Long-term Unemployment and Perceived Marginal Value Product

Tyler Cowen and Bryan Caplan have been talking about the long-term unemployed and Zero Marginal Product workers. Cowen thinks the long-term unemployed have, or are perceived as having, zero marginal product, making them effectively unemployable, which is why employers won't even consider their applications. Caplan, on the other hand, says:

Put yourself in the shoes of an employer reviewing applications. What are you saying when you hastily toss an application in the trash? Consider the following possibilities:

1. "I perceive this applicant to be a ZMP worker."
2. "I perceive this applicant to have a MVP [EO: Marginal Value Product] below the wage we're offering."
3. "After a cursory glance at his application, I perceive this applicant to have a sufficiently high probability of having a MVP below the wage we're offering that collecting more information is imprudent."

My claim: #1 is a rare special case of #2, which is in turn a rare special case of #3. #3 is the generally correct story.

I think Caplan is right, as far as he goes. However, he misses that #3 is itself a rare special case of a fourth possibility: "After a cursory glance at his application, I perceive this applicant to have a sufficiently high probability of not being the highest MVP applicant that collecting more information is imprudent."

Consider that most applications are sent for a particular job position, either an existing position that has been vacated by a previous employee or a newly-created specific position. Most employers will be looking for the one best employee to fill that specific position. When that is the case, the employer can safely discard all applications that are unlikely to be that one best employee, even those applications that have a MVP higher than the wage offered.

The job application process is in this sense much like a tournament--only one can win. Indeed, tournament theory explains why the long-term unemployed are perceived to have lower MVP in the first place. Someone who has been unemployed for a long time has apparently lost a long series of application "tournaments." They are presumed to have lost because of a lack of skills and effort rather than a long streak of bad luck.

New Open Borders Website

A new website, Open Borders: The Case, started up a few weeks ago (ht Bryan Caplan). The site, run by one Vipul Naik, gathers many of the arguments for and against open borders in one place. Naik's viewpoint is clear-- he supports open borders, and much of the site is dedicated to various arguments for that position. The pages featuring arguments against open borders sometimes include counter-arguments, though not always. Despite his viewpoint, Naik seems to take a special interest in overcoming his own bias, even including a specific feedback form to let him know whether he's treating the other side fairly.

Some highlights:

• Doubling world GDP: Various studies have found that removing barriers to labor mobility would increase world GDP by at least 67% and possibly as much as 147%. [For comparison, world GDP increased about 67% from 2003-2010, and about 147% from 1993-2010. In other words, with open borders we could see an extra decade's worth of economic growth, bringing new meaning to the term "lost decade."]
• Competitive government: Free movement between US states allows Americans to "vote with their feet," putting a check on state and local government power. Open borders would do the same to national governments.
• The Gumball Video: Since I wrote my own response to Roy Beck's gumball video last year, I found it interesting to read Naik's response, which is somewhat more kind to Dr. Beck than I was.
• Interesting analogies: In making the moral case for open borders, Naik raises some interesting thought exercises, such as Starving Marvin, which asks whether it's right to use force to keep a starving man out of a grocery store; John and Julio, which asks what level of force is appropriate to keep a competitor out of a job interview; and the Drowning Child, which asks whether we can use force to prevent someone else from saving a drowning child.

On the whole, the site is still very new. Many of its pages are just short blurbs, especially in the list of objections. Bryan Caplan quotes also dominate quite a few pages; at times, you could be forgiven for thinking Caplan set up the site himself. But websites unfortunately don't spring forth fully formed from the internet ether, so hopefully both of those issues will fade away as the site matures.

The case presented is explicitly based on libertarian, utilitarian and egalitarian reasons to support open borders. Those with strong objections to one or more of those philosophies might not find the site as interesting as I did. Either way, the site certainly has the potential to become a valuable resource to anyone who wants to learn more about the issue, and I will definitely be keeping an eye on it as it grows.

The Libertarian Purity Test

Bryan Caplan, who blogs at EconLog, has a "Libertarian Purity Test" that I decided to take. Out of 160 points, I scored a measly 47, four points below his threshold for "medium-core libertarian." For scores between 31-50 points, he says, "Your libertarian credentials are obvious. Doubtlessly you will become more extreme as time goes on."

Some of the answers, especially in Part III, that he considers "libertarian," I would consider straight up "anarchist." I think libertarianism is distinct from anarchism in that libertarianism realizes there are some legitimate roles for government, while anarchism does not. While Caplan would consider a score of 160 a "perfect libertarian," I would consider that person an anarchist, not a libertarian. Otherwise, why the need for two separate words, other than branding?

Part I has 30 questions, and I answered "yes" for 25 of them. Below are the five questions for which I answered "no" for various reasons.

Are worker safety regulations too strict? I have no idea one way or the other. Back in my factory days, I remember safety was usually heavily emphasized, and I don't know how much of that was due to regulation or not. On the other hand, a heavy emphasis on safety seemed appropriate.

Does the Federal Reserve have too much discretionary power? It may, although I don't think it should follow some programmatic rule. On the other hand, I don't feel like I've researched "free money" theories adequately enough to be comfortable supporting them.

Should marijuana be legalized? If I was building society from scratch, I would probably make it mostly legal, and I think it at least should be allowed in certain medical situations with the same oversight as other prescriptions. On the other hand, I'm not persuaded by most of the arguments of the pro-legalization crowd; I think they tend to overlook path dependency.

Should all sex between consenting adults be legal -- even for money? Leaving aside the issue of prostitution, there are cases I believe where sex between consenting adults should not be legal -- for instance, between a police officer and someone they have under arrest.

Does the U.S. intervene too much in other countries? Perhaps, although there are also cases, such as Syria at the moment, where I think the US does not intervene enough.

Part II has 20 questions, and I answered "no" for 16 of them. Most of these questions take the form "Should we abolish X?" Although I believe many of these things should be curtailed, sometimes dramatically, I don't necessarily support complete abolishment. Some questions where I want to comment, including the four for which I answered "yes":

Should we abolish Social Security? Should we abolish Medicare? I think both of these programs would be dramatically improved through privatization and some kind of personal account scheme along the lines of the Chilean model. I'm sure progressives would call it abolishment, but I wouldn't. Privatization of these programs, which would ultimately move them completely off-budget since the personal accounts would pay for themselves, also allows me to answer "yes" to the two questions about reducing taxes and spending by 50%, when combined with some other reasonable cuts.

Would you abolish at least half of existing federal regulatory agencies? Yes, although this is mostly because I think we should consolidate many of the regulatory agencies to eliminate overhead.

Should immigration laws be abolished? I interpret this narrowly as laws regarding actual immigration. That is, I do not think governments have any business saying where people can live or work based simply on where they were born. On the other hand, I do think there is a role for border security, although I would prefer it to be far less intrusive and arbitrary than it currently is.

Should the Supreme Court strike down economic regulation as unconstitutional? While I'm tempted to say yes, I don't know enough about what would constitutionally be considered "economic regulation" to be comfortable actually saying yes. Constitutional law has some bizarre definitions from an economic viewpoint, like the tax/penalty distinction.

Part III has 14 questions, and I answered "no" for 12 of them. The two for which I answered "yes":

Should highways and roads be privatized? I'm not sure they all necessarily should, but in general I think we'd be better off with more privatized infrastructure.

Is it morally permissible to exercise "vigilante justice," even against government leaders? Certainly not always, and not in general. But in certain very narrowly-defined cases, I would say yes, it may be morally permissible. For example, most people probably consider Claus von Stauffenberg a hero, even though what he tried to do amounts to "vigilante justice" against a government leader.

Less Poor than Ever Before

This is old news, but I recently rediscovered the Brookings Institution's "Poverty in Numbers" report [PDF] thanks to Bryan Caplan. The results of their analysis are so stunning that they bear repeating.

In 2005, over 1,300 million people lived in extreme poverty, defined by Brookings (and the World Bank) as living on less than $1.25 a day. By 2010, that number had fallen to less than 900 million, and if trends continue, that will fall to less than 600 million by 2015. Considering that this is happening while the human race is adding about a billion people per decade, this should put an end to Malthusian fears of overpopulation once and for all.

Expressed as a percentage of the population, the trend is even more astonishing. In 1981, the global poverty rate was higher than 50%. In 1990, when the UN established the Millennium Development Goals, the poverty rate had fallen to 41.6%. The MDG target of 20.8% by 2015 was already met in 2008. According to Brookings, in 2010 the poverty rate was 15.8%, and if trends continue, that will fall to only 9.9% by 2015.

To put that another way, not only have we achieved the Millennium Development Goal of halving the global poverty rate seven years early, but we are on track to halve it again by the MDG's deadline.

Not only is the overall poverty rate falling, but poverty is falling in every region studied by Brookings. The slowest progress is in Sub-Saharan Africa, but even there we have reason for optimism. For decades, the number of poor in Sub-Saharan Africa just continued to grow. Since 2005, for the first time on record, the total number of poor in that region has fallen. Also for the first time on record, the Sub-Saharan poverty rate fell below 50% between 2005 and 2010. If trends continue, it will fall below 40% by 2015.

It's worth noting that this is not a pre-recession report painting an overly rosy picture. The result was released in January 2011, and these results are despite an extra 64 million people kept in extreme poverty by the Great Recession. As the report says, "if not for the financial crisis our results would be even more dramatic than they are."

To emphasize just how dramatic these results are, the global poverty rate is lower than at any other point in human history. There has truly never been a better time to be human.

The Train They Call the City of New Orleans

Bryan Caplan links to some sobering statistics from DHS. When it comes to deporting people, the US government distinguishes between "removals" and "returns." Removals are compulsory, while returns are voluntary. Caplan notes that "'voluntary returns' are about as voluntary as the payment of taxes." (More here.)

Year	Removed	Returned	Total	Comparison
2010	387,242	476,405	863,647	New Haven, CT (862,477)
2009	395,165	586,164	981,329	Tucson, AZ (980,263)
2008	359,795	811,263	1,171,058	New Orleans, LA (1,167,764)
2007	319,382	891,390	1,210,772	Hartford, CT (1,212,381)
2006	280,974	1,043,381	1,324,355	Maine (1,328,361)
2005	246,431	1,096,920	1,343,351	Jacksonville, FL (1,345,596)
2004	240,665	1,166,576	1,407,241	Hawaii (1,360,301)
2003	211,098	945,294	1,156,392	Buffalo, NY (1,135,509)
2002	165,168	1,012,116	1,177,284	Raleigh, NC (1,130,490)
2001	189,026	1,349,371	1,538,397	Milwaukee, WI (1,555,908)
2000	188,467	1,675,876	1,864,343	West Virginia (1,852,994)
1999	183,114	1,574,863	1,757,977	Charlotte, NC (1,758,038)
1998	174,813	1,570,127	1,744,940	Indianapolis, IN (1,756,241)
1997	114,432	1,440,684	1,555,116	Idaho (1,567,582)
1996	69,680	1,573,428	1,643,108	Virginia Beach, VA (1,671,683)

I, for one, am amazed at the level of deportations. Maybe I just haven't paid enough attention before now, but the numbers are truly sobering. The number of people we deport every single year is staggering. Caplan reproduces the data going back to 1980; the DHS has data going back to 1892. Here, I've decided to show the last 15 years, plus a state or city (MSA, actually) of comparable size to the number of people deported that year.

Now I'm aware that these people are by definition illegals, and many of them illegal for good reason. At the same time, many are not. Many of these people are business owners who would be employing Americans right now if we hadn't kicked them out of the country. Even those that aren't business owners would be creating jobs by increasing demand.

If there is anyone reading this who believes we really are better for having deported more than 20 million people over the last 15 years, answer me this. Why stop there? If deporting 863,000 people in 2010 was good for our economy and our country, why not also deport the 862,000 in New Haven? If deporting almost a million immigrants creates jobs for Americans, wouldn't deporting almost a million Connecticuters have the same effect?