Migration Issues

1. Migration Issues Lecture 3

2. Outline • Stylized facts on immigration towards the EU and the USA • Importance of the foreign population • Channels of entry • Characteristics of migrants (age, skill) • Immigrants and the welfare state • A simple framework to understand the labor market implications of immigration • Migration Policies

3. Migration Issues • In the first two lectures we have analysed the advantages of free trade (Ricardo Model) • However, in the Ricardo model of comparative advantage, factors can relocate across sectors but not across countries • In reality, factors can move across countries! • Let’s have a look to the movement of a particular factor: LABOUR • LABOUR MOVEMENT=MIGRATION

4. Tables are from Boeri et al. (2002)

8. Migration and Labour MKT • Two Countries: Home and Foreign • Home demand for Labour • Home Supply for Labour • Demand=Supply - - Equibrium wage If the equilibrium wage in Home is higher than the in Foreign, labour will move from Foreign to Home until wages are equalized • Total labour supply= Home Supply+Foreign Supply (Migration)

9. Net Gain from Migration: area B

10. Migration: welfare analysis • If there were no migrant workers, the US economy would be at E, with workers earning $15 an hour. • Total national income is the wages paid to workers--plus the triangle above showing the share of national income going to owners of capital and land. • The US had 15 million migrant workers in the mid-1990s, which shifted the labor supply to the right, to 140 million at F, and lowered average hourly earnings to $13. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

11. Migration: welfare analysis • The movement from E to F creates two rectangles, C and D, as well as triangle B. • Rectangle C represents reduced wages paid to US workers; they do not disappear into thin air, but are transferred to the (US) owners of capital and land in the form of higher profits and rents–rectangle C. • Because of immigration, the US economy expands by rectangle D and triangle B, with migrant workers getting most of the benefits of this expansion in the form of their wages (D). Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

12. Gains from Migration • Hamilton and Whalley (1984) estimated that global GDP could more than double with free migration that equalized the marginal productivity of labor (and wages) between 179 countries grouped into seven world regions, adding • Even small increases in migration can significantly raise global GDP in such models, since the first migrants face the largest gaps in marginal productivity or wages. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

13. Migration Policies • This basic logic of migration increasing allocative efficiency raises a question: “why do the richer countries do not take advantage of the free lunch offered by eager migrants andopen their doors to them?” Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

14. Cost and Benefits of Migration for Receiving Country • The cost-benefit analysis of migration is not easy because there is little agreement on exactly what constitutes benefits and costs and to whom they should be ascribed. • There are losers from migration in the destination country, especially for workers similar in skill whose salary decreases • There are costs, such as re-location etc to the arriving migrants, whose wages my also not rise as fast or whose unemployment rates might rise. • On the other hand, workers made more productive by the presence of migrants, such as skilled workers who now have more unskilled helpers, and owners of capital, gain from migration. • In receiving countries, the existence of triangle B means that the overall net economic gain from migration is positive, and that losers from migration could be compensated Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

15. Cost and Benefits of Migration for Sending Country • The economic results become more ambiguous for sending countries • Johnson argued that voluntary migration, "like any profit-motivated international movement of factors of production—may be expected to raise total world output…[except] when the migrant's private calculation of gain from migration excludes certain social costs that his migration entails." (Johnson 1968, 75). • COST: brain drain Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

16. Cost and Benefits of Migration for Sending Country • Economist Don Patinkin took a “nationalist” approach, rejecting the argument that “the 'world' should be considered as a single aggregate from the welfare viewpoint—and that the welfare of this unit is maximized by the free flow of resources between countries. “ (Patinkin 1968, 93). • Instead, developing countries require a critical mass of talent, and too much migration can prevent an economic take off. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

17. Cost and Benefits of Migration for Sending Country • Recruitment of skilled professionals from developing countries could reduce economic growth in these countries. • However, remittances both from both skilled and unskilled migrants, and encouragement of returns, can be managed to promote rather than hinder economic growth. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

18. Migration challenge • There are clear arguments for developed countries, with aging populations and fewer young workers, to use immigration to stabilize work forces. • Many developing countries are happy to export some of their excess labor to increase remittances and acquire new skills. • But managing migration optimally for the benefit of all parties is more difficult. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

19. Policy Recommendations Copenhagen Consensus: Challenge Paper on Population and Migration by Philip Martin gives the following policy recommendations • Active selection systems to allow in those foreigners who are most likely to succeed. This would reduce fears of immigration and allow wider entry channels to be opened for skilled workers and professionals. • Widening legal entry channels for unskilled guest workers, together with encouragement to return to their countries of origin. This would provide temporary labor without permanent settlement. • Using the 3 R’s of migration – recruitment, remittances and returns – to promote economic convergence over time. Source: Copenhagen Consensus - Challenge Paper on Population and Migration by Philip Martin

20. Seminar questions for next week Read the article from the Economist “Migration and development” and the opponents’ note on the Copenhagen Consensus. Then, answer the following questions: • Do you think that Migration is beneficial for the world economy? • What are the cost and benefits of migration for both receiving and sending countries? • Do you think that the policy recommendations suggested by the “Challenge paper on Migration” could be successful?