What are we talking about?
Migration as great absentee in the era of
globalisation. Migration policies restrict the
movement of persons across jurisdictions by
establishing:
- quotas in terms of maximum number of work
permits
- rules concerning the allocation of quotas,
admission procedures and lenght of permits
- years/procedures to obtain citizenship
- rules for asylum policies
Outline
• Measures and cross country comparisons
• Theory
–
–
–
–
–
A Competitive Labor Market
An Economy with Wage Rigidities
Wage Rigidities and Unemployment Benefits
What Drives Migration Decisions?
Effects on Income Distribution of Skill-biased
Migration
Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.
Outline (cont.)
• Empirical Evidence
– Wage and Employment Effects
– Determinants of Migration
– Fiscal Effects
• Policy issues:
– Closing the Welfare Door?
– Adopting a Points System?
• Why do Migration Policies Exist?
Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.
Measures and cross country comparisons
Measuring the Strictness of
Migration Policies
• Quantitative indicator developed by www.frdb.org
transforming qualitative information on scalar measure of
strictness (higher scores denote more strict regulations).
Draws on information on
• Existence of Quota system
• Number of certificates and procedures required to be
admitted as a foreigner
• Number of years required to obtain Permanent Residence
• Number of certificates required to legally reside in the
territory
• Number of Years required to obtain first Residence Permit
Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.
Trends in migration policies
Immigration policy indexes
160
140
120
100
80
60
1994
1995
1996
1997
1998
Admission requirements
Staying requirements
Number of administrations involved
Asylum policy
1999
2000
2001
2002
2003
2004
Length of first stay
Years to obtain a permanent residence permit
Quotas
Evolution in individual countries
Deteriorating perceptions
% of respondents agreeing
with the following
statements
ESS 2002
"immigration
bad for country's ESS 2006
economy"
2006-2002
"immigrants
ESS 2002
make country
ESS 2006
worse place to
live"
2006-2002
"unemployed
ESS 2002
immigrants
Harris 2009
should be made
to leave"
2009-2002
Germany
Spain
France
Italy (1)
UK
29
23
28
43
25
38
24
39
45
41
9
1
11
2
16
33
34
37
41
39
41
35
42
46
54
7
1
5
5
14
50
25
32
53
49
67
71
51
78
79
17
46
19
25
30
Notes: 1) The ESS survey took place in Italy only in 2002 and 2004.
Measures and cross country comparisons
Not always so Strict
• Up to the 1950s migration encouraged in
Europe
• Restrictive stance since the beginning of the
1970s together with rise of unemployment
• More migration to the US at the beginning
of the XXth Century
(www.ellisislandrecords.org )
Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.
Theory
A Competitive Labor Market
• Wages adjust fully to changes in labor supply. Focus on
the short-run: no changes in the capital stock. Labor
demand unaffected by immigration. Migration like labor
supply shock
• Assuming that migrants and natives are perfect substitutes
(homogenous labor), the impact of immigration on
employment depends on the elasticity of labor supply
• If labor supply is rigid, no effect on employment among
natives
• If labor supply is elastic, employment among natives
decline, but no unemployment
Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.
Immigration to competitive labour
markets
• With elastic LS
• With rigid LS
B=immigration surplus
w
w0
w1
w
Ls
A
w0
B
w1
Ls
A1
A2 B
Ld
L0
L1
L
Ld
L0
L1
L
Theory
An Economy with Wage
Rigidities
• With a minimum wage
w
• With semi-rigid wages
w
Ls
Ls
w0
w1
w
Ld
N
N+M
Unemp
Ld
L
N
N+M
Unemp
L
Theory
In imperfect labour markets, migration
involves unemployment
In imperfect labour markets, migration affect
income of natives in a variety of ways:
• changes in wages
• changes in employment, and
• changes in unemployment
• taxes
• other externalities related to U? (crime?)
Theory
Wage Rigidities and Unemployment
Benefits
• There is also a fiscal effect of migration,
insofar as immigration affects
unemployment in the destination countries
• This fiscal externality is larger if labor is
not homeogenous and unemployment
benefits attract more low-skilled migrants,
more likely to become unemployed or
crowd-out low-skilled natives
Theory
What Drives Migration Decisions?
• Decision based on estimated discounted net
present value (NPV) of migration
Te
NPV =

δt (wF(t) - wH(t)) - C0
t=1
• where
– wF = wage in the destination country
– wH= wage in the origin country
• Analogies with theories of human capital
What Drives Migration Decisions?
• Migration occurs if :
( wF - wH ) CO (1 -  )

wH
wH
where
– (wF - wH)= wage differential between the
foreign and the own country
– C0= frontloaded migration costs
– δ = discount factor
Theory
Migration and a Minimum
Guaranteed Income
w
w
country 1
country 1
country 2
country 2
s*
skilled migrants go to country 1
unskilled migrants go to country 2
skill level
s**
s*
skill level
safety net in country 1:
also the unskilled go to country 1
Theory
Migration and skills
• Skill composition of migrants depends on
differences in rates of return of skilled and
unskilled workers in the origin and
destination region/country
• Highly educated end up in the
country/region that values them the most
• Unemployment benefits creating income
floor reduce skill content of migration
Theory
Effects on Income Distribution
• Assuming that skilled and unskilled labor
are complements
• Immigration affects income distribution
only insofar as migration affects the skill
composition of the population
• If more low-skilled income inequality
increases
• If more high-skilled, income inequality
declines
Empirical evidence
Effects on Employment and Wages
• Negligible effects of migration on wages
and employment among natives
• This finding can be reconciled with
economic theory when account is taken of
– self-selection of migrants in high-wage regions
(“greasing the wheels” effect)
– changes in migration patterns of native
workers
– changes in the regional output mix
Empirical evidence
“Greasing the Wheels” Effect
Local U matters
Convergence in Regional Wage Rates
Convergence
coefficient
Source: Borjas (2001a). Each observation
represents a convergence coefficient
estimated in a particular decade for a
particular skill group.
The measure of immigrant penetration gives
the log of the number of immigrants in a
particular skill group who arrived during a
particular decade relative to the number of
natives in that skill group at the beginning of
the decade.
The points on the scatter diagram are
weighted by the inverse of the squared of
the standard error of the convergence
coefficient.
.04
.02
0
-.02
-.04
-.06
-5
-4
-3
-2
log(No. of immigrants/No. of natives)
-1
Determinants of Migration (Hunt)
Location choices of migrants
(Costa and Kahn)
Fiscal effects
Migrant to natives odds ratios of the receipt of various types
of transfers and taxes in the EU15
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Contributory
Non
Contributory
All transfers
Education
related
allowances
Health
limitation in
activities
Taxes
Net Fiscal Position of migrants
Country
share of net
Average net
contributors (SNC) SNC: migrants over position (ANP)
among migrants
natives
(euros)
NativesMigrants
ANP overall
Austria
78,3%
1,34
9481**
0,40
Belgium
Denmark
84,0%
52,2%
0,91
0,84
11788***
-1063
0,51
-0,11
Finland
47,2%
0,80
-2863
-0,32
France
44,5%
0,81
-2285
-0,27
Germany+
64,4%
1,21
3137
0,42
Ireland
50,3%
1,06
-1937
-0,49
Luxembourg
54,9%
0,99
-1887
0,88
Norway
55,7%
0,86
-1328
1,14
Spain
91,7%
1,54
8047***
1,14
Sweden
United Kingdom
49,0%
68,9%
0,77
1,23
839
12533**
0,96
0,73
Residual dependency/social free-riding
Coefficient s of migrant dummies in probit regression of benefit receipt
Non Contributory
Extra EU 25
Contributory
Extra EU 25
Austria
Belgium
Denmark
Finland
France
-0.01
-0.20***
0.06***
0.07***
-0.10***
Austria
Belgium
Denmark
Finland
France
-0.07***
0.14***
0.04
0.16***
0.29***
Germany+
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
0.03**
-0.08***
-0.19***
0.00
-0.10***
-0.13*
-0.12***
-0.09***
Germany+
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
0.15***
-0.05***
-0.03
-0.01
0.10**
0.42***
-0.18***
-0.02***
Sweden
-0.24***
Sweden
United Kingdom
-0.15***
United Kingdom
0.01
-0.22***
Policy issues
Closing the Welfare Door?
Skill composition of migrants is deteriorating
Ratio of the share of individuals with tertiary education in the migrant
population and the same share in the native population
Country
Relative Share Relative Share
‘90
‘00
Δ
2000-1990
Spain
2,19
1,15
-1,05
Portugal
1,85
1,03
-0,82
Greece
1,79
0,99
-0,80
Italy
1,60
0,91
-0,69
Germany
1,98
1,36
-0,61
Norway
1,48
1,05
-0,43
Ireland
2,83
2,50
-0,33
Netherlands
1,08
0,87
-0,21
France
1,32
1,12
-0,20
Belgium
1,05
0,87
-0,18
Austria
0,77
0,71
-0,06
Finland
1,03
1,01
-0,02
Denmark
0,78
0,81
0,03
Uk
1,67
1,83
0,16
Sweden
1,11
1,29
0,18
Sources: Own extrapolations on data from Docquier (2006) and Barro-Lee
Policy issues
Pros and cons of
closing the welfare door
– Popular policy. It would address concerns of
public opinion.
– It would affect the size of migration flows
(increase by 1 stdev of generosity implies 3%
higher migration) more than their skill
composition
– Difficult to enforce: experience of California
– Problems in the assimilation of migrants
– Equity considerations
Policy issues
Adopting a point system?
• Skilled migration is better for rigid
countries
• Simplification of policies (including
asylum)
• Is it effective in selecting migrants?
• Risk of “brain drain”?
• Equity considerations.
Policy issues
Skill distribution of migrants ad
natives (IALS scores)
Germany
New Zealand
Evidence on brain drain effects on LDC growth
Source: Docquier – Rappoport (2004)
Migration policies are already
getting selective
Policy issues
• Everywhere tightening of migration policies
towards the unskilled
• While race to attract highly skilled migrants
• Explicit point systems in an increasing
number of countries (Canada since 67,
Australia since 84, New Zealand since 91,
Switzerland since 96)
Why do Migration Policies Exist?
• Migration policies are essentially redistributive
policies supported by workers at the low end of
the skill distribution.
• Immobile taxpayers can also benefit from tight
migration policies because they are vulnerable to
fiscal spillovers associated with inflows of
migrants who draw benefits from social welfare
systems. Aging increases the political power of
these groups, while an increase in the educational
attainments of the domesticworkforce may
weaken the anti-immigration constituency.
Why do Migration Policies Exist?
(cont.)
• Migration policies can, at best, induce some
gradualism in migration flows that would
otherwise occur in large waves.
• Pressures on welfare systems that exert negative
fiscal spillovers on the domestic population can be
reduced by either restricting access to welfare by
migrants or by adopting explicitly selective
migration policies
Review questions
• Why do employers generally support migration,
while unions do not?
• What are the effects of migration on income
distribution at home?
• What is the relation between internal and
international migration?
• Why does empirical work often not find the strong
effects of migration on native wages that are
predicted by economic theory?
Review questions (cont.)
• What does the Roy model predict about the skill
composition of migration?
• How do the elasticities of labor demand and labor
supply affect the economic impact of migration?
• What is the greasing-the-wheels effect?
• What are the pros and cons of a points system?
• What are the pros and cons of a policy that closes
the welfare door to migrants?