Proof at last, that the moon landing was real
26 Jan 2015 Leave a comment
in economics of bureaucracy, politics - USA, technological progress Tags: conspiracy theorists, immigration, moon landing
Why is anybody still living in East Germany (or New Zealand)?
14 Jan 2015 1 Comment
in economic history, macroeconomics, politics - Australia, politics - New Zealand Tags: East Germany, Germany, immigration, Trans-Tasman income gap
When I pointed to Jennifer Hunt’s so titled paper freshly released in 2000 on why does anyone still live in East Germany, none of my New Zealand colleagues understood the parallel with their own country.
The wage gap between East and West Germany is about the same as the wage gap between Australia and New Zealand.
- East Germans have the advantage of being able to getting their car to go to the west. Some do commute from the east to jobs in the West; and
- New Zealanders have to get into a plane and commuting done a daily basis is really out of the question – the air flight time alone is three hours.
There are in fact bigger language, or more correctly dialect differences between Germany than there are across the Tasman Sea between New Zealanders and Australians. Educational standards are similar between New Zealanders and Australians.
In 1997 GDP per capita in East Germany was 57% of that of West Germany, wages were 75% of western levels, and the unemployment rate was at least double the western rate of 7.8%.
The wage gap across the Tasman between New Zealand and Australia is about one third. Wage gaps between East and West Germany and between Australia and New Zealand are about the same.
Australia and New Zealand have a single integrated labour market. Any New Zealander Australian is free to work in the other country.
New Zealanders are not eligible for social security benefits if they first arrived in Australia after mid-2001. Prior to 2001, New Zealanders have the same rights as Australians for social security benefits.
One would expect that if capital flows and trade in goods failed to bring convergence between East and West Germany, labour flows should respond, enhancing overall efficiency.
Same goes between Australia and New Zealand. About 35,000 New Zealanders used to move to Australia each year, but that’s recently dried up to about zero. Funnily enough, by the late 1990s net emigration from East Germany has fallen from high levels in 1989-1990 to close to zero.
Jennifer Hunt found through her analysis of the eastern sample of the German Socio-Economic Panel for 1990-1997 that commuting is unlikely to substitute substantially for emigration.
Wage convergence between the East and the West was a main factor that stemmed immigration. The individual-level data further indicate that emigrants are disproportionately young and skilled, and that individuals suffering a layoff or non-employment spell are also much more likely to emigrate. This is all as predicted by the Roy model of immigration self-selection.
Like all human capital investments, both international and within country migration is based on the comparison of the present value of lifetime earnings in all available employment opportunities. Individuals compare the potential incomes and the destination country with the income in the home countries, and make the migration decision based on these income differentials (net of mobility costs).
Utopia, you are standing in it! 
Recent Comments