The International Migration of People

1. The International Migration of People 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 cost. Liberation [A Paris newspaper]: That has never been formally proven. Chirac: It is easy to imagine, nevertheless. (From an October 30, 1984 interview)

2. Goals of this Chapter • Present a brief history of international migration, the oldest of the three components of globalization. • Take the student beyond the popular labor supply model of immigration by introducing the labor supply and demand model of immigration. • Use the labor supply and demand model of immigration to frame the analysis of the gains and losses from immigration on source and destination countries. • Review the evidence on international migration’s welfare effects. • Examine how immigration is likely to influence countries’ rates of economic growth.

3. The History of International Migration • Until the development of agriculture some 10,000-8,000 years ago, there were few human-made barriers to the movement of people. • Because there were no political boundaries, these movements of people are usually referred to as “migrations” rather than international migration or immigration.

4. The History of International Migration • Beginning most likely in the Fertile Crescent of the Middle East, permanent settlements arose. • Urbanization required an increase in specialization and exchange. • Permanent settlements and the establishment of well-defined borders meant that people were increasingly seen as citizens of some specific political area. • Because of people’s nationality, movement from one nation to another, defined as international migration, often requires a change in allegiance and citizenship.

5. Table 15.1Foreigners as Percentages of Population and Labor Force, 20001 Population Labor Force Austria 9.1 9.9 Belgium 8.7 8.8 Denmark 4.8 3.2 France 5.6 6.1 Germany 8.9 9.1 Italy 2.1 1.7 Luxembourg 35.6 37.7 Netherlands 4.2 2.9 Sweden 5.6 5.1 Switzerland 19.0 17.3 United Kingdom 3.8 3.9 Japan 1.2 1.0 Australia 23.4 24.8 Canada 17.4 19.2 United States 9.8 11.7 1The definition of “foreign” differs among countries; in Australia, Canada, and the U.S., the percentages are for “foreign-born” people, for the rest of the countries, the percentages are for people classified as ethnically-foreign Source: OECD (2001), OECD Employment Outlook, Paris: OECD, June. .

6. Immigration to the United States Decade Number (thousands) Rate1 1851-1860 2,598 1861-1870 2,315 1871-1880 2,812 1881-1890 5,247 1891-1900 3,688 1901-1910 8,795 10.4 1911-1920 5,736 5.7 1921-1930 4,107 3.5 1931-1940 528 0.4 1941-1950 1,035 0.7 1951-1960 2,515 1.5 1961-1970 3,322 1.7 1971-1980 4,493 2.1 1981-1990 7,338 3.1 1991-1998 (8 yrs.) 7,604 4.1 1 Number of immigrants per thousand residents of the United States. Source: United States Department of Commerce, Bureau of the Census, Statistical Abstract of the United States 1999, 117th Edition, Washington, DC, 1999.

7. Foreign-Born Population in the United States year % of Population year % of Population 1850 9.7 1930 11.6 1860 13.2 1940 8.8 1870 14.4 1950 6.9 1880 13.3 1960 5.4 1890 14.8 1970 4.7 1900 13.6 1980 6.2 1910 14.7 1990 7.9 1920 13.2 2000 10.4 Source: U.S. Census Bureau, www.census.gov, March 10, 2001.

8. Definitions • Settlers: Immigrants who remain in another country as permanent residents. • Contract laborers: People who go to another country for some limited period of time to perform a specific job. • Professionals: Workers who perform technical or management jobs, often work for multinational firms, and often move from country to country. • Asylum seekers and refugees: People who immigrate to escape serious threats to their safety and well-being. • Illegal immigrants: People who immigrate without following the required formal legal procedures to gain entry to another country. • Involuntary immigrants: People who are moved from one country to another against their will.

9. Supply-Side Effects of International Migration • Economic incentives are most often the driving force behind international migration. • The most often-used model of immigration is based on the assumption that people migrate to countries where they expect to improve their well-being. • The supply and demand model of immigration is based on a standard model of a labor market. • The simplest version of this model assumes that international migration changes the supply of labor in the source and destination countries but leaves the demand for labor unchanged.

10. Supply-Side Effects of International Migration • The labor demand curve is the value of the marginal product of labor (VMPL ) curve. • The VMPL curve is the product of the marginal physical product of labor, MPL, and the price of output, P, or VMPL = MPL x P. • The marginal product of labor declines as more labor is hired, so the VMPL curve is downward-sloping.

11. Supply-Side Effects of International Migration • As wages rise, the opportunity cost of not working rises. • All other things equal, a higher wage will cause workers substitute work for leisure. • Higher wages also increase labor income, and this positive income effect leads people to acquire more leisure when wages rise. • The overall effect of higher wages on the supply of labor is thus theoretically ambiguous • For convenience, we model the supply of labor with a vertical line; conclusions are unaffected by this simplification, however.

12. Supply-Side Effects of International Migration • The wage is equal to w, where the VMPL curve intersects the labor supply curve. • The area under the VMPL curve represents the total value of output produced in the economy (GDP). • Total labor income is equal to the wage times the quantity of labor, which is the rectangle B. • The remaining value of output, A, provides the income of the remaining productive factors, such as capital and land.

13. A Two-Country Model of Migration • The Figure shows the labor market in two countries, Morocco and France. • The supply and demand conditions result in equilibrium wages of 10 euros in France and 4 dirham in Morocco. • Suppose that the exchange rate is equal to one euro = 2 dirham; in this case the Moroccan equilibrium occurs at 2 euros.

14. Migration from Morocco to France • Suppose that 25 million workers migrate from Morocco to France. • The supply of labor curve shifts to the left by 25 million in Morocco. • The labor supply curve shifts to the right in France. • The wage rises in Morocco; it fall sin France.

15. Who Gains and Who Loses Welfare?

16. Summarizing the Gains and Losses from Migration: 1. Morocco: Owners of other (non‑labor) factors: loss of e + g ! 87.50 Remaining workers: gain of e + 75.00 Net change in real income: loss of g ! 12.50 2. France: Workers originally in France: loss of E ! 100.00 Owners of other (non‑labor) factors: gain of E + G + 125.00 Net change in real income: gain of G + 25.00 3. Immigrants: Loss of wages in Morocco loss of h ! 50.00 Gain of wages in France gain of H + 200.00 Net change in real income: gain of (H ! h) + 150.00 World (1 + 2 + 3): Net change in Moroccan real income: loss of g ! 12.50 Net change in French real income: gain of G + 25.00 Net change in immigrants’ real income: gain of (H!h) + 150.00 Net gain: gain of (H+G) ! (h+g) +$162.50

17. The Effects of Migration on World GDP • The value of output (GDP) changes in both countries. • GDP falls by the amount of the areas g + h in Morocco. • GDP rises in France by the sum of G + H. • World GDP rises, since G+H > g+h. • Migration reallocates labor to where its marginal product is greatest.

18. The Demand Effects of International Migration • In general, the value of the marginal product (VMP) curve does not remain constant when migrants enter or leave a country. • Because total income rises in the country that receives immigrants, the demand for output and the demand for the factors that produce output also increase. • The new immigrants themselves contribute to the increased demand as they spend their income on housing, food, and many other goods and services produced in the economy. • Immigrants are at the same time workers and consumers. • A complete model of international migration therefore should show both the supply effects and the demand effects.

19. The Complete Demand and Supply Effects of Migration • The figure illustrates the combined labor supply and labor demand effects of immigration in a typical destination country. • The wage does not fall from A to B, as the supply-only model suggested. • The wage is likely to fall to a lesser degree, say to C because immigrants cause the demand for labor to increase along with the supply of labor.

20. The Complete Demand and Supply Effects of Migration • In the source country, the departure of people reduces the demand for, and the of, labor. • The demand curve for labor shifts downward as the supply curve of labor shifts leftward. • Wages rise only to C, not to B as would be the case if only the supply curve shifted.

21. The Complete Demand and Supply Effects of Migration • If immigrants remit income to the source country, then total demand for labor in the source country may increase even though people leave the country. • For example, the demand curve for labor could shift upward, from VMP1 to VMP3, in which case the wage rises to D.

22. Immigration’s External Effects • Immigration may generate externalities that cause welfare gains or losses to exceed those represented in the demand and supply model of immigration. • Immigrants could increase competition, which enhances the efficiency with which the entire economy transforms inputs into output. • Immigrants may raise the overall level of technology throughout the economy by introducing new products and production methods. • Increased population and a larger economy permits a greater exploitation of economies of scale. • Increased labor can cause negative externalities by burdening existing infrastructure or crowding facilities.

23. Externalities to International Migration • Suppose immigration only has direct supply effects, in which case immigration causes the wage to fall to b. • Externalities may offset the labor supply effect. • The combined effects of immigration, (1) the increase in the supply of labor from SN to SN+M, and (2) the externalities’ positive effect on income and the VMPL curve, could actually raise the wage to c.

24. Externalities to International Migration • Immigration may bring negative externalities. • Negative externalities to immigration could reduce the wage to fall to C, not B. • Total welfare for natives could fall if negative externalities cause a large shift in the VPML curve. • That is, if the area f, the loss in real income accruing to native labor and other factors, is greater than g, the gain in income to other factors when immigrants expand output.

25. Figure 15.11The Age Distribution of Immigrants to the U.S.: 1907 – 1910 & 1992 – 1995 Source: INS

26. The Conclusions of Individual Case Studies on Immigration’s Economic Effects In their survey of immigration research, Rachel Friedberg and Jennifer Hunt concluded that: Despite the popular belief that immigrants have a large adverse impact on the wages and employment opportunities of the native-born population, the literature on this question does not provide much support for this conclusion. Economic theory is equivocal, and empirical estimates in a variety of settings and using a variety of approaches have shown that the effect of immigration on the labor market outcomes of natives is small. There is no evidence of economically significant reductions in native employment. Source: Rachel M. Friedberg and Jennifer Hunt (1995), “The Impact of Immigrants on Host Country Wages, Employment and Growth,” Journal of Economic Perspectives, Vol. 9(2), p. 42.

27. Immigration and Economic Growth There are several reasons why the relationship between immigration and long-run economic growth will be positive in the destination country: • Immigrants are carriers of ideas and knowledge, and therefore immigration increases the transfer of technology from abroad. • Immigrants often have talents and personalities that are especially appropriate for innovation. • Immigration tends to reduce the ability of vested interests to take protectionist measures that slow the process of creative destruction.

28. Do Immigrants Congest or Create? • The early social scientist William Petty wrote as far back as 1682 that “... it is more likely that one ingenious curious man may rather be found among 4 million than among 400 persons.” • People are the critical input into the process through which technology progresses, and because immigration increases the stock of these creative inputs in the destination country, it is likely to enhance the destination economy’s rate of technological progress. • Joseph Schumpeter pointed out that immigrants were good candidates to become entrepreneurs because they are less attached to the traditions of society and, therefore, more willing to “be different”.

29. The Brain Drain • The brain drain refers to the migration of a educated and talented people from developing countries to more developed economies, which is often seen as reducing growth in the poorer sources country and enhancing growth in the richer destination countries. • Because educated people are critical for the creation of new technologies and the adaptation of existing technologies from other countries, the long-run economic growth rate of the source country may fall when educated people migrate to other countries. • Remittances from abroad and the eventual return of migrants after gaining foreign experience can reduce, or even more than offset, the brain drain’s negative effects.