A provocative recasting of how we could think about foreign aid is buried deep down near the end of a new paper on "The Globalization of Household Production." (Thanks to Tyler Cowen's Marginal Revolution for the tip.) Authors Michael Kremer and Stanley Watt suggest that if the United States had a temporary foreign worker program for private household workers "the size of Hong Kong or Singapore's and if each worker saved or remitted $5,000 annually, which seems conservative if the program were explicitly temporary, total savings and remittances to developing countries would be approximately $40 billion, four times as large as annual U.S. official development assistance."
That's $40 billion that would not be siphoned off by corrupt government officials or be subject to the fickle whims of Congress. It would go straight from the wages of domestic helpers in the U.S. to their families in much poorer countries.
It's an intriguing thought, though hardly the main subject of Kremer and Watt's paper, which is to analyze the economic impact of increasing the number of foreign domestic helpers -- nannies, housekeepers, cooks -- on a given society. Typically, critics of low-skilled immigration (legal or illegal) argue that it hurts the wages of low-skilled natives without benefiting the society as a whole enough to make a real difference. But Kremer and Watt argue that this is not true in the case of private domestic help (which, in the developed world, is very rarely performed by native workers).
Their analysis goes as follows: Domestic helpers allow high-skilled native women to increase their participation in the workforce. (This is even true for high-skilled women who would otherwise be sending their children to daycare, because, as anyone who has been through the daycare mill knows, it's not much help when kids are sick.) Kremer and Watt say that the addition of more high-skilled women to the workforce has the double effect of lowering high-skilled wages (because of the increase in supply) and raising low-skilled wages (because of some complicated math that I don't understand). There's also, they argue, a significant added benefit to society of the tax revenue generated by all that additional high-skilled labor.
"To the extent that migration of foreign private household workers leads high-skilled natives to increase labor supply to the market, wage inequality among natives is reduced," write Kremer and Watt. "The increase in labor supply of high-skilled workers leads to a decline in their relative wage and an increase in the relative wage of complementary low-skilled native labor. By allowing women to work more flexible hours, foreign private household workers may also reduce gender disparities among high-skilled natives and help eliminate the glass ceiling."
Kremer and Watt make much of this increase in the relative wages of native low-skilled workers to those of high-skilled workers, which perplexed me, because I haven't heard the debate over the effects of immigration on native wages characterized as pertaining to income inequality, but rather to the supposed direct negative impact of immigration on the wages of low-skilled natives.
But the larger thrust of Kremer and Watt's argument is to encourage the expansion of immigration of private household workers because of its potential to alleviate poverty in the developing world, without simultaneously hurting workers in the developed world. Thus they conclude:
"Poor workers in developing countries would be better off in the absence of immigration restrictions in the rich world. However, they are better off under private household worker programs than they would be either under the draconian immigration restrictions that characterized the rich world for much of the 20th century or under the current trend toward selectively encouraging migration by highly-skilled workers. Foreign private household workers programs would not end the system of international apartheid that keeps the world's poor walled off from the rich. But they would open a crack in the wall."
UPDATE: A Filipina woman raised in the U.S. by Filipina nannies adds her illuminating two cents.
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