Living Economics

As consumers, we are used to buying imports made by foreign workers residing in their own countries. But increasingly, we are buying services directly from imported workers residing in our own country. One million Filipinos will go abroad as contract workers this year (2005), surpassing Mexico as the largest source of migrant labor in the world. Filipino contract workers remit an estimated $14 to $21 billion annually back to the Philippines. This sum dwarfs both foreign direct investment and aid flowing into the country, and amounts to 32% of GNP. (Newsweek 10/4/2005)

Although Filipinos are well known as nannies and maids in Hong Kong, 35% of all Filipino migrants in 2002 were classified as "professional and technical workers". In particular, nurses now leave the Philippines at three times the rate at which they matriculate and enter the Filipino labor force. It is no exaggeration to say that Filipino nurses and maids are more welcome than Filipino products.

Historically, doors are more open to imported goods than imported labor because imported labor has engendered lingering fear of job competition and erosion of national cultures even after the door is shut on further immigration. But sometimes there are no good substitutes for human labor. In particular, the New World would never have been developed as fast or at all if migrant workers were not available to do the back-breaking infrastructure construction.

But for the most part of the 20th century, countries have jealously guarded their borders against massive labor migration. This trend has begun to reverse itself due to intervening economic and demographic factors.

Specifically, the pace of labor-saving innovations for some location-specific service-oriented jobs has lagged behind the increase in labor cost in the developed countries. As a result, the physical productivity of these service jobs has not improved much or at all. If employers cannot easily pass on the higher local labor cost to their customers, it makes sense to import cheaper foreign workers. This is particularly attractive when there is an absolute shortage of local labor due to demographic factors. In developed countries with aging and declining population, there is an absolute shortage of local labor. Scotland, for example, has been aggressively recruiting foreign workers to wait tables, drive buses or plumb the nation's toilets in its "Fresh Talent" campaign. (WSJ 7/7/2005) Even notoriously xenophobic Japan has been importing foreign workers in the face of a rapidly aging and stagnant population. America's labor-intensive fresh produce sector would have totally collapsed without the influx of illegal Mexican migrant workers (WSJ 3/11/2005). While fresh produce could easily be imported, haircuts, nursing, plumbing and restaurant services must be produced locally.

The physical movements of labor across nations can best be seen as part of a process to arbitrage differential labor costs across nations. But the arbitrage process remained quite limited until the latter part of the 20th century. When capital is more mobile than labor and service is not location-specific, capital will move to countries with cheaper labor to make goods for import into countries with higher labor cost. In the past, import of service is less feasible when service consisted mostly of personal service. But as the world's economy is increasingly based on bits and bytes of information, low-cost real-time Internet connectivity has made it profitable to offshore computer programming and back-office services to low-wage countries with under-employed educated labor force.

In a global labor market, the high labor costs in developed countries can withstand foreign competition from low-wage, high productivity countries only if labor productivity in the high-cost countries can match such high costs. That means the American workers must be doing jobs that the foreign workers cannot do. If not, importing cheaper legal or illegal foreign labor is the only alternative for staffing location-specific jobs (WSJ 5/2/2005).