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Labour  Migration  and  Domestic  Unemployment  Rates  Peter  Ng  

Dec  13th  2013    Introduction:  

 

  As  globalization  continues  to  ease  and  increase  flows  of  migration,  there  is  an  

increasingly  heated  debate  on  the  positives  and  negatives  of  such  phenomenon.  One  

aspect  that  is  often  discussed  in  political  circles  and  the  media  is  migration  and  

unemployment.  Some  will  argue  that  long  run  unemployment  rates  in  labour  

sending  states  will  diminish  as  return  migrants  pick  up  new  skills,  knowledge  and  

experience,  thereby  providing  upwards  mobility  and  easing  reliance  on  low-­‐skilled  

jobs.  Others  however  assert  that  migration  must  be  reduced  if  stopped  all  together  

as  it  supposedly  increases  the  unemployment  rates  of  labour  receiving  states  as  

natives  “lose  out”  to  migrants.      

Thus,  this  paper  will  examine  the  literature  and  evidence  for  both  claims  and  

will  determine  the  correlation  (if  any)  between  international  low-­‐end  labour  

migration  and  its  effects  on  domestic  unemployment  rates.  Drawing  on  cases  

studies  from  Pakistan  and  Japan,  we  will  first  find  that  there  is  no  significant  

positive  effect  to  be  found  on  domestic  unemployment  rates  in  labour  sending  

states.  Then,  by  examining  the  literature  and  the  cases  of  the  U.K,  the  EU  

(specifically  Spain)  and  Australia,  we  will  see  that  worries  about  migrants  edging  

out  natives  in  the  workforce  are  unwarranted  and  not  supported  by  the  evidence.  

By  the  end  of  this  paper,  we  should  be  able  to  refute  the  popular  arguments  made  on  

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both  the  merits  and  hazards  of  labour  migration  made  by  policy  makers  and  the  

media.  

 

Labour  Sending  States:  

 

Pakistan:  

 

The  governments  of  labour-­‐exporting  countries  typically  believe  that  the  

national  gains  from  emigration  outweigh  the  costs.  This  is  not  only  because  of  the  

remittances  but  because  it  is  believed  that  outward  labour  migration  can  be  a  safety  

valve  for  unemployment  and  underemployment  (Athukorala  19).  The  first  case  we  

will  examine  is  Pakistan  who  has  been  a  major  labour  supplier  to  the  Middle  East  

since  the  mid  1970’s  (Arif  99).  According  to  the  human  capital  perspective,  the  

ability  to  find  employment  is  potentially  made  easier  by  the  acquisition  of  new  skills  

and  savings  (for  business  startup).  However,  as  we  will  see,  the  human  capital  

perspective  is  not  supported  by  the  evidence  and  we  find  higher  unemployment  

rates  among  return  migrants  than  non-­‐migrants.  

  This  is  true  for  a  few  reasons.  First,  the  majority  of  Pakistani  migrant  

workers  in  the  Middle  East  are  employed  in  low  skilled  jobs  (Arif  102)  which  means  

they  gather  few  useful  technical  and  relevant  skills  upon  their  return.  Second,  the  

responsibility  for  finding  employment  is  on  the  individual  returnee  migrant  worker  

(Arif  101)  which  raises  a  few  concerns.  First  is  the  fact  that  returnees  are  accustom  

to  earning  relatively  higher  wages  and  better  working  conditions  thus  making  them  

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initially  hesitant  to  accept  the  poorer  standards  found  back  home  (Arif  103).  Second,  

is  the  fact  that  local  employers  are  also  not  keen  on  taking  returnees  because  of  

their  expectation  of  higher  wages  and  better  conditions  (Arif  103).  Therefore,  

instead  of  being  reabsorbed  into  the  workforce,  many  returnee  migrants  prefer  to  

live  off  their  savings  immediately  following  their  return  (Arif  103).    

Contrary  to  the  belief  espoused  by  the  human  capital  perspective,  

unemployment  rates  were  higher  among  Pakistani  migrant  returnees  than  non-­‐

migrants  (Arif  103-­‐4).  The  longer  stay  in  Middle  East,  the  harder  it  was  to  find  

employment  at  home  while  the  longer  the  period  since  return,  the  easier  it  was  to  

find  employment  (Arif  104).  Table  2  shows  the  comparisons  made  by  Arif  which  

clearly  indicate  that  across  different  studies,  times  and  variables,  unemployment  

rates  among  returnees  were  significantly  higher  than  non-­‐migrants.    

 

The  comparisons  between  returnees  and  non-­‐migrants  was  restricted  to  

those  who  had  been  back  in  Pakistan  for  at  least  18  months;  the  assumption  being  

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that  reabsorption  into  the  labour  force  should  be  fairly  quick  since  they  do  not  have  

to  undergo  a  period  of  socialization  and  the  fact  that  95%  of  respondents  in  the  ILO  

survey  had  worked  in  a  local  labour  market  before  leaving  (Arif  106).  Thus,  even  

with  an  18  month  to  five-­‐year  time  period  of  return,  unemployment  rates  among  

returnees  was  substantially  higher  than  non-­‐migrants.  Finally,  it  was  discovered  

that  only  a  small  proportion  of  unemployed  returnees  desired  to  be  self-­‐

employment  which  likely  indicates  that  they  were  unable  to  accumulate  sufficient  

savings  (Arif  119)  to  start  up  their  own  business.  

 

Japanese  Trainee/Intern  Program:  

 

Since  the  early  1970’s,  there  has  been  a  gradual  tightening  in  Japan’s  labour  

market  as  rapid  decline  in  fertility  resulted  in  a  decline  in  domestic  labour  force  

growth  from  over  2  per  cent  in  the  1960s  to  just  over  1  per  cent  in  the  1980s  

(Athukorala  31).  Furthermore,  expansion  in  the  service  sector  tended  to  create  a  

negative  perception  of  3D  and  dead-­‐end  jobs  (Athukorala  31).  As  the  domestic  

labour  supply  becomes  less  elastic  and  increases  in  income,  natives  tend  to  shun  

jobs  at  the  bottom  end  of  the  skill  and  wage  distribution  (Athukorala  29).  Further  

complicating  the  matter  is  the  fact  that  foreigner  workers  are  categorized  by  socially  

constructed  racial  groups  as  south  and  southeast  Asian  trainees  and  interns  are  

constrained  to  dangerous  jobs  with  low  pay  and  frequent  harsh  treatment  (Belanger  

et  al  32).  

  In  the  case  of  the  Japanese  intern  program,  we  see  the  human  capital  

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perspective  again  whereby  labour  migration  is  justified  by  the  supposed  benefits  

and  skills  interns  will  take  back  to  their  home  country.  However,  in  the  reading  by  

Belanger  et  al,  we  see  this  is  not  the  case.  Trainees  were  only  assigned  repetitive  

tasks  that  would  only  serve  them  in  fast-­‐paced  production  lines  (Belanger  et  al  36)  

meaning  they  did  not  acquire  useful  skills.  As  for  the  supposed  increased  savings  

to  be  used  for  business  startup,  the  high  pre-­‐departure  fees  and  recruitment  and  

employment  practices  can  seriously  cut  into  migrants  savings  (Belanger  et  al  49).  

In  Japan,  migrant  workers  either  fill  niches  in  the  service  sector  or  work  in  

occupations  lowly  regarded  by  Japanese  workers  (Athukorala  35).  

 

Labour  Receiving  States:  

 

United  Kingdom:  

 

Trade  unionists  and  the  mass  media  often  present  concerns  about  inward  labour  

migration  as  jobs  are  supposedly  lost  to  migrant  workers  (Athukorala  19).  This  

results  in  governments  restricting  the  inflow  of  migrants  to  minimize  (perceived  or  

real)  adverse  effects  on  domestic  employment  (Athukorala  19).  The  UK  has  seen  an  

increase  in  migrants  since  the  turn  of  the  millennium  which  coincides  with  changes  

in  immigration  policy  and  the  relative  attractiveness  of  the  UK’s  economic  position  

(Blanchflower  and  Shadforth  137).  Because  of  the  increase  of  inwards  migration,  

Blanchflower  and  Shadforth  examine  the  literature  on  migration  and  domestic  

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unemployment  and  while  they  find  no  evidence  of  increased  unemployment,  they  

do  find  increases  of  the  fear  of  unemployment.  

  First,  a  study  done  by  Dustman  and  Fabbri  (2005)  which  used  data  from  the  

1983-­‐2000  Labour  Force  Surveys  found  that  an  increase  in  immigration  amounting  

to  1%  of  the  native  population  decreased  the  native  employment  rate  by  0.07%  

(Blanchflower  and  Shadforth  173).  Their  main  findings  were  that  there  was  little  

evidence  of  negative  effects  for  natives  on  wages  and  unemployment  which  is  

consistent  with  findings  for  the  US  and  elsewhere  (Blanchflower  and  Shadforth  

173).  Longhi  et  al  (2006)  used  165  estimates  from  nine  studies  for  various  OECD  

countries  and  found  that  a  1%  increase  in  the  number  of  migrants  resulted  in  a  

0.02%  increase  in  the  unemployment  rate  with  the  impact  on  existing  migrants  

being  slightly  higher  at  0.05%  (Blanchflower  and  Shadforth  173-­‐4).  

Manacorda  et  al  (2007)  attempt  to  explain  the  negligible  impact  of  migrants  

on  native  employment  by  stating  that  they  are  imperfect  substitutes  in  the  UK,  an  

idea  that  was  already  reported  in  Ottaviano  and  Peri  (2005)  for  the  US  

(Blanchflower  and  Shadforth  173).  Manacorda  et  al  also  found  that  the  elasticity  of  

aggregate  labour  supply  in  the  UK  is  close  to  zero  (Blanchflower  and  Shadforth  173)  

and  that  regions  with  most  migration  from  Eastern  Europe  tended  to  see  the  

smallest  rises  in  their  unemployment  rates  (Blanchflower  and  Shadforth  176).  This  

could  be  because  multiple  studies  have  found  that  increases  in  migration  often  lead  

to  decreases  in  the  natural  unemployment  rate.    

Katz  and  Krueger  (1999)  found  that  recruitment  agencies  for  temporary  

workers  can  contribute  to  a  decline  in  the  natural  rate  of  unemployment  

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(Blanchflower  and  Shadforth  175).  Shimer  (1998)  found  in  the  case  of  the  US  that  

the  declining  natural  rate  of  unemployment  was  a  result  from  bringing  in  a  group  of  

people  (migrants)  who  have  a  higher  than  average  propensity  to  seek  employment  

(Blanchflower  and  Shadforth  175).  Finally,  Blanchflower  and  Shadforth  also  found  

that  the  inflow  of  A10  (EU  Accession  Countries)  migrants  had  reduced  the  natural  

rate  of  unemployment  in  the  UK  (Blanchflower  and  Shadforth  176).  Similar  

conclusions  on  the  impact  of  the  EU  Accession  Countries  movement  on  

unemployment  were  drawn  by  Wadensjo  (2007)  in  Sweden  and  Hughes  (2007)  in  

Ireland  (Blanchflower  and  Shadforth  158).  

  As  stated  earlier,  trade  unionists  and  the  mass  media  can  often  serve  to  

spread  inaccurate  ideas  about  migration  and  its  effects  on  domestic  unemployment  

rates.  In  the  case  of  the  UK  and  Ireland,  both  have  seen  increases  in  migration  with  

the  an  upper  estimate  of  800,000  in  the  UK  by  late  2007  (Blanchflower  and  

Shadforth  149)  and  213,000  from  2002-­‐2006  in  Ireland  (Blanchflower  and  

Shadforth  171).  Consistent  with  the  increased  migration  was  an  increase  in  the  fear  

of  unemployment,  likely  spurred  on  by  the  A10  arrivals.  

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Figure  1  shows  the  difference  between  the  expected  unemployment  rate  and  

the  actual  unemployment  rate  in  the  UK  while  Figure  2  shows  the  same  variables  in  

Ireland.  In  both  cases  there  is  a  stark  contrast  between  the  expected  and  actual  

unemployment  rate  being  at  the  turn  of  the  millennia.  If  we  look  at  Figure  2,  we  a  

dramatic  increase  in  the  fear  of  unemployment  leading  up  to  accession  of  the  A8  in  

2004  and  another  spike  preceding  the  accession  of  the  A2  in  2007.  This  fear  of  

unemployment  will  be  continued  in  the  following  example  of  Spain  and  serves  to  

illustrate  the  dichotomy  between  popular  sentiment  and  reality  on  the  effects  of  

migration  on  domestic  unemployment.  

 

EU  –  Spain:  

 

The  next  case  we  will  examine  is  intra-­‐EU  labour  migration.  A  report  from  

the  CEPS  (Centre  for  European  Policy  Studies)  use  data  from  2007-­‐2012  and  

examines  the  movement  of  the  EU-­‐2  (Bulgaria  and  Romania)  to  determine  the  

positive  and  negative  effects  of  labour  migration  on  the  region  (Guild  and  Carrera  

2).  The  report  found  that  EU-­‐2  mobility  boosted  aggregate  GDP  in  the  EU  by  about  

0.2%  in  the  short  term  and  more  in  the  longer  term  with  Spain  seeing  an  increase  of  

+1.7%.  (Guild  and  Carrera  7).  The  effects  of  migration  on  unemployment  were  found  

to  be  negligible  with  the  calculable  impact  in  the  region  increasing  unemployment  

by  0.02%  in  the  short  term  and  none  in  the  long  term  (Guild  and  Carrera  7).  

More  specifically,  the  report  examines  the  case  of  Romanian  migrant  workers  

in  Spain  (which  is  a  favoured  destination  of  Romanian  workers  moving  within  the  

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EU)  (Guild  and  Carrera  9).  In  July  of  2011  Spain  attempted  to  place  restrictions  on  

Romanian  migrant  workers  (Guild  and  Carrera  8).  The  basis  for  the  restrictions  was  

in  response  to  the  serious  volatility  found  at  the  time  in  the  Spanish  labour  market,  

specifically  the  drastic  fall  in  employment  levels  following  the  2008  recession  (Guild  

and  Carrera  9).  The  discrepancy  between  empirical  evidence  and  political  action  is  

important  to  discuss  because  of  the  real  policy  implications  the  case  had.  The  fact  

that  Spain  had  had  their  debt  crisis  (and  subsequent  20%+  unemployment  rates)  

well  underway  by  2011  (as  it  started  in  2008)  but  only  chose  three  years  later  to  act  

against  Romanian  workers  in  an  emergency  fashion  (Guild  and  Carrera  9)  is  

puzzling.  Even  more  fascinating  than  their  late  response  was  the  fuss  made  about  an  

increase  in  unemployment  of  0.02%  in  the  short  term  in  exchange  for  an  increase  in  

aggregate  GDP  of  1.7%.  This  seemingly  out  of  proportion  response  goes  to  show  

how  general  misconceptions  about  migration  and  economic  instability  can  lead  to  

unwarranted  criticism  and  real  restrictive  policy  implications  for  migrant  workers.  

 

Australia:  

 

  Our  last  example  is  the  case  of  Australia  by  Withers  and  Pope.  The  mid  

1970’s  saw  a  dip  in  net  migration  levels  as  Labor  Party  Policy  worried  about  high  

unemployment  and  job  competition  coming  from  migration  as  it  was  thought  that  

increased  immigration  during  a  recession  only  adds  to  unemployment  and  displaces  

native  workers  (Withers  and  Pope  554).  Withers  and  Pope  however  this  policy  to  be  

unwarranted.  While  they  found  a  highly  significant  relationship  for  unemployment  

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causing  migration,  causality  from  migration  to  unemployment  was  uniformly  

rejected  (Withers  and  Pope  557).  Overall,  immigration  did  not  significantly  affect  

structural  unemployment  while  for  cyclical  unemployment  it  was  found  that  

migrants  created  at  least  as  many  jobs  as  they  filled  (Withers  and  Pope  562).  

Overall,  they  found  that  immigration  had  neither  positive  or  negative  effects  on  

domestic  employment  rates,  even  during  the  recessionary  period  of  the  mid  1970’s  

(Withers  and  Pope  562).  As  with  the  cases  of  the  UK  and  Spain,  Withers  and  Pope  

found  that  since  migrants  add  to  aggregate  expenditure,  the  question  should  be  

whether  or  not  inflows  of  migrants  add  more  to  demand  or  supply  (Withers  and  

Pope  554).  

 

Conclusion:  

 

  This  paper  has  illustrated  the  dichotomy  between  popular  sentiment  of  

labour  migration  and  the  empirical  evidence.  From  the  perspective  of  labour  

sending  states  it  is  often  argued  from  the  human  capital  perspective  that  return  

migrants  acquire  skills  and  savings  from  working  abroad  that  can  make  finding  

employment  and  starting  their  own  businesses  easier.  However,  in  both  the  case  of  

Pakistani  migrant  workers  and  the  Japanese  trainee/intern  program,  we  see  that  

migrants  are  often  restricted  to  3D  low  skilled  dead  end  jobs  which  limits  their  

upwards  mobility.  In  particular,  Pakistani  return-­‐migrants  were  found  to  have  

higher  unemployment  rates  because  of  their  expectation  of  relatively  higher  wages  

and  better  working  conditions.  Furthermore,  return  migrants  cannot  usually  

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acquire  sufficient  savings  to  invest  in  personal  business  startup  either  because  the  

overseas  wages  are  not  as  high  as  they  thought,  or  because  of  the  mandatory  fees  

that  are  owed  to  middlemen  and  recruitment  agencies.  In  short,  it  does  not  appear  

as  though  outwards  labour  migration  has  any  positive  effect  in  the  long  run  on  

unemployment.  

  From  the  perspective  of  labour  receiving  states,  criticism  is  often  directed  at  

migrants  by  the  media,  trade  unionists  and  governments  who  posit  that  increased  

migration  leads  to  job  competition  and  subsequent  increases  in  native  

unemployment.  However,  studies  done  in  the  UK,  the  US,  various  OECD  countries,  

the  EU  and  Australia  all  reject  increased  migration  resulting  in  any  significant  

increase  in  domestic  unemployment.  Instead,  increased  migration  can  actually  

decrease  the  natural  unemployment  rate  as  migration  brings  in  individuals  who  

have  a  higher  propensity  to  be  employed.  

We  also  saw  how  popular  opinion  of  migrants  can  lead  to  real  policy  

implications  such  as  the  restriction  of  Romanian  workers  in  Spain.  The  out  of  

proportion  response  of  the  restriction  relative  to  the  impact  of  Romanian  migrants  

and  the  already  ballooning  unemployment  rate  that  had  begun  three  years  prior  

illustrates  the  problem  of  the  fear  of  unemployment.  This  fear  was  echoed  in  both  

the  UK  and  Ireland  who  both  saw  spikes  in  the  fear  of  unemployment  following  

(expected)  increased  migration.  Hopefully  this  paper  has  clarified  the  many  

misconceptions  about  the  positives  and  negatives  of  labour  migration  and  its  effects  

on  domestic  unemployment  rates.  

   

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Works  Cited    

Athukorala,  Prema-­‐chandra.  "International  Labour  Migration  in  East  Asia:  Trends,  Patterns  and  Policy  Issues."  Asian-­‐pacific  Economic  Literature.  20.1  (2006):  18-­‐39.  Print.      Arif,  GM.  "Reintegration  of  Pakistani  Return  Migrants  from  the  Middle  East  in  the  Domestic  Labour  Market."  Pakistan  Development  Review.  37.2  (1998):  99-­‐124.  Print.      Belanger,  Daniele  et  al.  “From  Foreign  Trainees  to  Unauthorized  Workers:  Vietnamese  Migrant  Workers  in  Japan.”  Asian  and  Pacific  Migration  Journal  20,  1  (2011):  31-­‐53.      Blanchflower,  David  G,  and  Chris  Shadforth.  "Fear,  Unemployment  and  Migration*."  The  Economic  Journal.  119.535  (2009).  Print.      Guild,  Elspeth,  and  Carrera,  Sergio.  “Labour  Migration  and  Unemployment  What  can  we  learn  from  EU  rules  on  the  free  movement  of  workers?”  CEPS  ‘Liberty  and  Security  in  Europe’  (2012).  Print    WITHERS,  GLENN,  and  DAVID  POPE.  "Immigration  and  Unemployment."  Economic  Record.  61.2  (1985):  554-­‐564.  Print.