The Economics of International Migration

1. The Economics of International Migration Tim Hatton University of Essex and Australian National University EALE Conference Torino, 19th-21st September 2013

2. 25 years of research effort • 15 years ago I thought that the economics of international migration was on the wane. I was dead wrong. • Here I look at four areas, two old and two new: • 1) The economics of immigrant assimilation • 2) The labour market effects of immigration • 3) Immigration policy, its determinants and effects • 4) The consequences of emigration for developing countries • The paper gives my view of how debates in each of these areas has evolved, what new insights have been produced and where they might go in the future.

3. Two older topics • Immigrant assimilation and the impact of immigrants in the labour market. • These were the focus of well-known debates in the 1980s and 1990s. They focus on the destination country labour market. • These debates have been kept alive by three things: • They have obvious implications for immigration policy. • The initial focus was the United States, but interest quickly spread to Europe as immigration itself increased. • The empirical issues are still debated, as models, methods and data have been increasingly refined.

4. Immigrant Assimilation • The pioneering contributions of Chiswick and Borjas have spawned a large literature with a widening set of outcomes. • Two core areas of debate are: • 1) What are the initial disadvantages faced by immigrants and how are they overcome? This started with individual characteristics (such as language) but has moved on to consider the ‘context of reception’. • 2) How are immigrants self-selected? Here the Roy model has been central to the analysis. Attention has shifted from performance at the destination to choices at the origin. Most recently the literature attempts to deal with endogeneity.

5. Labour market effects of immigration • The earlier studies looked on the wages and employment of non-immigrants in destination countries, especially the US. • It looked at local labour market impacts: the so-called spatial correlations approach. This generated small effects, despite extensive efforts to deal with endogeneity. • Economy-wide analysis seemed to generate larger effects but the debate has resolved into which groups are substitutes. • This literature is largely ignored by those focusing on the wider general equilibrium effects and on policy. • There has been growing interest in, and measurement of, the fiscal effects of immigration.

6. Determinants of immigration policy • The focus has shifted from the implications for policy to policy formation itself. • It started with the analysis of public opinion surveys--previously the domain of political scientists. Most populations are anti-immigration, but not extremely so. • The literature identifies three key strands (a) labour market threats (b) concerns about fiscal consequences (c ) racism/prejudice/cultural difference. • A key issue is that if people are against immigration, why isn’t policy even more restrictive? • Two recent themes are (a) immigration as a social issue, and (b) there are powerful pro-immigrant lobby groups.

7. Effects of immigration policy • Immigration policy is a system of rationing but studies show that economic determinants still drive migration flows. • The literature examines push and pull but finds that geographical proximity and culture are uppermost. • Economic variables represent a mix of incentives and policy; the effects of shifts in policy are hard to identify. • A big challenge is to characterise policy in index form--even more so to capture its effects on immigrant selection. • Models of immigration focus on labour market decisions, but family reunification is the largest component of immigration; refugees are important too.

8. Emigration and the source country • For a long time most of the focus was on the destination, even though migration has consequences for the origin country. • There has been a strong revival of interest in the brain drain, driven in part by new datasets. • A key question is whether brain drain is balanced by brain gain and the recent literature suggests that for some countries it is. • This is a macro level literature and there is a new wave to measure the effects at the micro level and to explore how emigration generates incentives to gain education. • Migration for education is increasingly important (esp. for university finances) and surprisingly understudied.

9. Diaspora effects • There is an enduring interest in the flows of remittances; recent studies show that these are larger than previously thought. • A large literature investigates the impacts of remittances on the poor-country households that receive them. • One issue is whether these are used for ‘developmental’ purposes e.g, education or capital investment. The results are extremely mixed. • Two particular issues are (a) is the counterfactual no remittances or no emigration, and (b) endogeneity. • Perhaps more exciting is the recent literature on the effects of large diasporas on home country politics and institutions.

10. Conclusions (1) • Research on the economics of migration has been fuelled by the ongoing policy debate. • Models and methods have been transposed from the US to Europe, which is now at the forefront of research. • It has been underpinned by better data and improved methods offering tighter links between theory and empirics. • Interest has shifted increasingly to the political economy of migration: opinion, politics and policy. • There has been a major refocusing of attention from immigration to emigration; to impacts at the source rather than at the destination.

11. Conclusions (2) • Clemens (2011) argues that much of the migration literature focuses on a “research agenda whose time has gone”. • His point is that we should focus on the enormous gains to migrants: the movers rather than the stayers. • The gains to liberalisation of migration from poor countries are enormous; better measurement will not change that. • The key question is how to realise (some of) those gains. • The results of research have largely discredited people’s fears about the threats from immigration. • But we have not got this message across and we have yet to fully understand how policy works and how we can make a decisive contribution to it.