MigrationŁukasz Byra

Demography

December 21, 2018

Plan of the lecture1. Complexity of immigration

2. Not everyone likes immigrants

3. Why do people migrate?

4. The effects of migration on source and destination countries: a classical approach

5. New Economics of Labor Migration

6. Migration of skilled labor

Complexity of immigration

Definition of migration: UN (1998) proposal• International migrant – any person who changes his or her usual place of

residence (a person’s country of usual residence is that in which the person lives, where the person normally spends the daily period of rest).

• Exclusions: international visitors

• Long-term migrant – a person who moves to a country other than that of his or her usual residence for a period of at least 12 months.

• Short-term migration – a person who moves to a country other than thatof their usual residence for a period of at least 3 months but less than a year(12 months) (excluding a movement for the purposes of recreation, holiday, visits to friends and relatives, business, medical treatment or religiouspilgrimage).

Why are economists interested in studying migration?• The economists’ perspective Migration as a movement of factors of production Migration as the optimal decision of rational individuals

• The size of migration Currently, over 200 million people (3% of the world’s population) live

outside their country of birth If the trend continues, within a generation the share of people living

outside their country of birth will increase to 4-5%

• In OECD countries Currently over 115 million (10%) people living in OECD countries are

immigrants

The complexity of immigration• Migrants as factor of production

• Migrants as consumers

• Migrants as carriers of knowledge

• Migrants as aliens that provoke cultural clashes

Many factors discourage immigration• Direct and opportunity costs

• The costs of losing social capital

• The cost of discrimination in the labor market

• The cost of being separated from family and friends

• Fear of the unknown

• The role of immigration policy

What has changed during past 200 years?• Rapid technological progress drastically decreased travel

costs and dangers of long voyage

• Uneven economic growth led to large income differences between countries

• The development of means of communication made people more aware of the income differences between countries

• Population growth in developing countries caused an increase in the supply of labor force in those countries

Migration flows do not depend linearlyon the prevailing wage differencesbetween countries• Migration is costly and takes time, so most people from the poorest countries

cannot afford it

• People from the poorest countries rarely know the language of the receiving country and do not possess skills needed to succeed in its labor market

• Many developed countries restrict in-migration of poorly educated people, who are vast majority in the poorest countries

The attitude towardsimmigrants

Jacques Chirac, Prime Minister of France: If there were fewer immigrants, there would be less unemployment, fewer tensions in certain towns and neighborhoods, and lower social costs.

Liberation Journalist: That has never been formally proven.

Jacques Chirac: It is easy to imagine, nevertheless.

- From an October 30, 1984 interview

Why does public opinion matter?• Migration policy is influenced by Theoretical research Empirical analysis Public opinion / political discourse / media

• There is a discrepancy between honest debate about challenges that arise from migration, and stereotypes spread in the political discourse

• The question of whether to manage the change is replaced by the question of how to manage it

• Integration of immigrants into the host society is of primary importance

Figure 1. Changes in the share of population concerned about migration in the UK, 1974-2009

Cource: IOM 2011

Table 3. Perceived and actual share of immigrants in the population of four countries in 2010

Country Perceived ActualItaly 25 7Spain 21 14US 39 14Canada 39 20Source: Transatlantic Trends 2010

Perceived and actual share of Muslim in the population of several countries in 2016

Figure 2. Correlation between unemployment rate and the share of population claiming that there are too many migrants; Australia, 1974-2010

Source: Markus (2011)

Figure 3. Share of respondents claiming that immigrants contribute significantly to the development of their country, 2006

Country %Sweden 79Netherlands 53UK 47France 44Italy 41EU 40Poland 33Germany 30Bulgaria 23

Figure 4. Share of respondents claiming thatthere are too many immigrants; Germany, 1984-2008

Source: Institut für Demoskopie Allensbach, cited in Abah, 2009.

Why do people migrate?

Why do people migrate? A classical approach• Migration as a response to spatial income differences

• Utility maximization is equivalent to income maximization

• Other reasons for migration are ignored, such as Family Reunion Refugees Political persecution Common religion Attractive culture

Why do people migrate? Equilibrium theories of migration• The attempts to explain migration solely by income differences have proven

to be unsatisfactory

• This gave rise to migration as a response to changes in Income Prices Supply of goods and services Amenities Utility functions

• The key role of amenities

Why do people migrate? The role of networks• Psychological, social, and information costs decrease with the presence in

the receiving country of Family People of similar culture People of the same origin

• Kinship network is the family living abroad

• Migrant network are the people of similar culture or of the same origin living abroad

Why do people migrate?The role of networks • Access to networks can greatly facilitate effectiveness of migration through: Lower cost of job search / accommodation / child care Lower vulnerability to extortion / fraud / crime Reduction of stress

• Under the assumption that migrant networks reduce costs of migration, migration costs are a decreasing function of the size of previous migration

Why do people migrate?The push-pull theory• Negative factors that push people to emigrate

• Positive factors that pull immigrants to the destination country

• Positive factors that induce people to stay at home

• Negative factors that induce people to stay away from a foreign country

• Migration costs

Why do people migrate?The push-pull theory

Source country

Push factorsFamine, poverty, low wages,

unemployment, overpopulation, high taxes, discrimination, religious

persecution, civil war, violence and crime, forced military service, social

immobility

Stay factorsFamily ties, friendships, social status,

cultural familiarity, employment, property, familiarity, certainty,

political privileges

Costs of moving

Transport costs, dangers of the voyage, time of travel, lost income during move

Formal exit Formal entrybarriers barriersExit visa Entry visaExit tax Entry tax

Prohibition ProhibitionImprisonment Imprisonment

Penalties on Family Fines

Destination country

Pull factorsHigh wages, employment, property rights, personal freedom, law and order, peace, religious freedom, educational opportunity, social

mobility, low taxes, family reunion

Stay away factorsLanguage barriers, cultural barriers,

discrimination, low social status, unemployment, low wages, lack of

political rights, unfamiliarity, uncertainty, war, crime

?

The effects of migration on source and destination countries: a classical approach

The effects of immigration on the destination economy

• Neoclassical production function with constant returns to scale

• Perfectly inelastic supply of labor

• Perfect competition

• Capital Fixed Variable

Destination country: Fixed capital

Earnings

Employment

Destination country: Fixed capital

Earnings

Employment

Gain to immigrants

Immigration surplus(gain to capital owners)

Loss to native workers = gain to

capital owners

Destination country: Variable capital

Earnings

Employment

Destination country: summary• Conclusions depend on capital flows

• With fixed capital: Wages decrease Significant redistribution effects (part of the labor income

becomes the capital income) Small, as compared to the GDP and redistribution effects,

gains from immigration surplus

• With variable capital: Capital flows cause instantaneous return to pre-migration

state (with larger labor force and capital stock)

Destination country: empirics• The gains from immigration in the US in the 80s were between $1 and

$10 billion annually; a small fraction of the US GDP (National Research Council)

• 10-percent increase in immigration will cause US GDP increase of 0.2% (Freeman 2006). Owners of capital gain 4.2%, and native workers lose 4%

• Some researchers (Borjas 1995, Borjas et al. 1997, Johnson 1997) ran complex computer simulations, vulnerable to the values of parameters. In each simulation, the impact of immigration on the destination country was very small

Source country: fixed capital

EmploymentEmployment

Earnings Earnings

Source country Destination country

Source country: the effect of the adjustment in the demand for labor

Earnings

Employment

Source country: The effect of transfers

Employment

Earnings

New Economics of Labor Migration

New Economics of Labor migration –The role of the family• It is often the case that migration decisions are made by family

• If we assume that the decision to migrate is indeed made by the family, we can study: The allocation of household’s resources Risk management

• Empirical data seem to support that the observed pattern of transfers from abroad can be better explained as an intertemporal agreement between the migrant and his family rather than a result of his altruistic behavior

New Economics of Labor migration –The role of the family• The family does not disintegrate as a result of migration; the decision to

migrate is made by the family

• Migration is not an act of desperation; migration is an optimal strategy

• When studying migration, we are studying mutual dependence rather than individual independence

Migration as an innovation –How fast does it spread?

• Individuals differ with respect to their endowments and preferences, thereby they react differently to the same prices, chances and changes in those. As a result, individuals self-select into migration

• One can look at migration as at a process of adoption and diffusion of innovation: how many potential migrants actually migrated with time? First, some individuals migrate (those who have certain characteristics) Then, the information from the host country reduces uncertainty and

prove that the first wave of migration was a success Subsequent waves of migration take place

• Within this context, the researchers are interested in how fast does the diffusion of migration as an innovation takes place, and what influences that speed

Does migration allow to manage risk?• Migration and risk management – an example:

• A farming household – two members with the following incomes:„A good year” -> 100 x 2 = 200„A bad year” -> 50 x 2 = 100What if the income necessary to secure basic needs is 150?Migration to a city?

• If the income in a city is perfectly negatively correlated with the income in a country, it is possible to fully eliminate risk

New Economics of Labor migration –Relative deprivation

• „A person may migrate from one location to another to change his relative position in the same reference group, or to change his reference group” (Stark and Bloom 1985: 173) -> income differences are not necessary for migration

• Relative deprivation – a situation where satisfaction derived from income is not merely a function of own (absolute) income, but also of the distribution of income in the reference group and own rank in that distribution

• Migration can be perceived as an activity aiming at changing own rank in the income distribution, or a consequence of unsatisfactory performance as compared to the reference group

Migration of skilled labor

What is brain drain?• This term was used first in the UK (by The British Royal Society)

when referring to the emigration of British scientists to US and Canada in 1950s

• Kwok and Leland (1982) use this term when referring to members of of professions that utilize human capital, and who leave their country of origin in search for better opportunities

• In general, the economists use the term „brain drain” when migration of skilled labor is from rather than to a country to which they are referring (Salt 1997)

• Why the outflow of skilled labor should be disadvantageous to the sending country? The importance of human capital for economic growth Different country takes advantage from and bares cost of education

The importance of human capital for economic growth• Predicted, based on the Solow growth model, convergence rate was too high

to reflect the reality

• The actually observed convergence rate aligned with the model’s predictions if it was assumed that the share of physical capital in creating output is around 3/4 rather than 1/3

• Such high share of capital is reasonable if one recognizes that this is a broad measure of capital that includes not only physical capital, but also human capital

The importance of human capital for economic growth

• The Solow model has been altered to account for human capital as a separate factor of production; as a result, the formula for the convergence rate has been altered as well

• Jorgenson, Gollop and Fraumeni (1987) estimated the share of human capital in creating output at 0.4-0.5, which, together with the share of physical capital at 1/3 returned the annual convergence rate at 2.1%

• Mankiw, Romer and Weil (1992) slightly modified the model, however their model returned the same formula for the convergence rate as that of Jorgenson, Gollop and Fraumeni

• Human capital has been recognized as a factor of production and utilized in growth models by such economists as Romer (1986, 1990) and Lucas (1988)

Different country takes advantage from and bares cost of education• In developing countries, education is usually financed by the state, not

directly by the individuals engaged in education

• The cost of education, which takes the form of taxation, is expected to be returned in the form of subsequent taxation of the educated worker

• When an educated individual migrates, the cost of his education is not repaid by means of subsequent taxation of that individual; the gains accrue to the destination country

The size of migration of skilled individuals

• Migration is selective by education level

• According to Docquier and Marfouk (2006), in 2000 34.6% of the stock of migrants are highly educated individuals, whereas the share of highly educated individuals in the world’s population is merely 11.3%

• Moreover, the share of highly skilled individuals among migrants increased by 4.8 p. p. between 1990 and 2000, whereas that share among the world’s population increased only by 1.8 p. p.

• International Migration Report (2008) confirms this phenomenon, and notices the increased international students mobility

Brain drain in the economic debate: Grubel and Scott (1966)• One may expect short-term losses on account of the brain drain, however

long-term losses should be small

• Gains in the form of transfers, changed policy of the destination country towards the sending country, and increased public attention given to causes of migration, which should induce development of the sending country’s institutions, should be significant

• The greatest gain – ideas and inventions; knowledge as a public good, which benefits every country in the world

Brain drain in the economic debate: Aitken (1968)• Aitken replied to the paper by Grubel and Scott

• Losses caused by the brain drain should be significant, because: Migrants take away more than just the marginal product of labor Redistribution effects are disadvantageous to the unskilled labor Lower savings caused by the departure of individuals earning more than the

average

Brain drain in the economic debate: Bhagwati and Hamada (1974) • If the education is financed by the state under the expectation of subsequent

taxation of educated individuals, those expenses are not reclaimed from the migrants

• Grubel and Scott (somewhat earlier) weakened the relevance of this argument

Brain drain in the economic debate: Bhagwati and Dellafer (1973) • Social returns to human capital are higher than private returns

• International integration of skilled labor induces pressure to increase its wages

• There are negative results of this pressure: Unemployment Excess of the education sector Competition for the skilled jobs, which leads to corruption

• Proposal of the „migration tax”

Beneficial brain drain• Migration of the skilled labor may have not only detrimental repercussions

on the sending economy

• There are also positive repercussions, which include: Return migration Transfers Impact on the individual decisions regarding acquisition of human capital

• Key assumption for the latter positive repercussion: probabilistic migration

Beneficial brain drain: brain gain• When there is no prospect of migration, individuals in a developing country,

when making their human capital formation choices, take into account only their opportunities in the domestic labor market

• When there is a prospect of migration to a developed country, individuals in a developing country, when making their human capital formation choices, take into account their opportunities in both countries

• If the rate of return from education is higher in the developed country, and the probability of migration is positive, it is optimal to increase investment in human capital as compared to the investment in the absence of the migration prospects

• If only some individuals, who responded to the incentives from foreign employment, actually migrate, then the developing country can actually benefit from such brain drain

• We call this possible outcome a brain gain

Return migrationInternational Organization for Migration (2008):

In the 1990s the composition of migration from India has changed; a significant share of migration were highly skilled workers, who specialized in IT. Those migrants had significant impact on the development of the IT sector in the US. In time, more and more IT companies installed their outposts in India, the IT labor market in the US became saturated with IT specialists, and the US imposed a more restrictive immigration policy. As a result, some 40-50 thousand Indians returned from abroad to Bangalore (the biggest IT center in India), in the last 10 years. With that return migration, India gained capital investments, knowledge, and learned different working culture.