Comment on “Labor Mobility and East Asian Integration”

Abstract

Chia (2006) covers a full range of issues related to the international labor mobility (ILM) that is taking place in East Asia. The paper successfully reminds us that this phenomenon carries a history, and that it is activated by both classic and emerging factors. Chia introduces some approaches for orderly ILM that are being taken by various levels of international and regional institutions. The World Trade Organization, Asia–Pacific Economic Cooperation, and many regional trading arrangements (RTAs) have some clauses on ILM in agreements they have concluded, although most of them touch upon only cross-border flows of professional and skilled workers. Chia spells out various types of measures to further regional ILM and succeeds in identifying the capability of regional cooperation frameworks to affect the direction and magnitude of ILM in East Asia. The effectiveness of regional cooperation frameworks in affecting semiskilled ILM is pronounced in the case of the draft versions of Japan's RTAs with the Philippines and Thailand. The latest drafts of the two agreements incorporate the “movement of natural persons” as a “major element,” and address not only professional and skilled workers, but also semiskilled workers. The draft agreement with the Philippines refers to nurses and certified care workers, whereas the draft with Thailand touches upon Thai cooks and care workers. This policy change is truly remarkable in the sense that previously Japan had not shown any interest in the introduction of foreign semiskilled workers. It seems that the package deal approach of an RTA helps such a drastic policy change be realized, although Japan has not yet concluded bilateral agreements on the introduction of foreign unskilled or semiskilled workers with any countries. However, once the “movement of natural persons” is juxtaposed with other fundamental issues in an RTA, the costs and benefits accrued from all the issues appear to be smoothed out. The introduction of semiskilled workers to Japan might become more acceptable to the Japanese when the benefits accruing from liberalization in other issues in the RTA are taken into account. In this way, the framework of regional cooperation is surely facilitating ILM of not only professional and skilled workers, but also semiskilled workers into Japan. Another focal issue raised by Chia is the linkage between ILM and investment. Chia cites Tsai and Tsay (2004) and argues that there are a series of stages of development with different combinations of flows in ILM and foreign direct investment as shown in the first two columns of Table 1. Tsai and Tsay (2004) found that there is a tendency of low-income countries to import capital and to export labor, and that as per capita income increases, this tendency becomes less pronounced. Finally, when a country becomes richer, the country is more likely to export capital and to import labor. Chia interprets this evolution of combination of flows in ILM and foreign direct investment from the view point of the substitutable and/or complementary natures of labor and capital. Here, I propose an alternative interpretation. Assume a model with one product, two factors (labor and capital), and many countries where per capita income is positively correlated with the capital–labor ratio. Thus, a high-income country exhibits a high capital–labor ratio. In addition, assume the product is freely traded internationally, and international markets for labor (L) and capital (K) are completely liberalized. Consequently, the relative factor price will be equalized, and so is the capital–labor ratio (K/L). Without loss of generality, assume that the equilibrium capital–labor ratio is close to that of the middle income countries (K/L)M. Then, in the transition toward the equilibrium capital–labor ratio, the ratio of a high-income country declines whereas that of a low-income country rises. As a result, the pattern of factor movements along with economic development in Table 1 is reproduced. In other words, the pattern of factor movements might be a process of mean convergence in capital–labor ratios.