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"And if we make the assumption (common in non-US macro) that the country in question is "small", which by definition means it has no effect on prices in the rest of the world, there is a simple answer. If that country alone opens its borders, then either: its wages (adjusted for housing costs, crowding etc.) fall to the rest of the world's level; or we get a corner solution where everyone moves there."

I think this is only correct if you assume homogeneous productivity among workers, which, in this particular case, is not a realistic assumption. Suppose the small country is a very high wage country. Living costs there will be high, even if there is very little regulation. The most visible reason is housing - building up is more expensive. Taxes would be high, at least in absolute terms. A low productivity worker might not find it advantageous to move there, even if he is allowed to do it.

Tiago: I'm always talking about *real* wages, which means adjusted for the cost of living, including housing.

Now it's true that people will differ in the percentage of their wages they will spend on housing (for a given price of housing). And those that spend less (like couples with no kids, or people who don't mind crowding as much) will be more likely to move to the high density locations. So we get a corner solution only in the sense that everyone like that moves to the high wage country. But where do the rest of the original inhabitants go? Do they all emigrate? Because they are worse off.

Nick: "But where do the rest of the original inhabitants go?" short answer on a busy afternoon: They stay in Ohio and vote Trump.

There is a subdistrict in Hong Kong that, for legal reasons, has uncontrolled packing, and it is very close to sardines flopping, in its economy.

It is a highly dense swarm of small shops that do odd manufacturing and service jobs for the large corporations in Hong Kong. So, the question you bring up is great, and there is a measurable scale effect available to almost answer it, some real sphere packing going on.

Jacques Rene: I think Stephen did a post recently, with data showing net emigration from Toronto of those born in Canada. That would be an example.

Matthew: I think I remember reading about extreme crowding for the urban poor in England a couple of centuries back. The poor in Hong Kong are presumably richer than them, but their relative price of housing, compared to other goods, will also be much higher. So if they spent all their wages on housing, they might even be poorer.

I've been thinking about this subject as time allows. Here are my current thoughts on the matter.

Wages are secondary to some other criteria. One obvious criteria is the object(s) that constitute wage-paid. It is easy to see that pay in yen would not be the same as pay in dollars. A second criteria could be found in a region that allowed borrowing, which might have higher wages than a region that shunned borrowing.

The results of labor (for which wages are paid) should also make a difference. If the results of labor is portable products, portability of the product should serve to balance wages between regions, complementing migration (as a method of labor (wage) balancing). If the results of labor is immovable products, migration of labor becomes the only balancing mechanism available to balance wages (excepting taxes). Skilled labor could be a third category of labor, finding improved expression when the population increases.

Having considered these wage influencing factors, I think a corner-solution would be a political choice. A government that printed (or borrowed) money year-after-year and spent consistently in one region (ignoring some regions) would tend to the corner solution.

I recently moved away from the "Silicon Valley" (more specifically south SF Bay Area between Palo Alto/Mountain View and San Jose). My complaints included increasingly long periods of high summer temperatures, drought, and water restrictions as well as crowding and worsening traffic (on more and more occasions I encountered trivial inconveniences such as difficulty finding parking at stores or public institutions outside walking distance, or going familiar places taking more and more time and observing inconsiderate driving and road rage incidents - small stuff, but together with the other issues it adds up to a diminished quality of life); but the main trigger was escalating housing cost. I had to move out of my long time residence, and found that area rents had gone up to almost 2X of what I had been paying; and I wasn't quite prepared to hand a whole paycheck minus food/gas/utilities and moderate savings allowance to a landlord (and I'm not talking about a mansion, but a SFH with one-car garage and one room used as a home office).

I heard many similar complaints from coworkers, and I know of quite a few acquaintances who made similar moves in the past year, or are planning to. These people as well as myself arrange remote/working from home deals or move to a "less hot" area where there is a corporate satellite office - others move farther away from the office to areas in the same metro with lower cost (or same after increases) housing cost, and then complain about long commutes.

This is all in an area where public transit is "OK" but not very good coverage wise (and IMO cannot be for everybody) so pretty much everybody commutes by car (in some cases by "shared economy" car rides - i.e. still car). Transit will not improve things overall - if you have a transit line you don't have to drive but can read, listen to music, etc., but the commute will take longer due to more transit stops (even if you are not in congested traffic). That's just how transit works - but social expectations are set by what "most people" (can) do.

I have found similar patterns in metropolitan area situations, also in Europe.

Roger: yes, if all goods (and services) can be transported anywhere at zero transportation cost, then migration doesn't matter. We can live and work anywhere, teletransport in our labour services, and teletransport in anything we want to consume. Migration is not needed, as long as we have free trade. And the big non-transportable consumption good is housing services (or the land on which it is built). And labour services may or may not be transportable ("can I work from home?")

cm: that sounds much like what I had at the back of my mind. Housing costs are the big one. But the one important thing I left out of my model is commuting between home and work. It gets costlier with distance, and also with crowding (though with an inflection, because there's no roads and no buses where there's no people).

I don't think I could handle living anywhere near SF nowadays. It was OK in 1976. Southern England is pretty impossible too. So is Toronto. Ottawa is barely manageable. Think I might head even further up into the hills when I retire fully.

Nick: You can arrange a convenient deal (working from home etc. and being in the main office only a few days a week/month or even more occasionally if at all - also depending on whether it is in driving distance or flying/hotel stay are in the picture) if you have money/high-ish income, which strongly correlate with better working conditions and employers/principals being willing to make more accommodations. It doesn't work for most people, almost by definition (physical workplace attendance required either by the nature of the work or social supervision i.e. management not trusting workers to work if not under the whip or at least "peer surveillance").

As a subset of this, public sector or private companies catering to the public are very strongly correlated with physical presence either at the place of work or close by. From anecdotal evidence, my impression is that most employers in either the private or public sectors think nothing about contacting potential employees withing a 1-2 hours commute radius (at least) - based on recruiting calls my household received.

In the company where I work (mostly not public facing product company catering to global business customers, i.e. not public facing office work), I see the follwing patterns:

* people coming to the office very early (like 6 AM) and leaving in the early afternoon to beat the commute traffic
* people with kids coming to the office after 8 AM (dropping kids to kindergarten/school), and leaving when kids need to be picked up
* people coming in 1-2 hours after "regular" commute hours and leaving later accordingly
* the previous category includes a lot of people commuting to the office from farther away, traveling after the peak morning/evening commute; this is probably the category of people with the longest office presence as both morning and evening commute peaks extend for hours
* in addition to all that, many people "work from home" (at least checking emails) outside regular office hours - but the work pays well even without overtime

Another dimension in the whole thing is offshoring - there are employee populations in Americas/Europe/ME/PAC (and close time zones), and meeting schedules accommodating geographically distributed staff, which are at night or early morning for at least a subset of everybody.

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