As part of the Koch Fellow Program, we were divided up into research groups to do policy presentations.  I was in the immigration policy group, and we presented our project a week ago today.  Dan Griswold, Director of the Center for Trade Policy Studies at the Cato Institute, was our judge.  He was skeptical when I presented this graph:

The power of labor market liberalization

Griswold thought I was overstating the case for immigration by claiming that complete labor market liberalization could raise global GDP by $65 trillion.  He recommended instead using a smaller, less fantastic looking number to illustrate the same point.  I got this figure from a paper by Harvard development economist Lant Pritchett that is available here.  But when Pritchett cites the $65 trillion number, he is referencing from somewhere else, so when Griswold asked me exactly where that number came from, I didn’t have as good of an explanation as a should have.

After a bit of searching, I found this paper, by Paul Klein and Gustavo Ventura.  It states,

When we consider the hypothetical removal of barriers between OECD and non–OECD countries, we find very large effects on world output in the long run (an increase ranging from 94% to 172%). This is not surprising given the large TFP [Total Factor Productivity] differences between OECD and non–OECD countries implied by the data, and the fact that most of the world’s labor force is currently concentrated in the second group of countries.

$65 trillion is about equal to current global GDP, so that number is on the lower end of the long-run output increase that Klein and Ventura estimated.  Now, it’s obviously inconceivable that we could realize these massive gains even in the long run (hopefully it’s possible in the very long run).  But the point is that there really are potential gains from labor market liberalization of this magnitude.  They are out there, we just need a massive shift in the global political climate so that we can realize some of them.

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