Should the Government Bail Out the Auto Industry?

America's Big Three—General Motors, Chrysler, and Ford—are in big trouble. Sales from the not-so-fuel-efficient fleet of American-made vehicles had already suffered considerably because of high gas prices even before the financial crisis began to get serious in September of 2008. Faced with undesirable terms in private credit markets, the Big Three are now turning to the government for financial assistance. The House passed a bill to rescue the Big Three car companies with $15 billion in emergency loans on Wednesday, December 10, but the Senate abandoned the plan the day after. Should the government bail out the auto industry?

Those in favor of the bill argued that the rescue plan can prevent the loss of 500,000 jobs in the auto industry. Job losses in the auto sector would most likely have spillover effects in other sectors. As auto workers lose their jobs, they would consume fewer goods and services, negatively affecting industries in retail, health care, and financial services. With unemployment already rising, supporters of the bailout argued that keeping auto workers in their jobs is much easier than creating new jobs for them.

Opponents of the bill compared the bailout to the inefficiencies generated by government subsidies and tariffs. Many companies face financial problems—why should the government save the Big Three and not the others? Poor performance is typically a good signal that a company should change how and what it produces. A partial government takeover of American auto companies will not ensure that the firms will start producing vehicles that people want to buy. A bailout, according to critics, will simply prolong the inevitable: the consolidation of the American auto industry, the large number of layoffs that come with it, and the migration of workers from autos to more profitable industries.

Discussion Questions

1. What is the role of labor unions in contributing to the financial problems facing the Big Three? In particular, how well do the wages reflect the productivity of the workers in the Big Three? Click here to read more.

2. Do you think the problems faced by the Big Three stem primarily from the recent financial crisis or from longer-term decisions about what types of vehicles to produce and how to produce them?

3. Some suggest that another reason leading to the failure of the Big Three is that American consumers prefer cars made by foreign companies, such as Toyota and Honda, to cars made by American-owned companies. How does the market of foreign-made cars affect the demand for American cars?

4. Foreign-owned automakers, like Toyota and Honda, operate production facilities in the United States and employ American workers. How would these firms be affected by a bailout of the American-owned Big Three? How will foreign auto firms with operations in and outside of the United States be affected if one or more members of the Big Three were allowed to fail?

5. How do the loans compare with tariffs in foreign trade? What advantages and disadvantages do they share in common?

6. What would happen to the broader economy if the plants closed and workers became laid off? What might these workers do to find new employment? Which sectors would employ them?

Deterring Suicide Bombers

So far this year, Israel has suffered two attacks at the hands of Palestinian men who resided in East Jerusalem. In the wake of the attacks, Israeli Prime Minister Ehud Olmert renewed a legislative proposal aimed at deterring would-be terrorists by punishing the families of the attackers. Punishment would include home destruction and cancelled access to Israeli social insurance programs. Eric Westervelt's NPR story offers more on the proposed law.

For the moment, let's leave aside the major issue of whether it is moral to punish people for murders committed by a dead relative. The objective of the law is clear: to provide a disincentive to suicide attacks by punishing the perpetrator's surviving family members. Should the law pass, suicide bombers would forgo not only their own lives but also, potentially, the welfare of their families. By raising the opportunity cost of a suicide attack, the supporters of the law hope to reduce the number of attacks. Recent research on the economic roots of terrorism can help us think about whether the policy will achieve its intended consequences.

In a 2003 research paper, Alan Krueger and Jitka Maleckova found that participation in terrorism is unrelated, and possibly even positively related, to a person's income and education. As Daniel Lerner pointed out in a study of Middle East extremism in the 1950s, would-be terrorists are not so much have-nots as they are want-mores. In a more recent article in The American, Krueger cites Claude Berrebi's research on the characteristics of Palestinian terrorists from the West Bank and Gaza Strip:

"[Berrebi] compared suicide bombers to the whole male population aged 16 to 50 and found that the suicide bombers were less than half as likely to come from families that were below the poverty line. In addition, almost 60 percent of the suicide bombers had more than a high school education, compared with less than 15 percent of the general population."

Apparently, better-educated terrorists are more likely to be committed to their organization's goals and also more likely to have the financial means to participate actively. After all, a person needs some level of income security to have pursuits beyond basic subsistence.

Krueger and Maleckova also cite some anecdotal evidence suggesting that terrorist groups attempt to recruit somewhat educated suicide bombers. Nasra Hassan, a UN relief worker, interviewed 250 Palestinians militants and their associates between 1996 and 1999:

"A planner for Islamic Jihad explained to Ms. Hassan that his group scrutinizes the motives of a potential bomber to be sure that the individual is committed to carrying out the task. Apparently, the groups generally reject for suicide bombing missions 'those who are under eighteen, who are the sole wage earners in their families, or who are married and have family responsibilities.'"

The evidence presented by Krueger and Maleckova casts doubt on the effectiveness of the Israeli Prime Minister's proposal. The threat to families isn't much of a threat to a terrorist with minimal or zero family responsibilities. The law may not present much of a threat to terrorists with families either. If the suicide bombers tend to be a bit more educated and financially stable than their peers, they will probably develop a contingency plan that softens the punitive blow to their families. Similarly, terror groups may alter their tactics in response to the law, perhaps offering some sort of compensation to the families of suicide bombers as a recruitment incentive.

Discussion Questions

1. Economic analysis allows us to answer "what if?" questions, such as "What would happen to the number of suicide attacks if the Israeli government punished the families of suicide bombers?" Economics is not so great for dealing with "what should?" questions; but as citizens, we still have to tackle them. What should the Israeli legislature do about Olmert's calls to punish the families of suicide bombers?

2. In Krueger's article from The American, he suggests using "demand-side" policies to reduce the number of terrorist attacks. In the "market" for terrorists, the demanders are terrorist groups hoping to employ the services of suicide bombers. According to Krueger, what types of policies might suppress the demand for terrorists? Can you think of ways for Israel and its allies, like the United States, to go about attacking the financial resources of terror groups?

3. Krueger points out that we're unlikely to find many would-be terrorists among the illiterate and destitute. What does he say about the notion that "the elite become terrorists because they are outraged by the economic conditions of their countrymen?"

None and Done: The Labor Market for Young Basketball Talent

The 2008 Celtics-Lakers NBA finals featured two great straight-from-high-school athletes: Kobe Bryant and Kevin Garnett. The NBA benefits from a host of other players drafted straight from high school, such as LeBron James, Dwight Howard, Tracy McGrady, Amare Stoudemire, and Tyson Chandler.

Early entry into the NBA is a classic example of opportunity cost—the notion that the cost of something is what you give up to get it. For elite players, attending college can cost millions in forgone earnings as an NBA player. So until recently, the decision for most was simple. Skip college, sign a huge NBA contract, and worry about getting a degree later, if at all.

Curiously, a 2005 collective bargaining agreement between the NBA and the players' union implemented a draft-eligible age limit of 19 with the requirement that athletes be one year removed from high school. This was great news for the NCAA, since most draft-worthy players would spend their first year away from high school wowing college basketball fans. Without the rule, we'd have missed Derrick Rose in the 2008 NCAA tournament. Of course, Rose might not have missed us, since he'd be earning a big paycheck as a rookie in the NBA.

As a recent article in the New York Times points out, labor mobility and the presence of European leagues offer young players an opportunity to break free from the strictures of NBA and NCAA rules. Europe promises pay and a chance to develop against professional players, an alternative that may prove superior to an earnings-free year of college ball and freshman classes.

Discussion Questions

1. Why would the NBA players' union support the age barrier to draftees? Why would the NBA support the restriction?

2. College basketball generates big money. Should college players be compensated in accordance to the value that they add to their school's program? How would less-than-NBA-caliber players benefit from such a system?

3. Under what circumstances might it make sense for a phenomenal young athlete to play one year in the NCAA rather than playing professionally abroad?

Out-Outsourcing

One of the biggest economic stories of the past decade has been the practice of outsourcing jobs from the U.S. to India. From the start, it was an enormously profitable idea: American companies could create a “back office” halfway around the world that would work while the folks in the American “front office” slept. Rather than getting 8 or 10 hours per day of productive work, companies could be productive around the clock.

Of course, American companies couldn’t all just set up shop in India—the fixed costs are too great. So Indian entrepreneurs began founding companies to provide back-office services to American firms. One of these was Infosys Technologies. Now, the New York Times reports, Infosys and its Indian rivals are opening back offices of their own in Brazil, Chile, Uruguay, the Czech Republic, Mexico—and even the United States. The article states:

In a poetic reflection of outsourcing’s new face, Wipro’s chairman, Azim Premji, told Wall Street analysts this year that he was considering hubs in Idaho and Virginia, in addition to Georgia, to take advantage of American “states which are less developed.”

In other words, globalization has come full circle: now you can work in Georgia for an Indian company providing services for an American company.

Discussion Questions

1. Consider a company in Silicon Valley that outsources some of its work to Infosys in India, which in turn outsources some of its work to an office complex in Idaho. Suppose the project is handled by one programmer in each location, and suppose that each programmer is equally talented. In all probability, the wages earned by each programmer are different. What explains this difference?

2. Some jobs, like computer programming, are easily outsourced. Others, like providing haircuts or construction, are not. What effect do you think an increase in outsourcing would have on the wages of computer programmers, barbers, and construction workers? What about the relative prices of software, haircuts, and housing?

3. The increase in outsourcing over the past decade or so is what economists call a disequilibrium phenomenon. Disequilibrium occurs when there is a rapid change in the way things are done—for example, a rapid shift in a demand or supply curve—and prices and quantities have not yet fully adjusted to their new equilibrium levels. What do you think the new equilibrium will look like? What impact do those expectations have on the choices you need to make in college—such as what to major in, or what companies you should try to get a summer internship with?

Same Problem, Different Solutions

Recently, both U.S. and British farmers have faced the problem of a labor shortage. How can a labor shortage occur when the unemployment rates of both countries have remained positive? Effectively, a labor shortage is the same as any other type of economic shortage—it occurs whenever the price (in this case, the wage) is lower than the equilibrium price, leading to a situation where the quantity of labor demanded exceeds the quantity of labor supplied. Since labor is one of the main factor costs in the agricultural industry, farmers in both countries are reluctant to raise the wages of their workers, as this would raise costs and reduce profits.

The wages of farm workers in Britain and the U.S. have been kept low by the influx of immigrant farm workers. Immigration increases the labor supply in the host country, shifting the labor supply curve to the right. As a result, the equilibrium wage for farm workers in the host country falls.

So what are the sources of the farm labor shortages in the U.S. and Britain?

According to the Department of Labor, more than half of the 2.5 million farm workers in the U.S. are illegal immigrants. The recent crackdown on employers of illegal immigrants poses a threat to many U.S. farmers who rely on immigrant workers. With a tighter immigration policy, the U.S. farmers would have to rely on domestic instead of immigrant workers. As the labor supply decreases with fewer immigrants (the supply curve shifts to the left), the farmers have to pay a higher wage. If they are reluctant to raise the wage, they will face a shortage of willing workers at the initial wage.

Britain did not tighten its immigration policy against Europeans. Nevertheless, the number of Europeans going to Britain for farm work has decreased due to better job opportunities in booming European economies. At the same time, many European workers are beginning to find other types of British jobs preferable to agricultural work. As fewer immigrant workers make the trek to Britain, and those that do choose non-agricultural jobs, the supply of farm workers in Britain declines. In Britain, as in the United States, reluctance to offer higher wages leads to a shortage of willing workers. Only when British and American farmers offer higher wages will the labor shortages disappear.

Interestingly, the farmers in these two countries have adopted completely different approaches to dealing with the problem. While some U.S. farmers chose to avoid the immigration issue by offshoring their operations to Mexico, the British farmers lobbied the government to bring in more Ukrainian workers under a special scheme. How well do these two approaches address the agricultural labor problem in the two countries?

Discussion Questions

1. As observed by Julia Preston of the International Herald Tribune, what impact does the offshoring of farm operations have on the U.S. economy as a whole?

2. According to the Economist, what is the best way to provide incentives for immigrant workers to work hard? Why?

(How) Are Men and Women Different?

The subject of differences between men and women has always been a touchy one. Economist Lawrence Summers stepped down last year as president of Harvard, for example, after he touched off a firestorm by speculating that the differences between the achievements of men and women in academia might be due in part to differences in ability.

Suppose we posit that men and women are completely identical in their ability: or more specifically, that the distribution of ability is not dependent on gender. Even under such circumstances, there are two reasons that we might expect different outcomes among men and women: (1) institutional factors, such as discrimination, cause a woman to obtain a lesser outcome than a man of similar ability; or (2) women, for whatever reason, make systematically different choices than men, perhaps because their preferences are systematically different.

In a forthcoming paper in the Quarterly Journal of Economics, economists Muriel Niederle and Lise Vesterlund use an experiment to test the second hypothesis. Specifically, they split participants (usually college students) into groups of two women and two men. They then offered each of them a simple task: adding up series of five two-digit numbers. After a few rounds of practice, the participants were given a choice. If they selected the "piece rate" option, they would earn $0.50 for each correct calculation they made, no matter how the others in their group performed. If they selected the "tournament" option, they would earn $2.00 for each correct calculation—but only if they had the most correct calculations in the group.

What happened? About three-quarters of the men in the experiment chose the tournament option, compared to about one-quarter of the women. Indeed, most of the men who in fact had performed worst in the group chose the tournament option, and most of the women who in fact had performed best in the group chose the piece-rate option. In other words, mistakes were made by members of both genders: the men were too competitive, and the women chose the competitive option too seldom.

Niederle and Vesterlund conclude by saying:

It is generally agreed that ability alone cannot explain the absence of women in male dominated fields. In natural settings, issues such as discrimination, the amount of time devoted to the profession, and the desire for women to raise children may provide some explanation for the choices of women. However, in this paper we have examined an environment where women and men perform equally well, and where issues of discrimination, or time spent on the job do not have any explanatory power. Nonetheless we find large gender differences in the propensity to choose competitive environments… Much may be gained if we can create environments in which high-ability women are willing to compete.

Discussion Questions

1. If Niederle and Vesterlund's conclusion is correct, does this mean that "winner-take-all" competitions are inherently discriminatory against women? Why or why not? If they are, what, if anything, should be done to correct the situation?

2. Academia is one area in which there exists intense interpersonal competition for top jobs—for example, tenured positions at top universities. Steve Levitt of the University of Chicago recently called for the elimination of the tenure system. (Greg Mankiw responded that he's not surprised that Levitt, as a winner of the prestigious John Bates Clark Medal and co-author of the bestseller Freakonomics, places a relatively low monetary value on job security.) If we accept Niederle and Versterlund's conclusion, would eliminating the tenure system result in more women in academia, or fewer?

3. Many economists, when faced with a problem that some call a "market failure," like to recast the problem as one of "missing markets." For example, Ronald Coase famously showed that the problem of externalities could be resolved by allowing the affected parties to bargain with one another. Is there any way to recast the inefficiency shown in Niederle and Versterlund's experiment—i.e., the fact that women shy away from competition while men compete too much—as a problem of missing markets? If so, what market is missing?

California Freezing

Freezing temperatures destroyed significant portions of fruit and vegetable crops in California over the weekend of January 13. An article from the LA Times documents the cold snap's immediate impact on wholesale prices for citrus. The cold snap will be felt in other markets as well: an article in the Seattle Times assesses potential impacts on apple and pear prices, and a USA Today piece considers the fallout in the labor market for farmhands in California.

Discussion Questions

1. According to the LA Times article: "The freeze has left the nation with about 14 million 40-pound cartons of California navel oranges—less than half of what America would eat between now and next season…" The sharp reduction in the supply of navel oranges will cause prices to rise, but by how much? To what extent will consumers substitute away from citrus towards other fruits in response to higher prices? Is demand for navel oranges relatively unresponsive to price changes (less elastic), or will consumers simply switch from citrus to alternative fruits when prices rise (more elastic)?


2. As the LA Times article mentions, California is the major producer of navel oranges for domestic consumption and also exports a significant amount of fruit. Fruit distributors will try to import as much citrus as possible from places like Mexico and Chile. That is, the supply of citrus exports from the U.S. will plunge and the demand for citrus imports will rise. What do you expect to happen to world citrus prices?

3. The USA Today article notes that many California farmhands will be laid off in the wake of the freeze. What will happen to farmhand wages and employment levels in California? Given that undocumented migrant workers will not be eligible for unemployment insurance, what do you expect to happen in markets for low-skilled labor in other parts of the United States?

4. How, according to the Seattle Times article, is the reduction in citrus supply affecting the demand for apples and pears?

Are There Too Many Wal-Mart Jobs, or Too Few?

Policy proposals often address a problem that is visible. In many cases, there is a related problem that is not visible. Policy, like life, is fraught with tradeoffs. A proposal that helps the visible problem will in many instances make the hidden problem worse.

When Wal-Mart comes to town, it puts pressure on existing firms. Because of the new competition that they face, these firms may cut wages, particularly if unions had negotiated a wage higher than the market-clearing wage. To address this problem, politicians have proposed various measures designed to push up the wages and benefits that Wal-Mart has to offer its workers.

A recent op-ed in the New York Times nicely captures the corresponding hidden problem. After Mayor Daley overruled city council members who wanted to keep Wal-Mart out of Chicago because it did not offer a "living wage," 15,000 people applied for 400 jobs at a new Wal-Mart that opened on the city's west side. Their response shows the hidden problem: Many poor people can't find jobs that offer the wages and benefits that Wal-Mart pays. If the demand for labor slopes down, measures designed to force Wal-Mart and firms like it to pay higher wages will make this hidden problem worse. There will be even fewer of these jobs.

Discussion Questions

1. Consider two groups of workers mentioned above: (1) employees at Wal-Mart's competitors, and (2) workers who would not otherwise have a job, but who might get a job at Wal-Mart. What effect would policies that increase Wal-Mart's wages and benefits have on each of these groups of workers?

2. The line for jobs at Wal-Mart indicates that there are many people in Chicago who are either not working, or working at jobs that offer a less attractive package of wages and benefits. What policies, besides more Wal-Marts, could help to alleviate these problems?

3. According to the article, how might a lower-cost retail outlet help low-wage workers who don't work at Wal-Mart?

Innovation and Diffusion in Baseball

Managerial innovation often involves the use of new ideas that allow a firm to produce at a lower cost than rival firms and, in turn, earn higher profits. Yet, as word of profitable innovation diffuses, other firms will mimic the innovator until prices adjust and the innovator's initial cost advantage disappears. The labor market for baseball players at the turn of the 21st century offers an example of managerial innovation and diffusion. The innovator, according to Michael Lewis's Moneyball, was the Oakland Athletics headed by general manager (GM) Billy Beane. Beane was the first GM to make use of an idea that was formerly relegated to the realm of baseball stat geeks: the notion that on-base percentage is a much more important indicator of batting performance than baseball managers realized.

Let's assume that professional baseball teams earn more revenue when they win more games. In this case, profit-maximizing baseball teams will strive to maximize the production of wins while keeping the team payroll as low as possible. Winning requires scoring more runs than the opponent. We can think of batters as the run producers. A batter's value to a team is tied to his ability to produce runs and, by extension, wins.

Like any other productive resource, economic theory suggests batters should be paid according to their marginal productivity: that is, the amount their talents contribute to runs scored by the team. Of course, there is no way to measure this amount precisely. So summary statistics, such as batting average (the player's hits divided by at-bats), slugging percentage (the player's total bases divided by at-bats), and on-base percentage (the number of times a player reaches base divided by plate appearances) must be used. GMs must decide how to value each of the various batting attributes so as to acquire batters capable of scoring runs and winning games.

In a recent journal article, economists Jahn Hakes and Raymond Sauer (founder of The Sports Economist blog) show that, at the turn of the 21st century, player pay did not adequately reflect the contribution of on-base percentage to winning games. That is, in paying batters, GMs paid too little for on-base percentage and probably paid too much for other, somewhat less important attributes. Oakland's managerial innovation--emphasizing on-base percentage in the evaluation of prospective batters--exploited the inefficiencies in baseball's labor market and allowed Oakland to acquire players with high on-base percentages at a relatively low cost. As a result, the A's built a series of playoff contending teams but spent much less on payroll than clubs with a similar number of wins. Read the first few pages and the concluding remarks of the Hakes and Sauer article to find out more about the Oakland innovation and how its diffusion changed the labor market for ball-players.

1. According to pages 3 and 4 of the paper, what do batting average, slugging percentage, and on-base percentage measure? Compared to batting average, what additional information about a hitter's productivity does slugging percentage capture? What about on-base percentage? According to the authors, which measure, on-base percentage or slugging percentage, has a bigger impact on wins?

2. What do the authors conclude about the diffusion of Oakland's managerial innovation? Had the value that GMs placed on on-base percentage changed by the time Lewis's Moneyball was published?

3. Steven Levitt, co-author of Freakonomics, criticized Moneyball for over-emphasizing the role of batting and under-emphasizing the role of pitching in Oakland's recent success. Levitt argued that pitching generated most of the A's success. Remember, winning requires scoring more runs than the opponent. Part of a team's success in out-scoring opponents comes from the ability of its pitchers to keep the other team from scoring runs. During the 2000-2004 period, Oakland found a way to acquire inexpensive but productive offense and managed to assemble a stellar pitching staff. Do you think Oakland's offensive innovation helped free up the resources needed to acquire pitching talent?

4. What can the labor market for baseball players tell us about the labor market for corporate executives? Might boards of large corporations mis-price leadership attributes when they determine executive compensation? That is, do corporate boards overvalue certain characteristics of business leaders and undervalue other, potentially more important indicators of competence?

China's Demographic Dilemma

As growing numbers of elderly Chinese workers retire from the workplace to the mahjong table, China's pension system and labor markets are in for disruption.

Aplia Econ Blog readers know about the difficulties facing public pension systems in aging OECD countries (archived entry here). But the falling ratio of active Chinese workers to retirees highlights another dilemma: labor shortages and rising wages in China's labor-intensive manufacturing sector. A few months ago, Aplia Econ Blog examined a New York Times article detailing the demand-side contribution to rising wages in the Chinese labor market (archived entry here). A recent Times article explores the effects of an aging Chinese population on the supply side of the labor market.


1. China adopted a planned birth policy in 1979. The "one-child policy" made it very financially unattractive for parents to have more than one child. The planned birth policy significantly lowered the fertility rate (the average number of child births per woman of child-bearing age) in China's urban areas. How do China's population policies help to explain the looming pension and labor market dilemmas?

2. The article mentions that China's household registration system restricts internal migration. The planned birth policy had a much smaller impact on fertility rates in China's rural areas. As a result, many young workers reside in the countryside where average wages are below urban levels. How would abolition of the household registration system affect urban labor markets? Might relaxing internal migration restrictions (short of total abolition) relieve the pressure on wages in China's urban industrial centers?

3. Urban prosperity in China continues to widen the income gap between urban and rural Chinese. In the absence of any internal migration reforms, what will happen to income inequality as the ratio of workers to retirees continues to fall in urban areas?

4. According to the article, how will rising wages in China's urban areas affect industries in Vietnam, Bangladesh, and India? What will happen to America's yawning trade deficit with China if the aging urban population causes wages in China's manufacturing industries to rise?

Topics: China, Labor markets, Aging populations, Trade, Income inequality

Mexico Fights Back

The U.S. House of Representatives passed a bill last month that included provisions to build a 700-mile wall along the U.S.-Mexico border. The following news articles describe both the political and economic dimensions in this debate.

Mexico Fights Back as U.S. Proposes More Wall to Bar Immigrants
House Approves Immigration Bill

The falling wages of low-skilled workers in the United States is often attributed to an increase in the number of low-skilled immigrants to the United States. However, there are alternative explanations for the fall in low-skilled wages that have nothing to do with immigration.
A simple supply-and-demand model can provide us with valuable insight on the labor market and its relationship to immigration and capital. Consider the labor market for low-skilled workers. An increase in low-skilled immigrants would increase the supply of low-skilled labor and lower the wage of low-skilled workers in the United States. (Graph I)

However, suppose immigration has no effect on low-skilled wages. Is it still possible to observe a decline in low-skilled wages? Yes. The demand side of the labor market has as much, if not more, impact on wages than the supply side. Capital and technology can be substitutes for low-skilled labor. As the U.S. economy accumulates more labor-saving capital and technologies, the marginal product of low-skilled labor decreases. This causes the demand for low-skilled labor to fall and wages for low-skilled labor to fall as well. (Graph II)

At the same time, capital accumulation and technological innovation raise the marginal product of labor for high-skilled labor to operate and maintain the new machines and ideas. Hence, we expect wages for high-skilled workers to rise in the United States.

Discussion Questions

1. What effect would building a wall along the U.S.-Mexico border have on wages in the United States?

2. If low-skilled workers are displaced by capital (rather than immigration), then what policies should the government pursue?

3. Economists often use cost-benefit analysis to determine whether a policy is worth implementing. What are the costs of immigration imposed on taxpayers, households, and firms? What are the benefits?

4. Economists generally agree that the free trade of goods and services benefits both trading countries. If the free trade of output makes the world better off, does the free trade of inputs (labor) also make the world better off?

For more information on the economic analysis of immigration, you might want to check out the work of George Borjas, from Harvard University, and David Card, from University of California at Berkeley.