Saturday, January 19, 2013

People or Places?

Something that bothers me about "development" and "regional" economics is the focus on places instead of people. I'll give three examples of what I mean by that and then come back to the unifying theme.

My first example is that a lot of development policy people like to use measures like GDP to measure who things are going in a country. Aside from generic problems with GDP, that makes sense if you care about the country itself and the people who live there at any given time, but not per se about the people. You can see why from this clever little example oft repeated by economists. Suppose a Mexican computer programmer moves to the U.S. to get a job. He gets an internship making $25,000, which is more than he made in Mexico, but less than the average American. By moving he dragged down the GDP of two countries even though he helped himself and had very little effect on everyone else (maybe negative, probably positive). If you care about countries he made two countries worse. If you care about people, one person gained and everyone else didn't care. So if you care about Mexicans you probably want a measure that sums up the income of all Mexicans instead of the GDP of Mexico.

A second example focuses on regions. A lot of Americans are upset by the urban decay in the D.C.-New York corridor. This New York Times article presents the concerns in broad terms, and gets across how they care concerns about the cities, not the people who live (or used to) live there. This city-centric gives you the sense that the people of these regions have not benefit from the enormous progress in America over the past fifty years. They have been forgotten, and ignored. But the story forgets to mention that many or most (depending on how you count) of the people of these cities moved to green pastures, so the decline of the cities didn't matter to them.

This table shows the population of the four large cities mentioned in the Times article today and what they would be if they "grew" like New York City. Since New York was in urban decline for most of the time since 1950 this is obviously a vast underestimate of how many people "escaped" the urban decline by moving.

Would-Be Population
Actual Population

But the lower bound is still 33% of people are living somewhere else. A more natural estimate, based on natural population growth for the country as a whole (ignoring immigration), is that the populations of these cities should have grown 78% to 6.7 million meaning that 62.6% of the would-be population escaped the urban decline by leaving.

My last example, which to my knowledge isn't discussed in the economics literature much, is from education economics. A lot of discussion about improving the quality of education in America focuses on finding or training better quality teachers so that we can get a better quality teachers into every classroom. Strategies for that range from better training, but most are skeptical of that because no one is willing to run an experiment test if teachers trained through their program are any better at teaching. The most politically charged strategy is to just fire bad teachers and continue hiring replacements until you find one that is good. This way you can ensure a minimum quality level for some share of the classrooms (see papers by Doug Staiger and Jonah Rockoff).

But there is another way to look at the problem, as above, that focuses on the students instead of the teachers. Instead of trying to put a good teachers in each classroom, treating the students in each classroom as fixed, you can think about moving students into better classrooms. Just like how people avoid poverty by leaving a dump like Baltimore to live in Houston, students can avoid having a bad teacher by moving from a bad classroom to a good one. Calibration of a simple model suggests that you can get 25% of the improvement on test scores from shifting kids as you could by recruiting better teachers, but you don't have to fire anyone or battle unions.

So by now the unifying theme is probably clear. It's that people when people are free to move around you don't have to worry much about the quality of cities, or regions, or classrooms, people will move to the good ones. The flip side is that when people can't move, because of immigration restrictions or because they are assigned a classroom, you are harming a lot of people by not allowing them to move around. Michael Clemens estimates the gains from removing barriers to immigration are substantially greater than removing barriers to free trade.

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