1. American Institute for
Research 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. American Institute for
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
i
4. CONTENTS
FOREWORD............................................................................................v
ABOUT THE AUTHORS.......................................................................ix
THE POLITICS OF GLOBALIZATION IN GERMANY AND THE
UNITED STATES U.S. IMMIGRATION POLICY
Philip Martin and Susan Martin.............................................................1
IMMIGRATION POLICY IN INTEGRATED
NATIONAL ECONOMIES
Thomas Bauer and Klaus F. Zimmermann..........................................15
GLOBALIZATION AND LABOR MARKETS:
A VIEW FROM THE UNITED STATES
John Schmitt......................................................................................31
GLOBALIZATION AND LABOR MARKETS:
A VIEW FROM GERMANY IN THE EUROPEAN UNION
Reiner Hoffmann..................................................................................47
HIGHER EDUCATION IN AN ERA OF GLOBALIZATION
Daniel Fallon and Mitchell Ash..................................................................67
INNOVATION AND GLOBALIZATION:
A U.S.-GERMAN COMPARISON
David B. Audretsch and Maryann P. Feldman......................................79
GLOBAL CAPITALISM AND THE POLITICS OF SOCIAL POLICY
REFORM IN GERMANY AND THE UNITED STATES
Elmar Rieger...................................................................................101
TAX POLICY IN A GLOBAL ECONOMY:
ISSUES FACING EUROPE AND THE UNITED STATES
Gary Hufbauer.....................................................................................121
CHALLENGES OF GLOBALIZATION
FOR GERMAN TAX POLICY
Ullrich Heilemann and Hans Dietrich von Loeffelholz............................131
iii
5. INFRASTRUCTURES FOR GLOBALIZATION:
TRANSPORT, TELECOMMUNICATION
AND ENERGY SUPPLY
Rudolf Petersen................................................................................147
INFRASTRUCTURES FOR GLOBALIZATION
Henry L. Michel...............................................................................169
iv
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 the
Nation-State: Global Public Policy, Regionalism or Going Local?, which,
as the title implies, focuses specifically on governance issues. Though integral
to the project funded by Thyssen, the five corresponding papers were presented
as a group at a special workshop in March 1999 and for that reason is published
separately.
A condition and a set of challenges. Globalization was never restricted to
the economic dimension. After all, for most of this century, a world political
system existed prior to a world economy. In ways both subtle and direct, cul-
tural influences conveyed through film and mass media are contributing to the
creation of global consumer markets. The technology of mass international com-
munication is facilitating the development of transnational societies. Temporary
trans-border travel made possible by developments in transportation infrastruc-
ture is taken for granted by a growing number of individuals, either as business
people, tourists, migrant workers, or family members. Indeed, the shape of
tomorrow’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 economic
globalization to the whole process. Mobile capital is transforming the spatial
configuration of the economy and the relationship between public and private
sectors, and is compelling adaptation in all institutions.
The Euro-Atlantic area, by which I mean primarily EU-Europe together
with the United States and Canada, is a crucible and platform for these dynamic
developments. All of the dimensions to which allusion has just been made are
present in unparalleled density in this area. In that sense, this project can claim
to generate insights with at least modest claim to generalizability within and
even 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 the
institutional nexus most important for their welfare and democratic stability.
Globalization has created a political challenge of the first magnitude and it is
mainly for political reasons that national governments are called upon to act.
Publics have come to hold politicians accountable for the performance of the
economy as a surrogate for sustaining a way of life. But measured against the
gains 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. development for their constituencies. Moreover, other aspects of globalization
have 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 accurate
picture of the dimensions of globalization and the challenges it addresses in the
first instance to Germany and the United States. We are also interested in their
adaptive 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 the
political system to project and adopt credible reforms, wherever needed. And
we are also interested in the role to be played by supra-national organizations
and/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/or
recommendations to be found in the papers in this volume is given along with
this 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. 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 participants
in this project were trained in economics, political science, law, and engineering.
Whatever their academic training, one characteristic of the group is the seasoning
that comes from significant experience in policy settings. I meant to exploit this
vii
9. resource and this mix of qualifications comprises an essential strength of the
survey. Project participants were charged with producing interpretive essays
that considered their subjects broadly. As a result, the reader will not find typically
academic studies in this volume. Participants drew upon the insights of their
disciplines, but often ventured further in making sense of globalization in their
assigned sectors. No attempt was made to impose a single definition of
globalization on the team. The approach was rather to encourage each author to
tell us what globalization means as he or she worked through his/her sector.
In addition to the Fritz Thyssen Foundation, Responses to Globalization in
Germany and the United States also received support from the German
Marshall Fund of the United States, Lufthansa Airlines, and the German Program
for Transatlantic Relations. AICGS is grateful to each of them for their help in
realizing this project.
Carl Lankowski November 1999
Research Director
viii
10. ABOUT THE AUTHORS
Mitchell Ash is professor of Modern History at the University of Vienna,
Austria. He is the editor of German Universities Past and Future: Crisis or
Renewal? (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 and
director of the Institute for Development Strategies at Indiana University. Before
coming to Indiana University, he was research professor at the Science Center
for Social Research, Berlin. He is founder and editor of Small Business
Economics: An International Journal.
Thomas Bauer studied economics at the University of Munich and received his
doctorate in 1997. From 1997-1998 he visited Rutgers University under the
auspices of a Feodor Lynen Fellowship of the Alexander von Humboldt
Foundation. 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 the
University of Maryland, College Park. He is the author of numerous articles on
higher education and comparative higher education, including The German
University: A Heroic Ideal in Conflict with the Modern World (Colorado
Associated Universities Press, 1980).
Maryann P. Feldman is a research scientist at the Institute for Policy Studies
at the Johns Hopkins University, where her primary focus is technological change
and economic development. She has served as a consultant to local, state and
federal government as well as private industry.
Ullrich Heilemann is the vice-president of the Rhenish-Westphalian Institute
for Economic Research (RWI) in Essen, Germany. He is also professor of
Economics at the University of Duisburg.
Reiner Hoffmann is the director of the European Trade Union Institute, the
research division of the European Trade Union Confederation, Brussels. Before
coming to ETUI, Mr. Hoffmann worked for the Economic and Social Committee
(ECOSOC) of the European Community.
ix
11. Gary Hufbauer resumed his position as Reginald Jones Senior Fellow at the
Institute for International Economics in September 1998, a position he held
between 1992 and 1997. From June 1997 until September 1998, he was the
Maurice R. Greenberg Chair and Director of Studies at the Council on Foreign
Relations in New York. Before joining the Institute for International Economics,
he was the Marcus Wallenberg Professor of International Financial Diplomacy
at Georgetown University.
Philip Martin is professor of Agricultural and Resource Economics at the
University of California-Davis and chair of the University of California’s
Comparative Immigration and Integration Program. He also co-chairs Migration
Dialogue, a not-for-profit organization dedicated to providing timely and
nonpartisan migration analysis.
Susan Martin is director of the Institute for the Study of International Migration
at Georgetown University. She served as executive director of the U.S.
Commission on Immigration Reform and director of Policy Research and
Programs at the Refugee Policy Group. She has taught at Brandeis University
and the University of Pennsylvania.
Henry Michel, a retired engineer, is chairman emeritus of Parsons
Brinckerhoff, Inc. He was recently honored with one of engineering’s most
distinguished commendations, Honorary Membership in the American Society of
Civil Engineers. Michel is also a senior lecturer at the Massachusetts Institute of
Technology and an industry professor at New York Polytechnic University.
Rudolf Petersen heads the Transportation Division at the Wuppertal Institute
for Climate, Environment and Energy. Dr. Petersen has participated in studies on
the environmental aspects of passenger and freight transportation and the
reduction of urban air pollution. He is also a lecturer on the environmental effects
of combustion engines at the University of Essen.
Elmar Rieger is presently working as a research professor at the Center for
Social Policy at the University of Bremen. Prior to this appointment, Dr. Rieger
was John F. Kennedy Fellow at Harvard University. His main areas of interest
are comparative and historical welfare state research, European integration and
agriculture. He recently finished an evaluation of the proposals of the European
Commission for reforming the Common Agricultural Policy.
x
12. John Schmitt is a labor economist at the Economic Policy Institute, Washington.
Dr. Schmitt has written extensively on inequality, unemployment and the
minimum 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 the
Rhenish-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 of
Bochum and Dortmund.
Klaus Zimmermann is the newly appointed director of the German Institute for
Economic Research (DIW) in Berlin. He also serves as director of the Institute
for the Study of Labor (IZA) in Bonn and as co-director of the Labor Economics
Program of the Center for Economic Policy Research (CEPR) in London and is
a professor of Economics at the University of Bonn.
xi
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 rules
and programs that aim to facilitate the admission and integration of some
foreigners and prevent the entry and stay of others. This paper examines U.S.
policies on legal immigration, refugees and asylum seekers, and unauthorized
migration to highlight similarities and differences in the migration challenge
facing the industrial democracies.
There is dissatisfaction with immigration and integration policies in both
Germany and the U.S. Immigration and integration issues were second only to
unemployment among the domestic issues debated in the 1998 German
elections, and immigration and integration issues have been contentious in
states such as California, which approved Propositions 187 (illegal
immigration) in 1994 and 227 (bilingual education) in 1998.
About 7.3 million foreigners lived in Germany in 1998, making foreigners
about 9 percent of the German population. By comparison, the U.S. had about
27 million or 10 percent foreign-born residents. If current trends continue, the
foreign/foreign-born share of residents is expected to rise in both Germany and
the U.S. in the 21st century, to 17 percent in Germany and 15 percent in the U.S.
by 2030.
On a normal day, some 70,000 foreigners arrive in the United States. Most
are welcomed at airports and borders: over 60,000 are nonimmigrants who
come 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. has
invited to join American society as permanent residents. Finally, there are about
5,000 unauthorized aliens. About 4,000 are apprehended every day, most along
the U.S.-Mexican border just after entry, but at least 1,000 elude detection at the
border, or slip from legal to unlawful status after legal entry, as when a tourist
goes to work.
The United States is a nation of immigrants. Under the motto “e pluribus
unum,” from many one, U.S. presidents frequently remind Americans that they
share a common experience: they or their forebears left another country to begin
anew in the U.S. Immigration permits immigrants to better themselves and
strengthens the U.S., which is why the U.S. Commission on Immigration
Reform spoke for most Americans when it asserted in 1997 that “a properly
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15. Responses to Globalization in Germany and the United States: Seven Sectors Compared
regulated system of legal immigration is in the national interest of the United
States.”
Despite the generally rosy view of America as a land of immigrants, the
arrival each day of the equivalent of a small city has become a contentious
policy reflecting basic ambivalence about current immigration. Often
forgetting how contentious immigration was when their ancestors arrived in the
U.S., Americans fear that the country has lost its absorptive capacity.
Immigration often becomes an issue in which the loudest voices sometimes
come from the extremes of “no immigrants” and “no borders.” For example, the
Federation for American Immigration Reform (FAIR) calls for a five-year stop
to “mass immigration” so that, during the pause, recent arrivals and Americans
would have time to adjust to each other. At the other extreme, the Wall Street
Journal advocates a five-word constitutional amendment: “there shall be open
borders.” The editorials of the leading U.S. business paper advocate high levels
of immigration chiefly for economic reasons, while ethnic and religious
organizations advocate more immigration for other reasons.
There are middle-of-the-road remedies for immigration problems. We
argue that a better understanding of the facts promotes fine-tuning rather than
radical changes in immigration policy. Toward that aim, this paper first sets out
the 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: legal
immigration, including permanent and temporary admissions; refugee and
asylum policy; unauthorized migration; integration of immigration; the federal
immigration system; and relations with source countries of immigration.
GLOBAL CONTEXTS
Three global trends have particular importance for decision-making on
immigration matters: growing economic integration and globalization;
changing geo-political interests in the post-Cold War era; and increasing
transnationalism as migrants are able to live effectively in two or more countries
at the same time.
Economic trends influence both legal and illegal migration patterns. For
example, growth in multinational corporations puts pressure on governments to
facilitate the inter-country movements of personnel. At the same time, and in a
much more disturbing trend, alien smuggling has emerged as a multinational
corporate activity that reaps an estimated gain of $5-7 billion per year. Such
regional and international trade regimes as NAFTA and the General Agreement
on Trade and Services (GATS) also affect migration trends, permitting freer
movement of persons providing international services from signatory countries.
2
16. Philip Martin and Susan Martin
Further, the development of new technologies facilitate both virtual and actual
migration of people, ideas and work and, at least in the information technology
field, creates a seemingly insatiable demand for infusion of foreign
professionals with state-of-the-art skills.
The post-Cold War era also presents new opportunities as well as new
challenges for migration regimes, particularly regarding refugee movements.
While many refugee situations have been resolved as Cold War inspired
conflicts came to an end, thereby permitting large-scale repatriation, rabid
nationalism and government collapse continue to cause massive flight. At the
same time, the principles of asylum and non-refoulement (non-return to places
of persecution) appear to be under growing attack in Europe and North
America.
The third trend affecting migration policies is transnationalism. Partly
because of the technological revolution discussed above, migrants can far more
easily today live in two societies at the same time, maintaining contacts with
their home communities very inexpensively. Perhaps the most visible aspect of
transnationalism is the growing acceptance of dual nationality. Money flow
between immigrants and those who remain at home is another important aspect.
Remittances often exceed any other form of trade, investment or foreign aid
available 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 creatively
about their migration policies. In the following sections, we set out the major
U.S. policy issues in need of such attention.
PERMANENT IMMIGRATION
The United States admits about 900,000 legal immigrants each year, up
from about 600,000 per year in the 1980s (not counting those legalized under
the 1986 amnesty), 450,000 per year in the 1970s, and 330,000 per year in the
1960s. 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 the
U.S. and, after five years, to become naturalized U.S. citizens. The four
principal bases or doors for admission are family reunification, skills, diversity,
and humanitarian interests. By far the largest admissions door is for relatives of
U.S. residents; in 1996, two-thirds of the 916,000 immigrants were granted
entry because family members already resident in the U.S. formally petitioned
the U.S. government to admit them. The second-largest category of immigrants
in 1996 was humanitarian: 14 percent of the immigrants were refugees and
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17. Responses to Globalization in Germany and the United States: Seven Sectors Compared
asylees (see below for further discussion). The third group, about 13 percent,
were immigrants and their family members admitted for economic or
employment reasons; the U.S. in 1990 raised the annual quota on immigrants
admitted for economic reasons. Finally, the fourth door admitted diversity
immigrants; 6 percent of the flow were foreigners from countries that have not
recently sent large numbers of immigrants to the U.S.
America continues to celebrate its immigrant heritage, with mass
naturalization 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 more
of 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. 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 effectively
seen as a series of trade-offs between competing goods. For example, it is often
argued that large-scale immigration is necessary to “save” social security
systems in the industrial countries. Immigration can play a role in increasing
social security revenues by adding more taxpayers than beneficiaries, but much
higher levels of immigration would be needed to make a difference in the
demography of the country. Yet, if the composition of the immigrant flow
remains unchanged, and many more unskilled immigrants enter, immigration
may make it harder for some disadvantaged U.S. workers, including the
immigrants already in the U.S., to climb the job ladder. In this case, the
competing goods are high levels of benefits for retired persons who are living
longer, versus the competing good of restricting immigration to protect
especially low wage workers. Deciding how to weigh the competing goods of
benefits for retirees and protecting U.S. workers can be a contentious issue.
Many of those concerned about immigration are more concerned about the
composition of the flow than the number of immigrants. During the past twenty
years, there have been persistent calls for a shifting of admission numbers from
family categories, under which many immigrants with less than a high school
education enter, to skills-based ones that attract more highly educated
immigrants. In particular, reformists propose limiting immigration to nuclear
family only.1 Proponents of extended family migration counter that admission
of extended family serves not only humanitarian purposes but economic ones as
well. Extended families often work or live together, strengthening the
household economy of members who would otherwise live in poverty.
In the U.S., most of the immigrants admitted for economic reasons are
chosen by U.S. employers. There are some clear advantages to such a system.
Not surprisingly, rates of employment among these immigrants are very high
since they already have jobs and, generally, a supportive employer. It is also
argued that employers are the best judge of the economic contributions an
individual can make. A checklist, as used in a point system, may identify
would-be migrants with academic skills, but these individuals may not have the
5
19. Responses to Globalization in Germany and the United States: Seven Sectors Compared
more difficult to measure capabilities, such as an ability to work in teams, that
employers find valuable.
To hire a foreign worker as a permanent resident, the employer must
undertake a recruitment process that meets Department of Labor (DOL)
guidelines and demonstrate that no minimally qualified U.S. worker is
available. The process normally requires an attorney’s help, and the wait for
approval can be several years, first at DOL and then at the Immigration and
Naturalization Service (INS). Employers and immigrants are frustrated by the
delays, and tend to use temporary visa categories to bridge the gap between the
decision to hire the worker and the government’s grant of permanent resident
status. As a result, the recruitment process is often a farce, the employer having
already hired the foreign worker. Hence, the current system serves the needs of
neither 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 if
they paid a substantial ($10,000) fee to a fund that would provide scholarships
for U.S. workers willing to be trained to fill the jobs going to foreigners. CIR
argued that market forces would be a better determinant than the unwieldy
bureaucratic process of a business’ need for the foreign worker.
TEMPORARY WORKERS
Temporary work categories are increasingly important as the vehicle for
admission of foreign workers, particularly professionals, executives and
managers. Each year, almost 300,000 visas are issued to temporary workers and
their family members. In addition, an unknown number of foreign students are
employed either in addition to their studies or immediately thereafter in
practical training.
The growth in the number of foreign professionals admitted for temporary
stays reflects some of the global economic trends discussed above. In fast
changing industries, such as information technology, having access to a global
labor market of skilled professionals is highly attractive. Also, as companies
contract out work, or hire contingent labor to work on specific projects, the
appeal of temporary visas rather than permanent admissions is clear. Some
foreign firms, understanding that it may not be possible to undertake an entire
project off-shore, obtain temporary work visas to the U.S. so their employees
can complete the job at the U.S. client’s facilities. The temporary programs also
give employers and employees a chance to test each other before committing to
permanent employment. Multinational corporations find the temporary
6
20. Philip Martin and Susan Martin
categories useful in bringing their own foreign personnel to work or receive
training in the U.S.
As with other immigration matters, there are trade-offs in using temporary
admission categories. While they may help increase business productivity and
even generate job growth, they also render the foreign workers more vulnerable
to exploitation and may, thereby, depress wages and undermine working
conditions for U.S. workers. Generally, the foreign worker is tied to a specific
employer who has requested the visa. Loss of employment may also mean the
threat of deportation. Moreover, because the temporary visa is so often a testing
period, the foreign professional may put up with any conditions imposed by the
employer, fearing loss otherwise of the chance at permanent resident status.
The trade-offs are even more apparent with regard to admission of unskilled
workers. There have been persistent calls for a large-scale guest-worker
program to meet the seasonal needs of U.S. perishable crop agriculture, which
is now heavily reliant on unauthorized workers. Consumers want to pay low
prices for fruits and vegetables, and they also want farm workers to have decent
wages and working conditions.
Are the savings on fresh produce due to immigration worthwhile?
Immigrant farm workers earning low wages by U.S. standards are nonetheless
better off in the U.S. than at home. Over time, though, their point of comparison
is the U.S. standard of living, not what they left in their home country. U.S.
farmers are also better off now, enjoying higher profits and therefore higher
land prices. But, with ready availability of cheap labor, farmers may be
refraining from investing in technology that might reduce still further the costs
of 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 in
assessing impacts—today or some time in the future. The way these questions
are answered is a major determinant of U.S. immigration policy, especially with
respect to Mexico.
REFUGEES AND ASYLESS
The United States remains one of the major countries offering permanent
resettlement to refugees in third countries as well as asylum to those arriving
directly. 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 former
Yugoslavia and the former Soviet Union; 12,000 from Africa; 9,000 from east
Asia; 4,000 from the near east/south Asia; 3,000 from Latin America/
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21. Responses to Globalization in Germany and the United States: Seven Sectors Compared
Caribbean; and 2,000 geographically unallocated. Actual admissions in FY98
numbered 76,786, with ex-Yugoslavs and ex-Soviets representing about 70
percent of entries.
In the U.S., asylum applicants may apply directly to the INS (called
affirmative applications) or during a removal hearing in immigration court
when apprehended at a port of entry or in the interior of the U.S. (called
defensive applications). In the case of affirmative cases, INS may grant asylum
or refer the case to an immigration judge for further adjudication. Although
there are no limits on the number of persons who can obtain asylum (with the
exception of those applying under a special program for Chinese protesting
China’s coercive population control policies), the U.S. permits a maximum of
10,000 asylees to adjust to permanent residents each year.
In FY97, the latest year for which complete statistics are available, about
50,000 asylum cases were filed with INS as affirmative cases. These new cases
came on top of a pending caseload of more than 450,000 cases. About 20
percent 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, representing
almost 16,000 individuals.
During the same period, the immigration court received almost 84,000
cases. The majority (75,000) were referred by the INS asylum office, with a
much smaller number applying as a result of apprehension. The immigration
court approved about 30 percent of all of the cases in which it made a final
determination 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. policy
more firmly in compliance with international standards for protecting refugees,
in part by dropping the Cold War-driven definition of a refugee as someone
fleeing a communist state; 2) to institute permanent mechanisms for making
resettlement and asylum decision, rather than maintain reliance on ad hoc
statutory and discretionary processes; and 3) to establish rules regarding the
eligibility of refugees for assistance and the reimbursement to be afforded states
and 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 most
parts of the world, U.S. refugee admissions continued to reflect Cold War
priorities. Until very recently, more than 80 percent of refugees admitted to the
U.S. came via orderly departure programs directly from Indochina or the former
Soviet Union. Only a very few slots were available for refugees referred for
resettlement by the United Nations High Commissioner for Refugees
(UNHCR).
8
22. Philip Martin and Susan Martin
The asylum system, in particular, came under increasing criticism for the
seeming ideological basis for decisions to grant asylum, with the U.S.
government appearing to grant refugee status readily to Nicaraguan asylum
seekers and denying refugee status to El Salvadorans and Guatemalans.2 The
migration of many Central Americans to the U.S. in the late 1980s produced an
asylum crisis, which was eventually “resolved” by having the U.S. government
agree to re-examine rejected asylum applications filed by Salvadorans and
Guatemalans, and to permit those who did not file because of the low approval
rates to apply for the first time. In addition, an Asylum Officer Corps was
established in April 1991, so that independent trained adjudicators within INS
would hear asylum claims. Mounting backlogs of cases and concerns about
fraudulent applications led to further reform in 1995, particularly a streamlining
of processing to permit new cases to be heard within six months. The reforms
were implemented on a “last-in, first-out” basis in order to send a clear message
that strong cases would be quickly approved but abusive ones would be as
quickly rejected. As a result, the cases in the backlog remained without
adjudication.
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 or
more. Many had been granted various statuses that permitted them to remain in
the U.S. during the conflicts in their countries. These temporary, ad hoc
statuses were extended after peace came to their countries, largely because their
remittances were so important to the economic recovery of their homelands.
For many years, however, no steps were taken to regularize their status in
the 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 simply
requires even harder decisions later. By the time the U.S. decided to end
temporary protection for Central Americans, many had been in the U.S. for
more than a decade and had U.S.-born citizen children, U.S. employers, and
other ties to the U.S. that made it difficult to promote repatriation.
It was not until 1998 that the Nicaraguan Adjustment and Central American
Relief Act (NACARA) was enacted to give many of the Central Americans the
opportunity to become permanent residents. NACARA, originally introduced
as the Victims of Communism Act, reflected the long-standing ideological
strains of U.S. policy. Under NACARA, about 150,000 Nicaraguans and 5,000
Cubans who arrived in the United States by December 1, 1995 were granted full
amnesty. By contrast, the estimated 200,000 Salvadorans and 50,000
Guatemalans covered by NACARA had to demonstrate that it would be an
extreme hardship if they were forced to return home.
9
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 had
established long-term residence in the United States, and their number was
growing by 275,000 a year. About 60 percent of the unauthorized migrants in
the U.S. were believed to have slipped across the Mexico-U.S. border, entering
the United States without inspection. The other 40 percent entered the United
States legally, often as tourists, and then violated the terms of their entry by
staying too long or working in the United States. In addition, about one to two
million 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 unauthorized
migrants, but they are concentrated in a few states. Some two million of the
unauthorized foreigners in 1996 were in California (40 percent, making 6
percent of California residents unauthorized), followed by 700,000 in Texas (14
percent), 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 INS
estimated that there were about 2.7 million unauthorized Mexicans in the U.S.,
followed by 335,000 El Salvadorans, 165,000 Guatemalans, and 120,000
Canadians; there were an estimated 70,000 illegal Poles.
The U.S. has tried a number of measures to reduce illegal immigration, but
has not yet found an effective formula for reducing unauthorized entry and
employment. Two extremes mark the ends of the control spectrum. At the one
end are so-called island strategies, in which control efforts are focused on
borders and ports of entry, and there is little enforcement inside the country. At
the other extreme are the continental strategies that evolved in Western Europe,
in which border controls are buttressed by internal residence and work permit
systems.
The U.S. abandoned the pure island model in 1986, when the Immigration
Reform and Control Act for the first time made it unlawful for U.S. employers
to knowingly hire illegal foreign workers. Employer sanctions did not deter
illegal entries and employment, primarily because the INS was slow to establish
effective strategies and assign inspectors to enforce them, and because
unauthorized workers found it easy to purchase false documents to present to
employers and thus satisfy the letter of the law.
External controls still dominate. The INS has a budget of $3.8 billion for
FY99, which supports 29,000 employees, of whom two-thirds work in
enforcement, including almost 9,000 as Border Patrol agents. Most INS
enforcement 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. Philip Martin and Susan Martin
moved agents to the border, and used their presence, plus lights and fences, to
deter 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 border
control operations—Gatekeeper in California, Safeguard in Arizona, Hold the
Line in west Texas, and Rio Grande in east Texas. Early evaluations in El Paso
concluded that the unauthorized entrants most likely to cause local problems
were deterred, including street merchants, teens and car thieves, but that
migrants headed toward the interior of the U.S. simply went around the places
with intensive controls. It is clear that the cost of entering the U.S. illegally has
increased; 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, more
migrants attempting entry are dying after being abandoned by smugglers in the
desert.
The U.S. and Mexico have greatly increased their cooperation to reduce
crime in border areas, to discourage the transit through Mexico of non-
Mexicans attempting to illegally enter the U.S., and to better understand the
dynamics and characteristics of Mexicans in the U.S. Mexico has specialized
police forces, including Grupo Alpha and Beta, that aim to reduce crime against
migrants waiting to illegally enter the U.S., but they also can detect and report
on third country nationals attempting entry into the U.S. In Summer 1998, the
U.S. and Mexico cooperated on a public affairs campaign that warned of the
dangers of attempting illegal entry through the desert.
CONCLUSION
As this review has shown, making durable immigration policies is difficult
because 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 little
consideration to nuance. Moreover, the debate is marked too often by
exaggerated claims that make it hard to win broad public support for any
sensible immigration policies.
There are clear similarities and differences between the U.S. and Germany
in how each country assesses the trade-offs. Clearly, national conceptions of
immigration differ significantly. Immigration is an integral part of U.S. history
and culture. Even with concerns about today’s immigrants, most Americans
would agree that immigration overall has been in the national interest of the
United States. The U.S. debate tends to be about how many and which
immigrants, not whether to have immigration. By contrast, and despite similar
11
25. Responses to Globalization in Germany and the United States: Seven Sectors Compared
proportions of foreign born populations, Germany does not see itself as a
country 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 themselves
dealing with global trends that have brought large-scale migration to their
shores. Both countries are also constrained by their democratic systems and
constitutional principles in the choice of ways to regulate and control this
migration. Hence, even with their different conceptions about immigration,
they have much to share in terms of specific policies, practices and
administrative structures. Even more, both countries would benefit from a more
nuanced policy debate that permits full discussion of the trade-offs inherent in
immigration as well as the global contexts in which 21st century immigration
policies will be made.
BIBLIOGRAPHY
Castles, 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. Philip Martin and Susan Martin
Fuchs, 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:
migrant@primal.ucdavis.edu or http://migration.ucdavis.edu.
Portes, 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.
ENDNOTES
1
Others agree that the extended family categories should be curtailed but they argue for
their transfer to nuclear family categories that are heavily backlogged. Currently,
spouses and minor children of legal immigrants must wait at least forty-two years for
admission as permanent residents.
2
In actuality, most Nicaraguans were also denied asylum, but the INS often did not
record the denials in order to postpone making a decision on removal.
13
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 dealt
with the increased trade flows in the 1980s and 1990s induced by global
reductions of trade barriers, the rapid transmission of technology across
countries and highly mobile capital. A growing literature analyzes various
aspects of the effects of integrated economies, i.e., the effects of globalization
on welfare, the labor market and inequality. (See for example the 1995
symposium 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 neglected
in the debate on integration in the world economies. Migration is an essential
part of globalization.
Comparable to increased world trade flows, OECD countries experienced
rising immigration flows in the 1980s and the beginning of the 1990s. However,
since then the immigration numbers have been decreasing. Figure 1 indicates
this development for selected OECD countries. In all countries immigration
increased strongly in the late 1980s up to about 1993. Then the growth in
immigration stopped and almost all countries exhibit a negative trend in
immigration flows. Given these numbers and the growing discussion about the
economic effects of globalization, several questions arise. Is there a link
between the increased international mobility of goods, technology, and capital,
and the development in international migration? Are there similarities in the
economic effects of globalization and labor migration? Can we trace recent
changes in immigration policy to the economic effects of globalization?
In the following section we discuss theoretical and empirical investigations
of 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 the
immigration of labor. In the third section we analyze German immigration
policy in the last decade with a special reference to the concerns of the most
important German political parties. In the final section we discuss an
immigration policy that seems necessary to deal with the economic effects of a
globalized economy.
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29. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
GLOBALIZATION AND THE MIGRATION OF LABOR
The Effects of Integration on Labor Migration
The development of increasingly integrated economies is largely
characterized by the reduction of global trade barriers resulting in increased
trade of commodities, high capital mobility, the transmission of technology
across countries, and the development of multinational firms which can
produce and hire labor almost all over the world. In the following, we discuss
the theoretical links between these developments and labor migration and
survey the existing empirical evidence on the relationship between trade and
migration.
According to the standard trade model, trade is a substitute for international
migration. According to the Heckscher-Ohlin model of factor price
equalization, the removal of trade barriers leads to country specialization in
producing the goods for which countries have a relatively abundant supply of
input factors and thus have a comparative cost advantage. Assume two
countries, a developed country with relatively many skilled workers, and a
developing country with relatively many unskilled workers. Assume further
that there are two goods, one that is produced by skilled workers and one that is
produced by unskilled workers. Producers in both countries have the same
technology. In this setting trade is determined by the factor endowments of the
two countries: the developed (developing) country will import the good that is
produced by unskilled (skilled) workers and specialize in the production of the
good produced by skilled (unskilled) workers. Trade between these two
countries will reduce the wages of unskilled workers in the developed country
and increase the wages of skilled workers, and vice versa for the developing
country. In the long run and under specific assumptions (see Bhagwati and
Dehejia (1994) and Martin and Taylor (1996) for a discussion of these
assumptions) factor prices for skilled and unskilled workers across the two
countries are equalized. In general, the basic trade model states that trade or the
mobility of production factors between countries will result in equalized factor
prices. However, if factor prices are equalized, the incentive to migrate
disappears and trade can be seen as a substitute for international migration.
The empirical evidence regarding factor price equalization and the
substitutional relationship between labor migration and trade is not as clear as
it appears in the theoretical model. (See Schiff (1996) for a discussion of the
standard trade model and the question whether there is a substitutional or
complementary relationship between trade and migration.) Several empirical
studies have found that trade and migration are complements instead of
substitutes, at least in the short and medium run. (Rotte and Vogler (1998)
16
30. Thomas Bauer and Klaus F. Zimmermann
provide a recent review). Two lines of argumentation have been brought
forward to explain these empirical results. First, our understanding of the
determinants of international migration is far from being complete. (See Bauer
and Zimmermann (1998) for a recent survey of theoretical and empirical
analyses of migration.) The existing empirical evidence shows that expected
wage differentials have a significant effect whenever we observe large
migration flows between two countries. However, the reverse conclusion is not
obvious, since we cannot observe large migration flows whenever huge wage
differentials are present. Furthermore, theoretical models of migration
decisions suggest that the desire to overcome capital constraints and income
risks in less developed countries could lead to international migration flows
even in the absence of expected wage differentials (Stark, 1991).
Second, the assumptions underlying the factor price equalization theorem
are questioned frequently and empirical studies on the effect of increased trade
on factor prices provide no clear picture of the relationship between increasing
trade and equalization of factor prices. (See Freeman (1995) for a recent
survey.) One of the most restrictive assumptions is that developed and less
developed countries have access to the same production technology. Political
stability, the infrastructure, technological advantages, or scale economies can
offset the comparative advantage of developing countries in the production of
labor-intensive commodities. On the other hand, political instability and market
imperfections in developing countries can hinder factor price equalization and
provide additional migration incentives. Finally, as predicted by the basic
model, trade liberalization creates new employment and higher earnings in the
developing countries, giving individuals and families the means to finance
migration that they could not afford in the past. Furthermore, there is increasing
evidence that, once individuals have migrated from a particular sending to a
particular receiving country, migration becomes a self-perpetuating process,
because the costs and risks of migration are lowered by social and informational
networks (Bauer and Zimmermann, 1998; Massey, 1990). Finally, there are
forces in the globalization process that could diminish the substitutional
relationship between trade and migration. New informational technologies and
trade itself provides potential migrants with more and better information
concerning the cost and potential benefits of migration. The availability of
better information reduces the risks and costs of migration and therefore fosters
migration.
Comparing the Economic Effects of Globalization and Labor Migration
In the last two decades the development of labor markets in advanced
countries was marked by a declining demand for low-skilled workers. In the
17
31. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
United States this development manifested itself in falling real wages of low-
skilled workers and increased income inequality. Due to relatively inflexible
labor markets, this development resulted in increased unemployment of low-
skilled workers in Europe. Public debate on both sides of the Atlantic identifies
globalization of the world economy and immigration pressure as two of the
main sources of this development.
With respect to the globalization debate, the Heckscher-Ohlin model has
been used to explain the unfavorable development of the unskilled labor market.
If developed countries import commodities from developing countries
produced by unskilled labor and export commodities produced by skilled labor
to these countries, the factor price equalization theorem predicts decreasing
wages of unskilled and rising wages of skilled workers in the developed
countries. In the case of downward rigid wages, as in the European context,
trade will lead to rising unemployment of unskilled workers and a shortage of
skilled workers. However, both explanations of the reduced demand for
unskilled labor relative to skilled labor are qualitatively similar to the effects of
a skill-biased technological change, and, as we will see below, to the effects of
the immigration of unskilled labor.
Empirical analyses of the effects of trade on the labor market essentially
follow two different approaches. (See Freeman (1995) for a detailed description
of these approaches and a discussion of their advantages and problems.) One
approach is to use data on the factor content of import and export industries to
estimate the change in factor endowments which is due to trade. The empirical
evidence 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 use
price data to explore whether increased imports from less-developed countries
reduce the price of goods produced by low-skilled workers in the developed
countries. If this is the case, the demand for unskilled labor in the developed
countries 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 of
unskilled workers.
The effect of trade on the German labor market has been investigated by
Lücke (1996), Haisken-DeNew and Zimmermann (1997) and Winter-Ebmer
and Zimmermann (1998). Lücke (1996) cannot identify relevant effects of the
relative price of unskilled-labor intensive goods on wages. Haisken-DeNew and
Zimmermann (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 trade
does not affect wages at all, and hardly affects employment.
18
32. Thomas Bauer and Klaus F. Zimmermann
Complicated economic processes determine whether one can expect gains
from immigration and which groups will receive them. Assuming a
qualitatively homogeneous labor force, the standard competitive framework
predicts that immigration will increase the overall supply of labor. This shift can
readily increase total welfare, but also tends to drive down the wage rate. Under
the assumption that labor is heterogeneous, the key issue for the evaluation of
the wage and employment effects of immigration on natives is whether foreign
workers are substitutes or complements to native workers. In general, one might
expect that the higher the substitutability of foreign for domestic workers, the
more likely an increase in immigration would cause a decline in the domestic
labor force’s wages.
More sophisticated theoretical models analyze the labor market effects of
immigration with imperfect labor markets in the receiving countries (Brecher
and Choudhri, 1987; Schmidt, Stilz, and Zimmermann, 1994; Bauer and
Zimmermann, 1997). In the case of minimum wages, which already caused
unemployment in the receiving country, increased immigration may just widen
the gap between the minimum wage and what would have been the market
wage, leading to higher unemployment. Of particular importance in the German
context is the case where wages may not be downwardly flexible due to the
behavior of unions. In the theoretical model developed by Schmidt, Stilz and
Zimmermann (1994), which considers heterogeneous labor and downwardly
rigid wages due to the behavior of unions, the labor market effects of
immigration depend on the reaction of the union and the degree to which skilled
and unskilled labor are complements. In this model, immigration of unskilled
labor produces gains for skilled natives, but wages decline and unemployment
increases for unskilled natives. To what extent natives benefit in the aggregate
from unskilled immigration depends on the concrete situation, i.e., the reaction
of the unions and the degree of complementarity between unskilled and skilled
labor. In the case of immigration of skilled labor, both wages and
unemployment of natives will decline, and total income of natives will increase.
The existing empirical literature on the labor market effects of immigration
could be differentiated into studies using simulation methods and those using
econometrics. (See Bauer (1998), Bauer et.al. (1998), and Zimmermann (1994,
1995, 1997) for various surveys.) Calibrating the model of Schmidt, Stilz and
Zimmermann (1994) using German data for 1993, Bauer and Zimmermann
(1997) showed that in the case of unskilled immigration of 10 percent of the
German labor force in 1993, income losses of natives could approach as much
as 5 percent of national income. In the case of skilled immigration there could
be substantial gains due to the improvement of the employment possibilities of
unskilled natives (up to 4 percent of national income at the unemployment rates
19
33. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
of 1993). Furthermore, they showed that the distributional effects of
immigration could be quite dramatic. It appears that capital always benefits
from immigration and that these benefits increase with the share of skilled
immigrants. Both types of labor could lose substantially from immigration
depending on the respective substitution coefficients. For instance, if 10 percent
of the native work force immigrates and all immigrants are skilled, skilled
native workers win 5.4 percent of their initial income. The loss of unskilled
native workers is calculated at DM 62 billion or 21 percent of their initial
income in the case of unskilled immigration.
An increasing literature analyzes the wage and employment effects of
immigration using econometric techniques. Most studies find that immigration
hardly affects native wages and employment, at least not negatively, but rather
exhibits a positive correlation (Bauer et. al., 1998). It should be noted that
similar studies in the U.S. were mostly unable to find remarkably negative
effects of immigration on the labor market situation of natives (Friedberg and
Hunt, 1995).
GERMAN MIGRATION POLICY
Increasingly, economic historians argue that the convergence of living
standards across countries in the period between 1850 and 1914 has been the
result of a globalization process similar to the process we observe since the
1980s (Williamson, 1998). This literature also shows that the economic effects
of this globalization were similar to those we have observed in the 1980s and
1990s, namely a significantly increasing inequality. Williamson (1998) argues
that this development caused a more restrictive immigration and trade policy
prior to World War I.
From 1988 to 1992 Germany experienced a sharp increase in immigration
flows (see Figure 1). Figure 2 shows the structure of the immigration flow to
Germany since 1988 by immigration status. It appears that immigration
between 1988 and 1996 has been dominated by east-west migration and by a
heavy inflow of asylum seekers and refugees. A large part of the east-west
migrants were ethnic Germans, who moved directly to Germany. Since 1989
Germany also receives so called “New Labor Migrants” which consists of
temporary migrants (Werkvertragsarbeiter, Seasonal Workers, and
Gastarbeitnehmer) who immigrate through special bilateral agreements
Germany signed with several East European countries. (See Bauer and
Zimmermann (1997) for a detailed discussion of this type of temporary
immigration.)
20
34. Thomas Bauer and Klaus F. Zimmermann
Since 1992, immigration to Germany has decreased again due to a more
restrictive immigration policy of the German government, consisting of a
coalition between the CDU/CSU and the FDP. Figure 2 shows that this decrease
mainly can be traced to a decreased number of asylum seekers and Aussiedler.
In the case of Aussiedler and asylum seekers there have been explicit changes
in immigration policy. In 1993, the government amended the constitution and
changed the asylum law, giving Germany the possibility of sending back
asylum seekers immigrating from member states of the European Union or from
other safe countries defined in the new law. As Germany is surrounded by safe
countries, asylum seekers theoretically could enter Germany only by air or sea.
The decrease in the immigration of Aussiedler is due to administrative barriers
set up by the German government since 1990. Since July 1990, ethnic Germans
must apply for immigration in their country of origin. In 1993, a new law was
passed, which sets a quota of 225,000 Aussiedler per year. Finally, in 1996 a
German language test was introduced for potential ethnic German immigrants
from the former USSR. Under the new legislation, ethnic Germans only receive
an immigration permit if they can prove a certain command of the German
language (Dietz, 1998). In the case of the “New Labor Migrants” the quota of
immigration permissions under the bilateral agreements have been reduced
steadily since 1992. Finally, the decreased number of refugees can be explained
by the end of the civil war in one part of the former Yugoslavia.
Particularly, German asylum policy must be considered with joint
migration policy of the European Union in mind. EU migration policy since
1988 has been marked by two developments. First, since the original Treaty of
Rome of 1957, internal migration within the EU has been liberalized steadily,
finding its conclusion in Article 8a of the Single European Act. This Act
requires the achievement of free movement of people, capital, goods and
services from January 1, 1993, which implies the abolition of controls at the
interior borders of the EU. Second, with respect to immigration from outside the
EU there have been increasing efforts to establish a collective and more
restrictive policy. (See Zimmermann (1994, 1995) for a comprehensive
discussion of the immigration policies of the EU and its individual members.)
The necessity of a common EU migration policy is founded primarily on the
requirements of a common European market, as the abolition of interior borders
results in a dependency of each member state on the immigration policy of the
other states. The EU path towards a joint migration policy started with the
Schengen 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 the
Maastricht Treaty, ratified in 1993.
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35. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
The main objectives of these initiatives have been the elimination of
internal border checks, consistent and tighter external border controls, a unified
visa policy, and the coordination of different national asylum policies. The
latest 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 closer
cooperation in the fight against illegal migrants, the elaboration of joint norms
regarding the acceptance of asylum seekers, the definition of prerequisites for
the immigration and residence of persons from countries outside the EU, and the
rights and conditions under with immigrants of one EU member country can
reside in another member country. However, the Amsterdam Treaty explicitly
rejected setting a fixed time schedule for the adoption of these measures.
It is interesting to examine the migration concepts of the German political
parties. Until 1998, the CDU/CSU (the conservatives) had governed Germany
together with the FDP (the market-oriented liberals), while the SPD (the Social
Democrats) and Bündnis 90/Die Grünen (the Greens) formed the major
opposition parties. In 1996, the FDP and Bündnis 90/Die Grünen, acting
separately, proposed new immigration laws. Both concepts called for an
immigration quota and selection of immigrants following the Canadian and
Australian point system (Frankfurter Allgemeine Zeitung, 1996; Süddeutsche
Zeitung, 1995, 1996). This point system was supposed to consider humanitarian
and economic interests, demographic developments, as well as the situation of
the German labor and housing markets. Differences in the proposals of the two
parties can be found only in the importance of different policy interests to which
the points should be allocated. Bündnis 90/Die Grünen gave priority to
humanitarian motives and family reunification over economic interests. In
contrast, the proposal of the FDP favored social and economic aspects.
The SPD has no uniform proposal for immigration policy. Instead, there are
two groups within the SPD which adhere to different concepts. One group is in
favor of an immigration law similar to the point system proposed by the FDP
and Bündnis 90/Die Grünen. Regarding the allocation of points among different
groups of immigrants, the position of this group lies somewhere between the
positions of the FDP and that of Bündnis 90/Die Grünen. The position of the
other SPD group is more similar to that of the CDU/CSU, arguing that there is
a necessity neither for a new immigration law, nor for additional immigrants.
According to their view the existing immigration regulations guarantee
sufficient control of the immigration flows. Furthermore, an immigration law
would imply the acceptance of additional migrants, but in the face of the high
unemployment rates in Germany, immigration in addition to the immigration
guaranteed by the existing laws (the immigration of ethnic Germans, war
refugees, asylum seekers, and individuals immigrating through the family
22
36. Thomas Bauer and Klaus F. Zimmermann
reunification program) could not be justified (see also Kanther, 1996;
Hailbronner, 1996). After the SPD election victory of September 1998, the new
minister of the interior, Otto Schily, referring to the above arguments,
announced that the new government will not prepare a new immigration law in
the near future.
The tendency of the major German parties towards a more restrictive
immigration policy leads to the question of whether the recent globalization
process and the huge immigration flows in the early 1990s resulted in rising
tensions in the German population against additional immigration and whether
these tensions could partly explain changes in migration policy. Table 1 shows
the share of Germans asking for a total stop of immigration for different
immigrant groups for the period from 1990 to 1996. It is of particular interest
that the development of the tensions against additional immigrants is different
between western and eastern Germany. Whereas the share of West Germans
opting for an immigration stop is constant or decreasing between 1990 and
1996, the share of East Germans opting for a total stop sharply increases for all
groups of immigrants. Since East Germans experienced a sharp increase of
unemployment and inequality since unification, the latter result seems to
support Williamson’s arguments (1998). Empirical studies of attitudes towards
foreigners in Germany (Gang and Rivera-Batiz, 1994) and the UK (Dustmann
and Preston, 1998) show that negative attitudes towards foreigners decrease
with education and occupational status and increase with age. However, the
results 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 likely
will result in increased immigration flows to the developed countries, at least in
the short and medium run, and that trade and immigration could lead to
increased income inequality or a rise in the unemployment of unskilled workers,
even though the empirical evidence regarding the latter is mixed. Most
countries facing this development have reacted with increasing restrictions on
immigration. However, we must ask whether this restrictive policy is the right
way to deal with the effects of globalization. A comprehensive ban on free labor
mobility would not solve the problems of unskilled workers resulting from
liberalized 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. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
Instead of restricting migration, one alternative would be to allow free
mobility of labor across countries. In the short and medium run this would most
likely lead to increased immigration of unskilled workers, resulting in increased
inequality and/or higher unemployment of unskilled workers in the developing
countries. In the long run, factor prices across countries could be expected to
equalize and the incentives for migration to disappear. However, it is doubtful
whether the increasing social tensions arising from such a development would
allow the respective governments to sustain such a policy long enough for factor
prices to equalize. Again, this policy is not able to solve the problems of
increased inequality or increased unemployment for unskilled workers.
A second alternative would be selective immigration that would restrict the
immigration of unskilled workers while promoting the immigration of skilled
workers. This policy would lead to an increased supply of skilled workers,
which lowers wages for this type of workers and decreases the excess demand
for skilled workers caused by liberalizing trade. If unskilled and skilled workers
are complements, the increased employment of skilled workers will increase
the demand for unskilled workers, increasing the wages of the latter, or, in more
rigid 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 to
those in Canada, Australia, and, more recently, in Switzerland. The main
deficiencies of such policies are that (i) the existing management techniques of
a point system are not able to address unexpected events, like recessions; (ii) the
time lag between collecting and analyzing labor market data on occupational
shortages and the actual landing of immigrants could lead to the selection of the
wrong migrants; and (iii) that there are no reliable empirical techniques to
identify shortages in particular occupations.
The second possibility is to auction the right to immigrate to potential
migrants or native firms. To economists, the idea that the right to immigrate
should be given out by an auction is quite appealing, because an auction selects
migrants according to their ability and willingness to pay. This selection
mechanism will efficiently identify those migrants who have a large capacity to
produce goods of high economic value while working in the receiving country.
A point system also discriminates among migrants by their economic value, but
an auction will in addition self-select those persons who have the best chance to
be economically successful. In general, this observation holds irrespective
whether the immigration visas are auctioned to potential migrants or to native
firms.
24
38. Thomas Bauer and Klaus F. Zimmermann
The second main question is whether the receiving country should allow
permanent or only temporary migration. Permanent migration normally implies
that selected high-skilled workers will immigrate together with their family.
However, empirical evidence suggests that family members could end up as
unskilled workers, an outcome that would result in problems similar to those
under an unregulated immigration regime. This problem could be avoided by
allowing only temporary migration, since a government could then restrict the
immigration of family members more easily. Temporary migration would
further 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 two
sides of the future of western economies. From one perspective, the most crucial
threat of globalization is “virtual migration” through the Internet, in which
trans-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, there
is no way to ignore the pressure. We have argued that the best response is to
open up economies as far as possible, to speed up the adjustment processes in
the countries and to enable new market forces to develop new products and
employ both skilled and low-skilled workers. Selective immigration policies
are a first step in this direction. They enable governments to test the respective
strategies and to convince voters that the transnational integration of national
economies is in the best interest of their countries.
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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 et.al.: Ashgate, 95-
127.
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39. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
Bauer, 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
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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
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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
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Friedberg, R. M., and J. Hunt. “The Impact of Immigrants on Host Country Wages,
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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
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OECD. 1998. SOPEMI – Trends in International Migration: Annual Report. Paris:
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Rotte, 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
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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,”
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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
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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
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York: Campus.
ENDNOTES
1
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 of
Globalization in Germany and the United States, Washington D.C., USA. We are
grateful to the participants at the May 1998 project meeting for their insightful
comments and suggestions on an earlier version.
27
41. Responses to Globalization in Germany and the Unite States: Seven Sectors Compared
Table 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 49.3
Source: ALLBUS, own calculations.
28
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 distribution
of income. Textbooks of international economics argue that trade is potentially
beneficial to all residents of all countries involved, but these same textbooks
also note that the costs and benefits are not always evenly shared.2 The strange
political economy of globalization—which has the power to unite trade unions
with their employers and liberal environmentalists with the likes of Pat
Buchanan—has apparently led many international economists to forget, or at
least to downplay, the distributional lessons of their discipline. U.S. economists
who were drawn to international economics precisely because of the key role
that the international economy plays in the national allocation of resources
spent much of the 1990s arguing that U.S. workers have little to fear from
opening up the U.S. economy; that jobs gained from expanded exports would
more than compensate for those jobs lost to imports; that cheaper imported
goods would raise real wages more than import competition would lower
wages; and, that, in any event, the exposure of the U.S. economy to world
markets is too small to warrant major concern.
U.S. workers, however, have generally reached different conclusions. After
a sustained string of victories for “globalization,” which included the
ratification of NAFTA and the creation of the World Trade Organization, the
road to greater economic integration now appears largely blocked in the United
States. Congress has rejected the Clinton administration’s bid for “fast track”
authorization to negotiate an expansion of NAFTA to include Chile and the
Clinton administration has shelved plans to push for ratification of the
Multilateral Agreement on Investment (MAI).
This paper seeks to outline the main links between the process of expanding
international economic integration, widely referred to as “globalization,” on the
one hand, and the labor market, the principal determinant of the national
distribution of income, on the other. The second, and longest, section of the
paper briefly reviews the many channels that connect the international economy
to the domestic labor market. Given space constraints, the paper only sketches
the nature of each link, summarizing some of the relevant research in each case
in order to provide an idea of the order of magnitude of the various effects. The
third section attempts to place the theoretical and empirical evidence on
31
45. Responses to Globalization in Germany and the United States: Seven Sectors Compared
globalization in the context of the broader literature on rising wage and income
inequality. The fourth section concludes with some thoughts about the political
economy of globalization, including some implications for the future of the
“welfare state.”
LINKS BETWEEN GLOBALIZATION AND THE LABOR MARKET
Economic theory establishes a large number of potential channels through
which the international economy can affect national labor markets. This section
reviews those channels that act most directly on labor markets through trade,
capital flows and migration. The coverage of potential channels seeks to be
comprehensive, but the discussion of each channel typically only includes a
small portion of the relevant research.3 While the list here is long, it excludes at
least one important aspect of globalization—the possibility that international
capital markets might constrain the macroeconomic options available to
national economies by rendering monetary policy ineffective (for example, in
the case of a fixed-exchange-rate regime) or by limiting the scope of fiscal
policy (because of the threat of large-scale capital outflows, for example).
Trade
Trade in manufactures is the starting point for the U.S. debate on
globalization. Economic research on the impact of trade on wages and
employment has generally taken one of three approaches. First, much of the
research, especially by labor economists, has focused on the impact on
employment and wages of the quantities of imports and exports of final goods
in import-competing and export-oriented industries. A second body of
research—primarily the domain of trade economists and more rooted in
traditional trade theory—has analyzed the effect of the prices of
internationally-traded final goods on domestic wages. Finally, some
economists have argued that the increasingly complex nature of the
international division of labor has created substantial opportunities for
“outsourcing” of manufacturing processes through trade in intermediate
goods used in manufacturing.
Quantities
The reasoning behind the quantity-based approach is simple. Rising
demand for exports creates jobs in export-oriented industries; while imports
destroy jobs in competing industries. Given the chronic U.S. trade deficit over
the last two decades, these analyses generally show a substantial negative
32
