Syrian Refugees in Jordan – What are they doing to the labour market?

With enormous numbers of refugees spilling of Syria due to the ongoing conflict, there has been a great deal of discussion around the effects of this displacement, particularly on the recipient countries. Although most of this discourse has focused on Europe, Syria’s neighbours, Jordan, Lebanon and Turkey have taken much larger numbers of refugees, in sheer numbers and as a % of the populations of the recipient countries.

A recent paper “The Impact of Syrian Refugees on the Labor Market in Neighboring Countries: Empirical Evidence from Jordan” by Ali Fakih and May Ibrahim aimed to find out the effect of the 700,000 or so refugees on local wages and employment rates. According to Fakih and Ibrahim, there is “no relationship between the influx of Syrian refugees and the Jordanian labour market.” With Syrians barred from formal work in Jordan, the informal labour market becomes more important, with 160,000 Syrians estimated to be engaged in informal employment, in sectors like agriculture, construction and food services. If displacement has little to no adverse effects on the Jordanian informal market, one should look to other examples of refugee influenced increases in the labour market to find out if these lack of effects hold true; this is what we tend to see.

Evidence presented to the SOAS Policy Forum by Sam Bowman on a wide ranging talk about the effects of immigration suggested the effects of displacement were beneficial, with a small rise in native wages.Other research suggests that over the long term, the displacement is beneficial for both refugees and host countries. Data from Denmark and Miami, Florida, facing similar situations (in that large numbers of refugees were arriving because of political conflict. In the Miami example, the labour force was increased by 7% by refugees from Cuba) further suggests these effects are true.

Although the political situation in Jordan is complex, the huge cost ($1.7 billion) of hosting refugee’s (both, for the host country and the immigrants in refugee camps) should encourage the Jordanian Government to consider lowering restrictions on labour force participation for immigrants, or at least allow a framework of legal employment within the refugee camps to protect native workers from the small but politically contentious wage and unemployment effects that have affected other ‘developing nations’. A better solution would be work permits for employment in the economy generally This would also allow the Jordanian Government to face lesser fiscal pressures from the lowered cost of providing for Syrian refugees thus supporting themselves through employment..

This is what many policy makers in the EU and Western World have been calling for, but this must be supported by trade concessions and increased global aid. The latter is being provided by the UK, to enable Jordan to mitigate political consequences of refugee influx. If allowing refugees to work has minimal effects on local labour markets, this should not only be a policy prescription for Jordan, but also for western leaders with much lower refugee populations.

The two unions

The European Union consists of two parts: an economic union and a political union. The economic union has a single market with the same rules applying to all member states. Non-members of the EU who export to the EU must comply with those rules for their goods, but not for goods they trade outside the EU. The economic union features a common customs tariff for goods entering the EU, but none on trade between EU members.

The political union has an elected Parliament with some legislative and budgetary powers; so does the Council of Ministers, composed of 28 ministers (one per member state). The European Council, composed of the 28 heads of state or government defines the EU’s policy agenda, and the European Commission is the executive, dealing with the day-to-day running of the EU and enforcing its treaties. It has one commissioner appointed by each state. The aim of the political union is “ever closer union,” increasingly giving the EU the characteristics of a unitary state. The aim of many of its adherents is a European state with its own army, embassies, and laws.

Several states outside the EU have negotiated trade deals with it giving them access to the economic union’s single market, without becoming part of its political union. If the UK were to leave the EU’s political union, it would certainly do the same, since this would be hugely to the advantage of both the UK and the EU. Similarly several non-EU states have agreed visa-free travel with the EU, though of course non-members have to pass through passport and customs controls, as UK travellers currently do.

The case for the UK’s leaving the EU amounts to advocating that the UK retains the advantages of the economic union, with access to the single market, and with EU access to its own market, while withdrawing from the political union that gives EU bodies powers over it.

The case for remaining in the EU ought to be about continuing to be a part of a developing political entity, pointing to any gains that derive from this. Instead it has thus far been almost entirely based on the fear of adverse economic consequences, many of them based on the utterly false assumption that the UK would not negotiate an agreement that kept it closely integrated with the EU’s economic union.

The UK’s citizenry has never wholeheartedly endorsed the political union. When it voted in the 1975 referendum to endorse the legislative decision to join, the arguments were almost entirely about the economic advantages of doing so. The case for remaining in the political union has never really been put to the test, and is not now being done. A vote to leave would be one to reject the political union, while remaining closely integrated with the EU’s economic union.

New Report: Migration and Development

The best international development policy would be to let in more workers from the third world in to work in Britain, according to a new paper from the Adam Smith Institute. Politicians should stop trying to save entire countries with foreign aid programmes and instead help their inhabitants by letting them move to developed countries, it says.

The report Migration and Development argues that doling out billions in foreign aid risks propping up corrupt kleptocratic governments and having little impact on development; letting people move to where they can be most productive is a reform that really works.

The paper, authored by Swedish policy analyst Fredrik Segerfeldt, suggests an immigration target, modelled on the 0.7% of GDP foreign aid target, in order to boost the welfare of the global poor.

Not only would this help the migrants themselves, but it would even help their source countries to develop, Segerfeldt says. Migrants send around three times as much home in remittances as governments send in foreign aid, and this private development aid is far better targeted, going directly to those in need and not through flawed institutions. The money is often used by developing country citizens to educate themselves and raise their human capital, helping to create a virtuous development cycle.

To assuage worries that migrants will empty the state’s coffers as a fiscal burden on the state, Segerfeldt advocates both that migrant work permits be temporary, and that the full suite of benefits would only be available to natives.

-2To access the full press release, click here.

To download the report for free, click here.

GDP is becoming an ever worse measure of how we’re doing

That GDP isn’t a very good measure of how we’re doing has been known since the concept was first pushed by Simon Kuznets coming on a century ago. It only includes monetised transactions, includes government at what it costs rather than the value it adds, doesn’t discuss the distribution of income or consumption, only the gross amount and so on and on. It has its merits, in that it is also reasonably easy to calculate, something that isn’t true of all of the potentially better alternatives.

The really important thing to understand though is that it is not actually a measure of how well we’re doing. It’s a proxy for how well we’re doing. And unfortunately it is becoming an ever less accurate proxy, as this new paper details:

It is also the case that zero-priced digital goods are – by definition – not counted in GDP. Some of these are advertising funded, rather than subscription funded, so the business model choice affects measured GDP – although the invariance could be restored by taking account of the imputed cost to consumers of the unwanted adverts (Nakamura and Soloveichik 2015). Zero prices and the prices of digital bundles are not accounted for in the consumer price deflators either, leading to an understatement of real growth.

Some zero-priced goods – not only products such as software, blogs, and videos, but also ‘sharing economy’ services such as house swaps or shared meals – could be considered voluntary activities, analogous to reading to children in the local school or volunteering in a charity shop. These volunteer activities are outside the conventional production boundary, just like household services.

The importance here (and the paper discusses many other reasons why GDP is getting less good as a measure) is that we’re not in fact interested in production at market prices, nor cconsumption at them, at all. What we’re truly interested in is how much people can consume. With physical goods we have a rough rule of thumb: the consumer surplus (that is, the value the consumer gets but which they don’t have to pay for) is 100% of GDP. So, if GDP is £1.5 trillion, roughly right for the UK, we’re really saying that we think that the value of all consumption, to those doing the actual consumption, is some £3 trillion. But those digital goods skew this horribly.

We measure, for example, Google’s addition to GDP as being the advertising they sell here. Which, given that they sell it all from Ireland means no addition to UK GDP at all (well, OK, the wages of their support engineers do count but). But absolutely no one at all thinks that the consumption value to all of us of Google’s existence is zero. Thus GDP is getting ever further out of whack with what we really want to measure, which is total consumption.

It’s also true that there’s no very easy answer to this either. But we should be aware of it. And for two very good reasons. Firstly, economic growth is not as slow as the standard GDP figures show us. And secondly, inequality is rather less than most think. You and I have just as much access to, and at the same price, the services of Facebook, Google and so on as Gerry Grosvenor, something that does indeed reduce the gap between the richest man in the Kingdom and us working stiffs.

People prefer neo-traditional buildings

It seems obvious to me—and I think to most people—that housing built since the 1930s is by and large much less attractive than housing built before. But if this is true, and if we are much richer now than we were in the 1930s and before, then why would we build, buy and live in housing we don’t like? We have some sort of market in housing; surely if we really all preferred traditional housing styles we’d just buy it.

A new paper (slides) provides the answer—at least if we can assume the UK and the Netherlands are similar in this respect. The authors look at a large database of new-builds and sales and compare similar neo-traditional houses to houses with some traditional features and those with none. They find that, even controlling for a wide range of features, fully neo-traditional houses sell for 15% more than fully non-traditional houses. Houses with references to tradition sell for 5% more. We might speculate that actually traditional houses sell for yet more.

In their words:

Popular reports on the housing market often refer to attractive style characteristics of houses. In the case of the Netherlands specifically housing from the 1930s is very popular. It is, however, difficult to disentangle the attractive vintage effects of the dwelling from (often inner city) locational amenities.

This paper studies exactly these attractive physical features without the confounding influence of age and location effects by studying newly built houses in newly developed neighborhoods only. A rich data set of housing transactions in the Netherlands is enriched with style characteristics of houses on 86 (Vinex) housing estates across the Netherlands. This resulted in over 60,000 transactions between 1995, the starting point of the development of these sites, and 2014.

The hedonic price model that has been estimated shows a significant price premium of 15% for pure neo-traditional styles and 5% for referring to traditional styles. Various robustness checks confirm that these results are partly, but not entirely, driven by, e.g., unobserved differences in quality between houses with different building styles.

The riddle is why—if this premium exists—do developers not build mainly or purely in the neo-traditional style, to reap profits from satisfying market demand. Why do developers only build neo-traditionally—why don’t they really try and ape the creations of the past? The authors blame tight regulation of both the volume of production and the inputs; local authorities effectively prescribe modern styles and proscribe prerequisites for traditional design. They find that construction cost has only a marginal or negligible impact, by contrast.

This research is especially plausible, as it turns out some of London’s housing problems are caused by similar factors. Everyone wants to live in beautiful terraces, right? But new housing usually looks nothing like the most popular existing stock.

Nicholas Boys Smith and Create Streets provide an elegant explanation (pdf): building codes in London make popular traditional housing—which is very dense and could be sold very profitably—near-impossible. They blame six key barriers including: bans on recycling dead space between buildings into gardens; universal lift requirements; illogical value calculations; staircase width rules; and excessive wheelchair requirements; as well as many others.

Top-down planning ruins cities, wherever it is tried. If we loosened regulations on the volume of building, and the type of buildings that could be built, then we could massively increase London’s density while simultaneously providing the sorts of dwellings people actually want to live in.