[Abstract] The aging economies facing secular labor shortage are bound to respond by admitting foreign labor or by adopting labor-saving technology. This paper proposes that inflows of regional foreign labor guides the adoption of automation. I develop a task-based framework, in which tasks are optimally allocated across robots, and domestic or foreign labor. Then, I semi-parametrically recover cross-factor substitution schedules from a series of commuting zone-level immigration elasticities on economic outcomes, which are estimated using a 1940 ethnic settlement pattern. The dynamic model predicts that immigration's impact on wages between 1980 and 2015 could be reversed by including effects from immigration-induced adjustments of automation. I find that low-skilled immigration alone reduces routine occupation native wage, but raises wages in the long run by retarding the adoption of automation, resulting in enhanced domestic welfare. Finally, I find that a universal basic income policy targeted to U.S. citizens will boost dependence on automation and foreign labor by upshifting routine occupation native wages.
The Effect of Low-skilled Immigration on Robotization
[Abstract] I examine whether low-skilled immigration entry into manufacturing, construction and agriculture im- pedes the adoption of automation using industrial robots. Firstly, I show that the Mariel Boatlift in 1980 significantly stifled the adoption of robots in Miami, relative to the control regions. Then, employing an industrial robot dataset for 1980-2015, I document that low-skilled immigration and robot deployment are negatively associated across developed countries, as well as commuting zones and occupational categories within the U.S. To explain these patterns, I develop a simple task assignment model, which predicts that a short-run wage drop triggered by immigration will nudge establishments to suppress the robotization in the long-run. Employing instruments from 1940 ethnic settlement patterns, I show that an inflow of 1,000 low-skilled foreign laborers reduces adoption of robots by 2.4 robots. The result suggests that restricting immigration will potentially lead to boosting automation, accompanied by unintended rising income inequality.
Does Immigration Impede Offshoring?:
Evidence from the U.K. Labor Markets (with Yajie Wang)
[Abstract] As globalization proceeds, workers from developing countries rush to developed economies for higher wages, while firms move out to developing countries for lower wages. This paper explore how immigration inflow affects offshoring of firms. Using the industrial level datasets in U.K. and instrumental variable strategy on the historical settlement pattern of foreign residents, we find that immigration inflow shrinks offshored employments. We find that offshoring significantly reduces routine occupation wages and that immigration inflow adversely affects non-routine occupation wages, but does not harm routine occupation wages, plausibly via impeding offshoring in the long run.
Work in Progress
Using Regional Aging Elasticities to Derive Optimal Taxation on Robots
[Abstract] This paper reassess the classic view which proposes that capital should not be taxed. I develop a task-based foundation of fiscal policy on autonomous machines, and derive an analytical formula of optimal tax rates for robots, characterized by elasticity of robot adoption with respect to regional aging. There exists an elasticity threshold, above which robots should be taxed. As a next step, I plan to estimate the elasticities using regional demographic aging statistics across the U.S. commuting zones. Using these figures to my formula will determine the optimal policy rate and welfare calculations.
Aging, Creative Destruction and the Fall of Economic Dynamism (with Xincheng Qiu)
Political Risk and Economic Negotiations
[Abstract] Uncertainty from influential political events (e.g. Presidential elections and na- tional referendums) potentially threaten the soft-landing of economic negotiations. I explore how a political risk influence the negotiation dynamics — players’ behaviors and the total effciency, employing a simple bargaining model with asymmetric information. I show that a small political risk could prevent future breakdown and shorten the expected duration of negotiations, enhancing the effciency. Moreover, the model predicts that a sharp compromise occurs just after the political event. Applying the model to the 2015 debt renegotiation in Greece helps explain its puzzling compromise after the national referendum victory. Evidences from laboratory experiments broadly support the model’s predictions.