outcome that would result in problems similar to thoseunder an unregulated immigration regime. This problem could be avoided byallowing only temporary migration, since a government could then restrict theimmigration of family members more easily. Temporary migration wouldfurther allow a government to increase its efforts in educating native workers,as it has been the case in Germany during the guestworker regime. CONCLUSION Globalization (especially trade and its labor content) and migration are twosides of the future of western economies. From one perspective, the most crucialthreat of globalization is “virtual migration” through the Internet, in whichtrans-border telecommuting could seriously impact on local employment.While the immediate pressure is currently on the labor market of the low-skilled, virtual migration will also affect the skilled labor markets. Hence, thereis no way to ignore the pressure. We have argued that the best response is toopen up economies as far as possible, to speed up the adjustment processes inthe countries and to enable new market forces to develop new products andemploy both skilled and low-skilled workers. Selective immigration policiesare a first step in this direction. They enable governments to test the respectivestrategies and to convince voters that the transnational integration of nationaleconomies is in the best interest of their countries.REFERENCESBauer, T. 1998. Arbeitsmarkteffekte der Migration und Einwanderungspolitik. Heidelberg: Physica-Verlag.Bauer, T., B. Dietz, K. F. Zimmermann, and E. Zwintz. 1998. “Migration: The German Case,” mimeo., IZA, Bonn.Bauer, T., and K. F. Zimmermann. 1997. “Integrating the East: The Labor Market Effects of Immigration,” in S. Black (ed.): Europe’s Economy Looks East: Implications for Germany and the EU. Cambridge: Cambridge University Press, 269-306.Bauer, T., and K. F. Zimmermann. 1998. “Causes of International Migration: A Survey,” in C. Gorter, P. Nijkamp, and J. Poot (eds.): Crossing Borders: Regional and Urban Perspectives on International Migration. Aldershot Ashgate, 95- 127. 25
  39. 39. Responses to Globalization in Germany and the Unite States: Seven Sectors ComparedBauer, T., and K. F. Zimmermann. 1999. “An Immigration Law for Germany,” mimeo., IZA, Bonn.Bhagwati, J., and V. Dehejia. 1994. “Free Trade and Wages of the Unskilled: Is Marx Striking Again?” in: Bhagwati, J., and M. Kosters (eds.): Trade and Wages. Washington D.C.: American Enterprise Institute, 36-75.Borjas, G., R. B. Freeman, and L. Katz. 1992. “On the Labor Market Effects of Immigration and Trade,” in G. Borjas and R. B. Freeman (eds.), Immigration and the Work Force. Chicago: University of Chicago Press, 213-244.Brecher, R. A., and E. U. Choudhri. “International Migration versus Foreign Investment in the Presence of Unemployment,” Journal of International Economics, 23, 1987, 329-342.Dietz, B. 1998. “Ethnic German Immigrants from Eastern Europe and the former Soviet Union in Germany: The Effects of Migrant Networks,” mimeo., Osteuropa-Institut, München.Dustmann, C., and I. Preston. “Attitudes to Ethnic Minorities, Ethnic Context and Location Decisions,” paper presented at the CEPR conference Metropolitan Economic Performance, Lisbon (Portugal), October 1998.Feenstra, R. C. “Integration of Trade and Disintegration of Production in the Global Economy,” Journal of Economic Perspectives, 12, 1998, 31-50.Freeman, R. B. 1995. “Are Your Wages Set in Beijing?”, Journal of Economic Perspectives, Vol. 9 (3), 15-32.Friedberg, R. M., and J. Hunt. “The Impact of Immigrants on Host Country Wages, Employment and Growth,” Journal of Economic Perspectives, 9, 1995, 23-44.Gang, I., and F. Rivera-Batiz. 1994. “Unemployment and Attitudes Towards Foreigners in Germany,” in G. Steinmann and R. Ulrich (eds.): The Economic Consequences of Immigration to Germany. Heidelberg: Physica-Verlag, 121-154.Hailbronner, K. “Es bleibt nicht viel zu regeln übrig,” Frankfurter Allgemeine Zeitung, 26. April 1996, Nr. 98, 14.Haisken-DeNew, J. P., and K. F. Zimmermann. 1994. “Wage and Mobility Effects of Trade and Migration,” forthcoming in W. Dewatripont and A. Sapir (eds.), International Trade and Employment: The European Experience. Oxford: Oxford University Press.Kanther, M. “Deutschland ist kein Einwanderungsland,” Frankfurter Allgemeine Zeitung, 13. November 1996, Nr. 265, 11.Lederer, H. W. 1997. Migration und Integration in Zahlen: Ein Handbuch. Bonn: Beauftragte der Bundesregierung für Ausländerfragen.Lücke, M. 1996. Has Trade with Low-Wage Countries Hurt Unskilled Labor in West Germany? mimeo., Kiel, Institute of World Economics.Martin, P.L., and J. E. Taylor. 1996. “The Anatomy of a Migration Hump,” in OECD (ed.): Development Strategy, Employment and Migration. Paris: OECD.Massey, D. S. “Social Structure, Household Strategies, and the Cummulative Causation of Migration,” 1-26, Population Index, 56, 1990.OECD. 1998. SOPEMI – Trends in International Migration: Annual Report. Paris: OECD. 26
  40. 40. Thomas Bauer and Klaus F. ZimmermannRotte, R., and M. Vogler. 1998. “Determinants of International Migration: Empirical Evidence for Migration from Developing Countries to Germany,” IZA Discussion Paper No. 12, Bonn.Sachs, J., and H. Shatz. “Trade and Jobs in U.S. Manufacturing,” 1-84, Brookings Papers on Economic Activity, 1, 1994.Schiff, M. 1996. “Trade Policy and International Migration: Substitutes or Complements?” in OECD (ed.): Development Strategy, Employment and Migration. Paris: OECD, 23-41.Schmidt, C. M., A. Stilz, and K. F. Zimmermann. “Mass Migration, Unions, and Government Intervention,” Journal of Public Economics, 55, 1994, 185-201.Stark, O. 1991. The Migration of Labor. Oxford: Basil Blackwell.Williamson, J. G. “Globalization, Labor Markets and Policy Backlash in the Past,” Journal of Economic Perspectives, 12, 1998, 51-72.Winter-Ebmer, R., and K. F. Zimmermann. 1998. “East-West Trade and Migration: The Austro-German Case,” IZA Discussion Paper No. 2, IZA, Bonn.Wood, A. 1994. North-South Trade, Employment and Inequality. Oxford: Clarendon Press.Wood, A. 1995. “How Trade Hurt Unskilled Workers,” 57-80, Journal of Economic Perspectives, 9.Zimmermann, K. F. 1994. “The Labour Market Impact of Immigration,” in S. Spencer (ed.): Immigration as an Economic Asset: The German Experience. Stoke-on- Trent: Trentham Books.Zimmermann, K. F. 1995. “Tackling the European Migration Problem,” 45-62, Journal of Economic Perspectives, 9.Zimmermann, K. F. 1997. “Die Einwanderungskonsequenzen unterschiedlicher Einwanderungspolitiken,” in D. Sadowski and K. Pull (eds.), Vorschläge jenseits der Lohnpolitik – Optionen für mehr Beschäftigung II, 297-316. Frankfurt, New York: Campus.ENDNOTES1 Correspondence: Prof. Dr. Klaus F. Zimmermann, IZA, P.O. Box 7240, 53072 Bonn,Germany. Prepared for the American Institute for Contemporary German Studies(AICGS) project on Regulating the Post-Westphalian World: The Politics ofGlobalization in Germany and the United States, Washington D.C., USA. We aregrateful to the participants at the May 1998 project meeting for their insightfulcomments and suggestions on an earlier version. 27
  41. 41. Responses to Globalization in Germany and the Unite States: Seven Sectors ComparedTable 1: Share of Germans, Asking for a Total Stop of Immigration* 1990 1991 1992 1996 Aussiedler from East Europe West Germany 20.4 10.1 10.1 11.5 East Germany - 11.9 10.9 17.7 Asylum Seekers West Germany 30.4 21.6 23.8 21.7 East Germany - 15.2 18.1 21.1 Labor Immigrants from the EU West Germany 13.3 9.8 9.0 12.1 East Germany - 25.5 24.0 37.7 Labor Immigrants from outside the EU West Germany 34.1 28.4 28.1 31.3 East Germany - 39.3 36.1 49.3Source: ALLBUS, own calculations. 28
  42. 42. Thomas Bauer and Klaus F. Zimmermann29
  43. 43. Responses to Globalization in Germany and the United States: Seven Sectors Compared 30
  44. 44. John Schmitt GLOBALIZATION AND LABOR MARKETS: A VIEW FROM THE UNITED STATES John Schmitt1 INTRODUCTION One of the central tenets of international economic theory is that trade,migration, and capital flows are major determinants of the national distributionof income. Textbooks of international economics argue that trade is potentiallybeneficial to all residents of all countries involved, but these same textbooksalso note that the costs and benefits are not always evenly shared.2 The strangepolitical economy of globalization—which has the power to unite trade unionswith their employers and liberal environmentalists with the likes of PatBuchanan—has apparently led many international economists to forget, or atleast to downplay, the distributional lessons of their discipline. U.S. economistswho were drawn to international economics precisely because of the key rolethat the international economy plays in the national allocation of resourcesspent much of the 1990s arguing that U.S. workers have little to fear fromopening up the U.S. economy; that jobs gained from expanded exports wouldmore than compensate for those jobs lost to imports; that cheaper importedgoods would raise real wages more than import competition would lowerwages; and, that, in any event, the exposure of the U.S. economy to worldmarkets is too small to warrant major concern. U.S. workers, however, have generally reached different conclusions. Aftera sustained string of victories for “globalization,” which included theratification of NAFTA and the creation of the World Trade Organization, theroad to greater economic integration now appears largely blocked in the UnitedStates. Congress has rejected the Clinton administration’s bid for “fast track”authorization to negotiate an expansion of NAFTA to include Chile and theClinton administration has shelved plans to push for ratification of theMultilateral Agreement on Investment (MAI). This paper seeks to outline the main links between the process of expandinginternational economic integration, widely referred to as “globalization,” on theone hand, and the labor market, the principal determinant of the nationaldistribution of income, on the other. The second, and longest, section of thepaper briefly reviews the many channels that connect the international economyto the domestic labor market. Given space constraints, the paper only sketchesthe nature of each link, summarizing some of the relevant research in each casein order to provide an idea of the order of magnitude of the various effects. Thethird section attempts to place the theoretical and empirical evidence on 31