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Blogs review: The economics and politics of migration in the economic crisis

What’s at stake: Rising unemployment in rich Western states fundamentally changes the context of migration. High unemployment among immigrants reduces the pull exerted by richer countries on potential immigrants, whilst economic hardships suffered by native citizens or perceptions of competition for scarce jobs between immigrants and natives can fuel anti-immigrant sentiments, leading to a tightening of immigration policies or even outright xenophobia.

By: and Date: November 5, 2012 Topic: European Macroeconomics & Governance

What’s at stake: Rising unemployment in rich Western states fundamentally changes the context of migration. High unemployment among immigrants reduces the pull exerted by richer countries on potential immigrants, whilst economic hardships suffered by native citizens or perceptions of competition for scarce jobs between immigrants and natives can fuel anti-immigrant sentiments, leading to a tightening of immigration policies or even outright xenophobia.

Key findings of the 2012 OECD Migration Outlook are that the importance of labour migration in total flows has sharply decreased and immigrants have been particularly vulnerable to rising unemployment. The OECD average unemployment rate of foreign-born individuals increased by 4 percentage points between 2008 and 2011 compared to 2.5 percentage points for natives. In response to changed economic conditions and public hostility towards immigration, migration policies have been tightened in several countries.

A stop of net migration flows to Western countries

Peter Sutherland observes that immigration to Europe and the US has almost stalled due to the economic crisis.  Many countries previously characterised by a positive immigration balance now are subject to net emigration. Spain may lose half a million persons by 2020, while its population grew by 700,000 persons per year in the years preceding the crisis. As Western countries require net immigration to deal with the consequences of their ageing native populations, much work needs to be done to prepare civil societies, labour markets and institutions to integrate and welcome immigrants. The current lull in migration flows should be seen as a window of opportunity to do this.

Immigration and welfare systems

Mark Krikorian warns that immigration is costly as immigrants have high rates of participation in US welfare programmes when non-cash programmes such as housing assistance, food stamps and Medicaid are counted. Despite their high employment rates, a higher ratio of immigrants is dependent on government aid than of natives in comparable skill groups. Immigration should be curbed.

Shikha Dalmia of the libertarian Reason Foundation argues that to make a link between migration and welfare gets the issue wrong. Only half as many eligible immigrants as natives actually enrol in Medicaid and those who do create lower costs than natives by going to the doctor less often. Therefore, one also does not have to choose between immigration and the welfare state as is often alleged. Other libertarians should be aware that calling for restrictions to immigrants’ access to welfare systems in order to pave the way for more liberal immigration policies is unfair and unwarranted.

The myth of high welfare take-up by immigrants in the UK is debunked by Jonathan Portes. Whilst the BBC headline read “Benefits being claimed by more than 370,000 migrants”, doing the numbers shows that migrants represent 17% of workers but only 7% of out-of-work claimants. This should be no surprise – migrants come to the UK to work, it is harder for them to become eligible for benefits and their age structure makes them less likely to claim benefits. The headline really should have read "Migrants less likely than Britons to claim out of work benefits".

Costs and benefits of immigration

Ian Goldin states why immigration is desirable: It is a primary source of innovation and dynamism, a response to labour shortages and unmet needs, it helps Western governments face the challenge of demographic ageing and provides an opportunity for the migrating individuals to escape poverty and persecution.  Whilst populist claims must be rebutted, real concerns and trade-offs must be faced and addressed by policy. As the benefits of migration often accrue only in the medium term and to the whole society, the costs are most pressing in the short term and often quite localised, necessitating financial and other support to regions and municipalities facing strong immigration.

In a slightly older paper, George Borjas argued that previous empirical research on the effect of immigration on wage level usually was conducted by comparing two metropolitan regions of which only one was subject to large scale immigration, usually finding no significant wage effect. This approach however ignored a potential endogeneity problem (richer cities attract more immigrants) and the possibility for natives to move away. The effect should thus only be examined at national level. Using such an approach, Borjas finds a negative wage effect of immigration: for a 10% increase of a skills group, the wages for natives in that group decrease by 4%.            

Francesco D’Amuri and Giovanni Peri provide fresh empirical evidence for the opposite view: native workers in receiving countries benefit from immigration. Analysing the impact of immigration on natives’ wages and employment using data from 1996 to 2010 in 15 Western European countries, they find that the number of jobs for natives was unaffected by migration inflows. In contrast to classical theory, natives’ wages increased as natives were not replaced but pushed into more complex jobs. This “job upgrade” led to an increase in the natives’ wages of 0.6 % in the short-run after a doubling of the immigrants’ share.

Restrictive immigration policies in the wake of the crisis

In another piece, Sutherland and EU Commissioner Cecilia Malmstrom find it ironic that Europe’s anti-immigration sentiment is peaking just as global migration flows are shifting away from Europe. Europe’s ability to compete globally is put at risk if it further deters skilled and entrepreneurial immigrants by tightening its borders. Some hope is provided by immigration policy related to labour market demands in Sweden, efforts to encourage diversity in public sector employment and educational measures tailored to successfully integrate immigrants in society and the labour market. 

Ian Goldin is worried about what would happen if the rich countries shut their doors to immigrants as a consequence of high unemployment rates leading to populist demands. Negative results would not be limited to migrants and sending countries, but also felt by destination countries experiencing shortages not only of low-skilled labour, but also losing out on economic dynamism. Migrants are a self-selecting group of risk-takers, having founded more than half of Silicon Valley start-ups and accounting for more than three times more Nobel Laureates and Oscar recipients than native born Americans. Bryce Quilin thinks that this should be particularly worrying for Europe, facing a stronger demographic challenge and trailing other developed economies in immigrant shares. However, Goldin’s point will remain a thought exercise as labour migration is both necessary and will continue to be prevalent.

Jonathan Portes argues that if the UK government were serious about deregulating labour markets, it would start with reversing its restrictive immigration policies. The new regulations are designed to make it more difficult for employers to employ the people they want, thereby reducing growth in the UK by 2 to 4 billion GBP by the end of the legislature. The benefit of reversing these regulations would far outweigh for instance that of the proposed changes to employment tribunals with an annual benefit of 70 million GBP.   

Why is the US debate so quiet on immigration?

Adam Ozimek is bewildered by the lack of sufficient coverage of the necessity of high-skilled immigration (HSI) by American bloggers and economists. His tentative conclusion is that because few reasonable people disagree with the idea that more HSI is a good thing, the debate lacks opponents to have an argument with. But if HSI is as desirable as most economists seem to think, it is an outrage if they see “trillions of dollars in pareto improvements going to waste” without crying out about it.

Matthew Yglesias also wonders why immigration policy is largely ignored in the American debate, as it is such a defining concept for the country: A USA that would not have opened its borders to immigration by other ethnicities throughout its history would be a radically different place.  At present, new immigrants would create positive labour market effects and bolster demand for American goods much more if they lived and worked in Dallas rather than Djibouti. Taking advantage of the fact that many people in the world believe that the USA is a great place to live in has been the biggest contributor to American greatness in the past. It should be done again.

Arguing along similar lines on this topic, David R. Henderson also points out the magnitude of the benefit to the potential immigrants: He notes that Lant Pritchett found the financial gain from a lifetime of Microcredit in Bangladesh to be the same as from 8 weeks  working in the United States.

What should be done as immigration flows into the USA dry up?

Douglas Massey coins the term of “net zero migration”, referring to illegal immigration from Mexico to the US. The stock of illegal immigrants from Mexico decreased from 12 million to 11 million between 2008 and 2009 and has remained constant since. The reason is not stricter border enforcement – border apprehensions are at a historic low – but low labour demand in the US, increasing labour scarcity in Mexico and better opportunities for legal temporary migration to the US.  With illegal immigration now under control, as conservatives have always demanded, the time has come to legalize illegal immigrants already and permanently in the USA, giving them the opportunity to become part of the legitimate economy and preventing the emergence of a Latino underclass.

In history the USA has always been an “Alternative Europe”, argues Noah Smith, but now European immigration to the US has dried up, as has that of Mexicans. Still requiring an expanding labour pool, the USA should become “Alternative Asia”, as Asians are still underrepresented in the ethnic makeup of the US. More Asian immigrants will strengthen trade ties and trust between the continents as well as creating cultural gains from diversity. As many Asians still want to move to America, the opportunity should quickly be seized before increased wealth and ageing in Asia create the same situation that stopped Europeans migrating to America.

The effect of emigration on sending countries

Omar Kebbeh notes that while Official Development Assistance to developing countries has been in decline during the economic crisis, remittance flows to developing countries (roughly three times as large as ODA) have increased at a rate of around 8% between 2010 and 2011 and are expected to keep that rate for the next two years. Although not a direct substitute for foreign aid, remittances are an important source of household income and may even present a path out of poverty.

Yves Zenou and Jackline Wahba show that return migrants are more likely than non-migrants to become entrepreneurs. Temporary migration leads to human capital accumulation, as well as savings and better access to credit, that positively affects start-ups. This compensates for the potential loss or deterioration of social networks. Apart from improving access to credit, schemes should be introduced in developing countries to help return migrants re-integrate to use their accumulated skills and savings.

Jaghdish Baghwati argues that fears of “brain drain” in sending countries are unjustified. Although many countries in theory need skilled people, they often cannot actually employ them. Needed are not restrictions on immigration, but a “diaspora model” aimed at making diasporas contribute to the development of their native countries by letting them invest easily – but making them pay taxes in their native countries. Also, senior citizens from richer states who retired in good health could share their skills in countries whose working age skilled professionals have emigrated. Such a threefold solution would bring more benefits to developing countries than restricting people’s mobility.

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