NBER WORKING PAPER SERIES
THE ECONOMIC CONSEQUENCES OF THE INTERNATIONAL MIGRATION
OF LABOR
Gordon H. Hanson
Working Paper 14490
http://www.nber.org/papers/w14490
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
November 2008
I thank Oana Tocoian Hirakawa for excellent research assistance. The views expressed herein are those
of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed
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© 2008 by Gordon H. Hanson. All rights reserved. Short sections of text, not to exceed two paragraphs,
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The Economic Consequences of the International Migration of Labor
Gordon H. Hanson
NBER Working Paper No. 14490
November 2008
JEL No. F22,J61
ABSTRACT
In this paper, I selectively discuss recent empirical work on the consequences of global labor mobility.
I examine how international migration affects the incomes of individuals in sending and receiving
countries and of migrants themselves. Were a social planner to choose the migration policies that
would maximize global welfare, she would need to know, among other values, the elasticities of wages,
prices, taxes, and government transfers with respect to national labor supplies, as well as how these
parameters vary across countries. My goal is to evaluate the progress of the literature in terms of providing
these inputs.
Gordon H. Hanson
IR/PS 0519
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0519
and NBER
gohanson@ucsd.edu
1
1 INTRODUCTION
Given its prominent coverage by national media, the economic consequences of
international migration would seem to be one of the burning issues or our time. In
receiving countries, public debate about immigration drives national politics, with recent
electoral campaigns in Australia, Denmark, France, Switzerland, and the US each
devoting substantial attention to the topic. Immigrants are blamed for disrupting civil
society, draining public coffers, and lowering wages, among other woes (Huntington,
2004). At the same time, skilled immigrants receive credit for spurring innovation and
the growth of technology sectors (Freeman, 2006). Sending countries are no less
conflicted about labor mobility. Emigration has brought a welcome financial windfall in
the form of remittances (Acosta et al., 2008), but it also threatens to drain poor economies
of their most educated workers (Docquier and Rapoport, 2008).
To an economist, it is no surprise that international migration is contentious. By
arbitraging the vast differences in wages that exist between countries, labor flows alter
the distribution of income in sending and receiving economies alike. In this dimension,
international migration is similar to international trade. Both are mechanisms for
globalization that create winners and losers. But there are other dimensions in which
trade and migration differ significantly. In most receiving countries, immigrants pay
taxes and have the right to draw on at least some public services, changing the net tax
burden on native residents. Once they become citizens, immigrants generally obtain the
right to vote, altering domestic politics (Razin, Sadka, and Swagel, 2002). In sending
countries, emigrants cause corresponding fiscal and political disruptions by their
departure. Differences between trade and migration are evident in policy (Hatton and
2
Williamson, 2005). While most countries now belong to the World Trade Organization,
and maintain a nominal commitment to lowering trade barriers, a multilateral agreement
that would allow international labor mobility is a dim prospect, at best.1
What does economic research have to say about the costs and benefits of
international migration? Should we expect economists to advocate for the free
international movement of labor as intensely as they tend to support free trade? The
persistence of large differences in average income between countries is prima facie
evidence that allowing greater international labor mobility would raise world welfare
(Pritchett, 2006). Allowing labor to move across borders more freely would be a simple
and obvious way to help narrow global income gaps.
In this paper, I selectively discuss recent empirical work on the consequences of
global labor mobility. I examine how international migration affects the incomes of
individuals in sending and receiving countries and of migrants themselves. Were a social
planner to choose the migration policies that would maximize global welfare, she would
need to know, among other values, the elasticities of wages, prices, taxes, and
government transfers with respect to national labor supplies as well as how these
parameters vary across countries. My goal is to evaluate the progress of the literature in
terms of providing these inputs. In considering the effects of labor mobility, I give equal
weight to sending and receiving countries, meaning neither receives in depth treatment.
For discussions of literature on how immigration affects receiving countries, see Borjas
1
The closest sending and receiving countries have come to negotiating a multilateral deal on migration are
discussions under Mode IV of the Doha Development Agenda of the World Trade Organization, which if
adopted would permit the temporary movement of service providers across borders, addressing a limited set
international labor flows. Because of their narrow scope, even if enacted the provisions discussed would
likely increase global labor flows by only a modest amount. For analyses of the economic impacts of Mode
IV liberalizations see Jansen and Piermartini (2005) and Schiff (2007).
3
(1999a) and Card (2005), and on research into how emigration affects sending countries,
see Docquier and Rapoport (2008) and Hanson (2007).2
Is there a case to be made against the unfettered movement of labor? In lowincome
sending countries, the complaint has long been that the wrong individuals leave
(Bhagwati and Hamada, 1974). In most of the developing world, the more skilled have
the highest propensity to emigrate (Docquier and Marfouk, 2006). If there are positive
spillovers associated with human capital (Lucas, 1988) or education is financed through
taxation (Bhagwati and Rodriquez, 1975), the emigration of skilled labor can hinder
economic development (Benhabib and Jovanovic, 2006). Possible corrections include
taxing the emigration of skilled labor (McHale, 2008) or requiring receiving countries to
admit more unskilled workers from the developing world (Pritchett, 2006).
In high-income receiving countries, in contrast, the concern is that the wrong
individuals are trying to get in (Borjas, 1999b), though this position has generated
controversy (Card, 2005). In the US and Europe, the average immigrant has much less
schooling than the average native worker. Increased inflows of low-skilled labor may
exacerbate distortions created by social-insurance programs or means-tested entitlement
programs (Wellisch and Walz, 1998), which would possibly increase the net tax burden
on native residents (Borjas and Hinton, 1996) and thereby fuel political opposition to
immigration (Hanson, Scheve, and Slaughter, 2008; Facchini and Mayda, 2006).
By assessing the economic consequences of labor mobility, one could determine
whether existing restrictions on immigration might be justifiable on welfare grounds or
whether they are welfare-reducing policies, resulting from lobbying by special interests
2
Nor do I address the growing literature on the causes of international migration. See Mayda (2005),
Clark, Hatton, and Williamson (2007), Rosenzweig (2007), Brücker and Defoort (2006), Belot and Hatton
(2008), and Grogger and Hanson (2008) for recent work on the topic.
4
(Facchini and Willmann, 2007) or concerns about the impact of immigration on voters
(Benhabib, 1996; de Melo, Grether, and Müller, 2001). Though a WTO for international
migration is unlikely to form any time soon, one would still like to know whether such a
venture would be worthwhile. In addition to providing policy makers with guidance on
setting the scale of international migration, one would want the literature to give insight
on its desired composition. Emigration pessimists suggest labor outflows are too skilled
while immigration pessimists suggest labor inflows are not skilled enough. Both
positions cannot be right.
Unfortunately, policy makers would be hard pressed to infer the effects of
international migration on global welfare from existing literature. The issue is not so
much that economists disagree on the magnitudes in question. Rather, the problem is that
the empirical literature tends to eschew a global general equilibrium perspective. There
has been an immense amount of work on how immigration affects US wages, but this is
just one outcome of interest. There has been comparatively little work on the impact of
immigration on non-labor income, the consequences of emigration for labor markets in
sending countries, how global labor flows affect fiscal balances in labor importing or
labor exporting economies, or what changes in opportunities for emigration mean for the
incentive to acquire skill. To be sure, economists have made progress on each of these
topics. But taking the literature as a whole gives the impression that the most relevant
consideration for evaluating migration’s impact is how foreign labor inflows affect the
earnings of low-skilled US workers. If we want policy makers to make informed choices
about migration policy, we have a lot more work to do.
In section II, I summarize facts about international migration that emerge from
5
recently available data. In section III, I outline a simple framework for evaluating the
welfare consequences of international migration. In section IV, I discuss empirical
research on the consequences of labor flows for incomes in sending and receiving
countries and for migrants and their family members. And in section V, I consider
directions for future empirical work.
2 TRENDS IN INTERNATIONAL MIGRATION
Perhaps the most striking fact about international migration is that it is so
uncommon. As summarized in Figure 1, data compiled by the United Nations imply that
in 2005 individuals residing outside of their country of birth comprised just 3.0% of the
world’s population. Moreover, during the last two decades the stock of international
migrants has grown only modestly, rising from 2.2% of the world population in 1980 to
2.9% in 1990 and marginally after that. Given substantial differences in average incomes
between countries, the small scale of global migration is surprising. In 2005, per capita
GDP (adjusted for PPP) was $33,600 in high-income OECD countries, compared to
$9,200 in Eastern Europe and Central Asia, $8,400 in Latin America and the Caribbean,
$6,200 in the Middle East and North Africa, $3,900 in East Asia and the Pacific, $2,100
in South Asia, and $1,700 in Sub-Saharan Africa. Of course, differences in average
income may overstate the gain to migration. In section IV, I discuss recent estimates of
cross-country earnings differences, which indicate that while per capita GDP differences
do exaggerate the income gain to moving abroad these gains are still substantial.
One explanation for the small scale of international migration is that receivingcountry
restrictions on immigration are binding. Table 1 shows the share of the
population that is foreign born in select OECD countries. Aside from tiny Luxembourg,
6
the countries with the largest immigrant presence in 2005 are Australia (24%),
Switzerland (24%), New Zealand (19%), and Canada (19%). Australia, New Zealand,
and Canada are unique among receiving countries in using a point system (rather than
quotas) to govern applications for admission, in which individuals with higher levels of
skill are favored for entry. Next in line in terms of the scale of immigration are the large
economies of Germany (13%), the US (13%), France (10%), and the UK (10%). The US
alone hosts 40% of immigrants living in OECD countries, making it the world’s largest
receiving country. The US uses a quota system to govern legal immigration, with two
thirds of visas reserved for family members of US citizens or residents. European
countries tend to place more emphasis on an individual’s refugee or asylee status in
making immigrant admission decisions (Hatton and Williamson, 2004). In the last
decade, there have been substantial increases in foreign-born population shares in a
number of rich countries, with the largest changes over 1995-2005 occurring in Ireland
(4.1%), the US (3.6%), New Zealand (3.2%), the UK (2.8%), Norway (2.7%), Canada
(2.5%), Belgium (2.4%), and Switzerland (2.4%).
One indication that receiving-country restrictions on immigration are binding is
that inflows of illegal immigrants are both a substantial share of the total and on the rise.
In the US, Passel (2008) estimates that in 2007 there were 12 million illegal immigrants,
which accounted for 30% of the US foreign-born population, up from 28% in 2000 and
19% in 1996. Over two thirds of US illegal immigrants are from Mexico and Central
America, suggesting that proximity facilitates illegal entry (Hanson, 2006). In Europe,
Jandl (2003) estimates that in 2003 there were 4 million illegal immigrants in the EU 15
countries, with the largest stocks in Germany, the UK, Italy and France. Greece, Italy,
7
Portugal and Spain have engaged in repeated recent legalizations of illegal immigrants,
meaning that the current stock of illegal immigrants in these countries understates the
number of immigrants who gain entry illegally.
In high-income OECD nations, low-income countries are an important source of
migrants. Table 2, using data from Beine, Docquier and Marfouk (2007), shows the
share of the immigrant population in OECD countries by sending region. In 2000, 67%
of immigrants in the OECD were from a developing country, up from 54% in 1990.
Among developing sending regions, Mexico, Central America, and the Caribbean are the
most important, accounting for 20% of OECD immigrants in 2000, up from 15% in 1990.
Half of this region’s migrants come from Mexico, which in 2000 was the source of 11%
of OECD immigrants, making it the world’s largest supplier of migrants. The next most
important developing source countries are Turkey (3.5% of immigrants); China, India,
and the Philippines (each with 3%); Vietnam, Korea, Poland, Morocco, and Cuba (each
with 2%); and Ukraine, Serbia, Jamaica and El Salvador (each with 1%).
Among sending countries, there is substantial variation in the propensity to
emigrate. As of 2000, there were 22 developing nations with 10% or more of their adult
population having migrated to the OECD, and 16 with emigration rates above 5%. At the
other extreme, 52 developing countries had emigration rates below 1%. There is strong
persistence in which countries send more people abroad, as seen in Figure 2, which plots
emigration rates in 1990 and against those in 2000. Countries with the highest
emigration rates tend to be small, poor countries that are relatively close to the US.
Within sending countries, emigrants tend not to be drawn randomly from the
population. Figure 3, taken from Grogger and Hanson (2008), plots the log odds of
8
emigration for individuals with tertiary education (13 or more years) against the log odds
of emigration for individuals with primary education (0 to 8 years).3
Nearly all points lie
above the 45 degree line, indicating that in most countries more educated individuals are
more likely to leave. Migrants thus appear to be positively selected in terms of
schooling. It is high emigration rates for the more educated that raise concerns about
brain drain from developing countries. Even though they are positively selected,
migrants often have education levels far below those of native residents, owing to the fact
that many come from countries with low average levels of schooling.
More skilled emigrants tend to cluster in locations where the reward to skill is
relatively high. This phenomenon of positive sorting is evident in Table 3, also taken
from Grogger and Hanson (2008), which gives the share of international migrants
residing in OECD countries by major destination region. Countries in which the reward
to being a skilled worker is relatively large attract a disproportionate share of moreeducated
emigrants. In the US and Canada, the difference in earnings between highskilled
and low-skilled workers is much greater than in continental Europe, with this
difference being even larger once one accounts for Europe’s more progressive tax
system. The US and Canada receive 51.4% of the OECD’s immigrants, but 65.5% of its
immigrants with tertiary schooling. Europe, in contrast, receives 38.4% of the OECD’s
immigrants, but only 23.6% of its tertiary-schooled immigrants. Realizing potential
global welfare gains from migration may require not just allowing individuals to emigrate
from low-income countries in larger numbers but also allowing them to sort themselves
across receiving countries according to labor-market rewards to skill.
3
The log odds are defined as the log ratio of adult emigrants with a given education level to the entire adult
population of a country (emigrants plus non-emigrants) with the same education level.
9
The small scale of international migration suggests that rich-country restrictions
on immigration are at least partially effective at impeding labor inflows from abroad.
Migrating legally involves costs associated with obtaining a visa, which can easily run
into the tens of thousands of dollars. Illegal entry is also subject to costs, with fees for
smuggler services to cross the US-Mexico border in 2006 and 2007 averaging around
$3,000 (Hanson, 2006) and fees to migrate from China and other distant countries to the
US surpassing $30,000. Either because of fixed costs to emigration or because of larger
gains in labor-market earnings from moving abroad, more-educated individuals tend
dominate labor outflows flows from poor sending countries to rich destinations.
Though migrants tend to be more educated than those that remain in sending countries,
they often have much lower education levels than native residents in receiving countries.
As a consequence, immigration from poor countries tends to increase receiving countries’
relative supplies of individuals with low education levels.
3 WELFARE CONSEQUENCES OF INTERNATIONAL MIGRATION
What information would one need to gauge the effects of international migration
on national and global welfare? Let V(p, yi) be the indirect utility enjoyed by an
individual with factor type i who faces price level for consumption goods and services, p,
and who receives after-tax income available for consumption, yi.4
To keep things simple,
I examine the welfare effects of migration in static terms. Another simplification is to
assume there are just two types of individuals, high skilled (i=H) and low skilled (i=L),
where all workers supply labor inelastically. A third is to impose constant returns to
4
I take liberties with the indirect utility function by treating p as a price index and thus a scalar. If there
was more than one good in consumption, this would require redefining V(). As long as preferences are
homothetic, there would be no other complications.
10
scale in production, such that goods’ prices are a function of unit factor costs.
Consider the migration of low-skilled labor from a low-income sending country
(e.g., Mexico) to a high-income receiving country (e.g., the US). For country c, the
impact of migration on national welfare is given by
c c
c c ci i i
i
i i
V V yp
dW dL
p L y L
⎡ ⎤∂ ∂ ∂∂
= α +⎢ ⎥
∂ ∂ ∂ ∂⎣ ⎦
∑ (1)
where αc
i is the fraction of the population with skill type i. The first term in the brackets
in (1) is the impact of migration on consumer prices; the second is the impact of
migration on factor income. In the US, there would be an increase in the supply of lowskilled
labor (dLc
>0), whereas in Mexico there would be a decrease (dLc
<0). Suppose
preferences are homothetic and the marginal utility of income, ∂Vc
i/∂yi, is a constant. In
this case, the impact of migration on national welfare in country c can be written as,
c c c c c cL Hy y
dW L H dL
L L
∂ ∂⎡ ⎤
= β + λ +⎢ ⎥∂ ∂⎣ ⎦
, (2)
where λc
is the marginal utility of income divided by the population ( c c
L H+ ) and
c c c
i( V / p )( p / L )dLβ = ∂ ∂ ∂ ∂ would be positive in the US (as long as immigration lowers
the average price of goods) and negative in Mexico (as long as emigration raises the
average price of goods). Stating the change in welfare relative to national income,
c c c c c
L HY L y H y= + , equation (2) becomes,
c c c
c c c c c c
L LL H HLc c c
dW M M
Y L H
⎡ ⎤
= β + λ θ ε + θ ε⎢ ⎥
⎣ ⎦
, (3)
where c c c
/ Yβ = β , c c
L H( )θ θ is the share of low-skilled labor (high-skilled labor) in
national income, iL i i( y / L )( L / y )ε = ∂ ∂ is the elasticity of income for factor type i with
11
respect to the supply of low-skilled labor, and Mc
=dLc
. Immigration (emigration) of lowskilled
labor lowers (raises) low-skilled wages in the US (Mexico) but raises (lowers)
high-skilled wages in the US (Mexico), owing to the fact that 0c
LLε < and 0c
HLε > .
For the US, the term in brackets is equivalent to the immigration surplus,
described by Borjas (1999a), but expressed in terms of two factors of production, as in
Euwals and Hans Roodenburg (2004). For the US, the immigration surplus is positive,
since immigration raises GNP, defined to exclude migrant income. The change in
Mexico’s GNP, defined to include the incomes of non-migrants and migrants, is also
positive. Since GNP increases in both countries, global welfare rises.
Figure 4 captures the changes in income more formally, where I assume there is a
single good and that migration equalizes wages for low-skilled labor in the two countries.
The horizontal width of the box in Figure 4 gives the total labor supply in the US and
Mexico, L . US (Mexico) labor demand is given by Dus
(Dmx
), with origin 0us
(0mx
). In
the pre-migration equilibrium, at point 1, US labor supply is 1
us
L and Mexico’s labor
supply is 1
us
L L− , causing US wages to exceed Mexican wages: us mx
L Ly y> .
If low-skilled labor is allowed to move freely between the countries, there will
migration from Mexico to the US up to the point where US and Mexican wages are
equalized at *
Ly , shown by point 2, with low-skilled wages rising in Mexico and falling in
the US. US labor supply expands to 2
us
L and Mexico’s contracts to 2
us
L L− , as
2 1
us us
L L− workers move between countries. In the US, the loss in income for native lowskilled
workers is given by area A and the gain in income for native high-skilled workers
is given by area A+B. The change in US GNP equals area B, which is the immigration
12
surplus. Migrants earn income C+D+E, meaning that US GDP (which includes the
income that migrants earn in the US) rises by an amount equal to area B+C+D+E.
In Mexico, native high-skilled workers have an income loss equal to area D+F,
due to the departure of low-skilled labor. Non-migrating native low-skilled workers have
an income gain equal to area F and migrating native low-skilled workers have an income
gain equal to area C+D. Mexico’s gain in GNP equals area C, though it has a loss in
GDP equal to area D+E. The gain in world national income equals B+C, as migration
eliminates differences in labor productivity between countries. To ensure that
international migration generates Pareto gains in welfare, US low-skilled workers would
have to receive an income transfer equal to at least A and Mexican high-skilled workers
would have to receive a transfer of at least D+F.
A change in the environment that could affect the implications of migration for
income is the introduction of redistributive taxes and transfers. Redefine yi as after-tax,
or net, income, which depends on pre-tax wage income, wi, the income-tax rate, ti, and
government transfers, gi, such that
( )1c c c c
i i i iy w t g= − + . (4)
Under the assumption that c c
H Lw w> (i.e., there are positive returns to skill), an economy
with progressive taxes that redistributes income from high-income to low-income
individuals would have that c c
H Lt t> and c c c c
H H L Lg / w g / w< . Returning to equation (3),
the elasticity of net income with respect to the supply of low-skilled labor, c
iLε , would
account for how immigration affects not just pre-tax labor income, c
iw , but also the tax
rate, c
it , and government transfers, c
ig . This elasticity can be written as,
13
1c c c c c c c
iL w,i w,iL i t,i t ,iL g ,i g ,iL( t )ε = ρ η − −ρ η + ρ η . (5)
where for factor type i c
h,iρ is the share of income type h in net income and c
h,iLη is the
elasticity of income type h with respect to the migration of low-skilled labor (where
w=pre-tax wages, g=government transfers, and t=taxes).
To interpret (5), consider the impact of low-skilled immigration on high-skill
labor in the US. Based on Figure 4, an inflow of low-skilled foreign labor raises wages
for high-skilled US workers (since 0c
w,HLη > ). However, it might also raise the net tax
burden on these individuals. If in the US the net tax burden ( c c c
i i it w g− ) is positive for the
high skilled and negative for the low skilled and immigrants have the right to receive
government transfers, then low-skilled immigration could increase US government
spending by more than it increases tax revenues. In order to balance the government
budget, the US would have to increase tax rates and/or decrease government transfers.
Were the US to keep its progressive tax system in place, the net tax burden on the high
skilled would rise, offsetting their gain in pre-tax income. For US low-skilled workers,
the loss from low-skilled immigration may be greater than without a tax system in place.
Not only would their pre-tax wage fall as a result of the increase in low-skilled labor
supply (since 0c
w,LLη < ) but they could also face lower transfers and/or higher taxes.
If the sending country also has a progressive tax system, the departure of lowskilled
emigrants could reduce the net tax burden on non-migrants, allowing the
government to decrease taxes on the high skilled and/or raise transfers to the low skilled.
However, the tax effects from low-skilled emigration are less clear cut once one accounts
for life cycle features of taxes and transfers. Many of the transfers individuals receive
over their lifetime come in their youth in the form of public education and subsidized
14
health care. If low skilled workers enjoy these transfers while young and emigrate before
entering the labor force, sending country governments would be denied the returns on the
investments they have made in these individuals. In principle, low-skilled emigration has
the potential to increase the net tax burden on non-migrants in the sending country. With
an increase in high-skilled emigration, the change in net tax revenue for the sending
country is likely to be negative, given the magnitude of the investments sending country
governments make in their education and the high incomes these individuals earn.
Equations (3) and (5) give a partial inventory of the parameters policy makers
would need to know to assess the welfare consequences of international migration. These
include the elasticities of wages, tax rates, government transfers, and consumption prices
with respect to national labor inflows and outflows. Allowing labor supply to be elastic
would exacerbate the welfare effects of tax and transfer policies.
The effects of migration on skill accumulation are also important, given the
centrality of human capital to the process of economic growth. Theoretical literature has
devoted substantial attention to the impact of emigration on the incentive to acquire
human capital in sending countries (Docquier and Rapoport, 2008)). Absent distortions,
moving labor from a low productivity to high productivity environment raises global
income. However, if there are positive externalities associated with learning (e.g., Lucas,
1988), the exodus of skilled labor from a country may have adverse consequences for
economic development in sending countries (Bhagwati and Hamada, 1974). In theory,
the impact of brain drain on a sending country can be positive or negative. Miyagiwa
(1991) develops a model in which, because of human capital spillovers, the migration of
skilled labor from a low-wage, skill-scare economy to a high-wage, skill-abundant
15
economy reinforces the incentive for brain drain, depleting the low-wage country of
skilled labor. In Wong and Yip (1999), the negative effects of brain drain on the stock of
human capital reduce the labor-exporting country’s growth rate.
It is also possible, however, that emigration would on net increase the supply of
human capital in a country, creating a brain gain (Stark and Wang, 2002). With high
incomes for skilled labor in rich countries and uncertainty over who will succeed in
emigrating, the option of moving abroad may induce individuals to accumulate enough
additional human capital to compensate for the loss in skill to labor outflows (Beine,
Docquier and Marfouk, 2001). Mountford (1997) shows that in the presence of humancapital
externalities an emigration-induced increase in the incentive to acquire skill can
help an economy escape a poverty trap and move to a high-growth equilibrium.
To assess the welfare consequences of international migration, policy makers
would need to know, in addition to the elasticities in (5), how labor mobility affects the
incentive to acquire skill in sending and receiving countries. The framework I have
outlined, while very simple, has demanding informational requirements for assessing the
welfare effects of migration. I next examine how successful the literature has been in
meeting these informational requirements.
4 EMPIRICAL RESEARCH ON INTERNATIONAL MIGRATION
I begin the discussion by considering the gain in income to migrants and evidence
on the extent to which migrants share these gains with family members in the sending
country. I then consider the impact of global labor flows on labor market earnings, net
tax burdens, and skill acquisition in sending and receiving countries.
16
A. INCOME GAINS TO MIGRANTS
Consider the income gain to migrating from Mexico to the United States. In
2000, per capita GDP in Mexico was $9,700, compared with $34,500 in the US.5
While
the income gain from leaving Mexico for the US is likely to be large, it is surely
overstated by the difference in average income, reported in Table 4.
One issue is that workers in Mexico and the US have different levels of education
and labor market experience. At the very least, one would want to compare incomes for
individuals with similar observable characteristics. Using data from US and Mexico
population censuses, Hanson (2006) reports that in 2000 the average hourly wage for a 28
to 32 year old male with 9 to 11 years of education was $2.40 in Mexico and $8.70 for
recent Mexican immigrants in the US. At a labor supply of 35 hours per week and 48
weeks per year this would yield a yearly income gain of $10,600. Combining household
data in developing countries with data from the US Census, Clemons, Montenegro, and
Pritchett (2008) estimate that in 2000 the annual income gain to migration for a 35 yearold
urban Mexican male with 9 to 12 years of education was $9,200.
Simply by controlling for observable characteristics, the estimated gain to
migration from Mexico to the US falls from $25,000 to $10,000. Even still, migrants and
non-migrants with similar education and experience may not be comparable. They may
differ in terms of unobserved cognitive ability, motor skills, or motivation. The data in
Figure 3 suggest that emigrants are positively selected in terms of schooling. If migrants
are also positively selected on unobserved characteristics, the estimated $10,000 gain
would overstate the benefits from Mexican emigration. Using a range of econometric
techniques, Clemons, Montenegro, and Pritchett (2008) attempt to control for self-
5
All monetary figures are in 2000 US dollars and adjusted for PPP.
17
selection on unobservables in migration, as well as for the possibility that the gains to
migration include compensation for the cost of moving abroad. They find that observed
gains to migration overstate true gains by 1.25 to 1.5 times. For the Mexico-US case, the
gain to migration would fall from $10,000 to $6,700 to $8,000.
A better comparison would be to examine income for the same individual, before
and after migration. Rosenzweig (2007) uses data from the New Immigrant Survey to
estimate the change in income for new US permanent legal immigrants in 2003. He
compares their current US earnings with their earnings in the last job they held in their
country of origin. For a legal immigrant from Mexico with 9 to 12 years of education,
the average gain in income is $15,900 (at 35 hours a week and 48 weeks a year).
Comparing the same individuals in two countries corrects for selection on unobservables
but introduces other complications. If preparation for migration means a reduction in
labor supply, Rosenzweig’s estimates may overstate the gains to migration.6
An alternative way to gauge the income gain to migration would be to compare
the incomes of two individuals from the same source country where one is randomly
selected to migrate to a particular destination and the other is not. McKenzie, Gibson,
and Stillman (2006) use data from New Zealand’s visa lottery to examine such an
experiment. They compare the income of lottery losers in Tonga (i.e., those who applied
for the visa lottery and were rejected) with the incomes of lottery winners who migrated
from Tonga in New Zealand. The average increase in income is 263%, which is half as
large as the difference in Tongan and New Zealand per capita GDP. McKenzie et al. are
also able to compare the incomes of lottery losers in Tonga with the incomes they
6
Since Rosenzweig (2007) examines legal immigrants, his figures not directly comparable to Hanson
(2006) or Clemons, Montenegro, and Prichett (2008), whose samples include legal and illegal immigrants.
18
expected to have earned if they had migrated. Expected gains are only 84%. Relatively
small expected gains may reflect informational asymmetries between domestic and
foreign residents regarding labor market conditions abroad.
The income gain from migration captures the gross return from moving to another
country. While there has been research on the role of migration networks in migration
decisions (e.g., Munshi, 2003), there is little work that estimates the actual cost of
migration. These costs include transport expenses in moving abroad, time lost in
changing labor markets, administrative fees for legal migration, border crossing costs in
illegal migration, the psychic costs of leaving home, and perceived changes in uncertainty
from living and working in another country. The absence of comprehensive data on
migration costs means that we are far from being able to produce estimates of the change
in net income emigration.
Through remittances, migrants share a portion of their extra income with family
members at home. Remittances have increased markedly in East Asia and the Pacific,
Latin America and the Caribbean, South Asia, and Sub-Saharan Africa. As of 2005,
remittances exceeded official development assistance in all regions except Sub-Saharan
Africa and were greater than 65% of foreign direct investment inflows in all regions
except Europe and Central Asia. Among the smaller countries of Central America, the
Caribbean, and the South Pacific, remittances account for a large share of national
income, ranging from 10% to 17% of GDP in the Dominican Republic, Guatemala, El
Salvador, Honduras, Jamaica, and Nicaragua, and representing an astounding 53% of
GDP in Haiti (Acosta, Fajnzylber, and Lopez, 2007).
Having migrants abroad provides insurance to households, helping them smooth
19
consumption in response to income shocks, be they domestic or foreign. Yang (2007)
examines changes in remittances to households in the Philippines before and after the
Asian financial crisis. As of 1997, 6% of Philippine households had a member that had
migrated abroad. Some had gone to countries in the Middle East, whose currencies
appreciated sharply against the Philippine peso in 1997-1998, while others had gone to
East Asia, where currencies appreciated less sharply or even depreciated. Consistent with
consumption smoothing, remittances increased more for households whose migrants
resided in countries that experienced stronger currency appreciation against the peso.
There is some evidence that increases in remittances are associated with increased
expenditure on education and health. Yang (2007) also examines changes in household
expenditure and labor supply in the Philippines. Households with migrants in countries
experiencing stronger currency appreciation vis-à-vis the peso had larger increases in
spending on child education, spending on durable goods, children’s school attendance,
and entrepreneurial investments. In these households, the labor supply of 10-17 year old
children fell by more, particularly for boys. Using cross-section data on Mexican states,
Woodruff and Zenteno (2007) find a positive correlation between emigration and
business formation. These results suggest migration may help household overcome credit
constraints imposed by sending country financial markets.
Differences in per capita GDP across countries appear to overstate the income
gain from migrating abroad by two to three times. Even after accounting for this bias, the
gross income gain to migration is still large. For a young male with some secondary
education, Clemons, Montenegro, and Pritchett (2008) estimate the median annual gain
from migrating to the US to be $11,200, while Rosenzweig estimates the annual gain to
20
legal migration to the US to be $10,600. The net gains to migration are unknown,
however, given the absence of information about the magnitude of total migration costs.
Remittances spread the income gains from migration to individuals in sending countries,
allow households to smooth consumption in response to income shocks, and perhaps
relax credit constraints on households.
B. LABOR MARKET CONSEQUENCES
The labor-market consequences of international migration have inspired intense
debate among scholars. The vast majority of research has focused on the impact of labor
inflows on the US wage structure. Only recently has the literature begun to examine
other receiving countries or effects on sending economies. The US literature has been
extensively reviewed elsewhere (e.g., Borjas, 1999a; Card, 2005), allowing me to cover
the topic briefly. I summarize the current state of the debate and identify questions that
are central to resolving it.
Research using data on the national US labor market suggests that immigration
depresses wages for US workers. Borjas (2003) defines labor markets at the national
level according to a worker’s education and labor-market experience. Over the period
1960 to 2000, education-experience cells in which immigrant labor supply growth has
been larger – such as for young high school dropouts –had slower wage growth, even
after controlling for education or experience specific wage shocks. The evidence is
consistent with immigration having depressed wages for low-skilled US workers. The
concern about this approach is that it might confound immigration with other labormarket
shocks that have hurt low-skilled workers, such as skill-biased technological
change. Absent controls for these other shocks, one cannot be sure the attributed wage
21
changes are really due to immigration.
Applying a similar approach to Canada, Aydemir and Borjas (1997) find
comparable evidence of the wage effects of migration. In Canada, where immigration
has been dominated by workers toward to the top end of the skill distribution,
immigration is negatively correlated with wages across education-experience cells, with
more-educated workers being the ones who have suffered the largest wage effects. Since
Canada is presumably subject to many of the same technology shocks as the US, it would
not appear that unobserved technology shocks could explain away the wage effects of
immigration in both countries.
The national-level approach also yields comparable results of the wage effects of
migration in sending countries. Mishra (2005) finds a positive correlation between
emigration and wages across education-experience cells in Mexico. In Mexico,
emigrants come disproportionately from the middle of the skill distribution, meaning
workers with close to average levels of education are those that have had the largest wage
gains from labor outflows. Aydemir and Borjas (1997) obtain similar results and also
find that the elasticity of wages with respect to labor supply is roughly similar in Canada,
Mexico, and the US. In all three countries, a 10% change in labor supply due to
migration is associated with a 4% to 6% change in wages.
An older and larger literature has searched for immigration’s impact by
correlating the change in wages for low-skilled US natives with the change in the
immigrant presence in local labor markets, typically at the level of US cities. These area
studies tend to find that immigration has little if any impact on US wages (Borjas,
1999a). Card (2005) argues that if immigration has affected the US wage structure one
22
should see larger declines in the wages of native high school dropouts (relative to, say,
native high school graduates) in US cities where the relative supply of high school
dropouts has expanded by more. In fact, the correlation between the relative wage and
the relative supply of US high school dropouts across US cities is close to zero.
Yet, one type of cross-sectional evidence is consistent with immigration having
lowered wages. Cortes (2008) finds that in the 1980s and 1990s US cities with larger
inflows of low-skilled immigrants experienced larger reductions in prices for
housekeeping, gardening, child care, dry cleaning and other labor-intensive services. A
10% increase in the local immigrant population is associated with decreases in prices for
labor-intensive services of 1.3% percent. One obvious mechanism through which
immigration could have lowered prices is through its effects on wages.7
The area study approach also has its problems. Immigrants may tend to settle in
US regions in which job growth is stronger, causing one to underestimate the wage
impact of immigration when using city or state-level data. As a correction, many studies
instrument for growth in local immigrant labor supply using lagged immigrant settlement
patterns. But this strategy requires strong identifying assumptions. It would be invalid,
for instance, if the labor demand shocks that influence immigrant settlement patterns are
persistent over time (Borjas, Freeman, and Katz, 1997).
Research on other receiving countries tends to report negligible estimated impacts
of immigration on wages. After the collapse of the Soviet Union, there was a massive
migration of Russian Jews to Israel, which increased the Israeli population by 12% in the
span of just four years. Over the course of the Russian influx, Friedberg (2001) does find
7
In Israel, Lach (2008) find negative prices effects from immigration, which are not limited to laborintensive
goods. He attributes these to immigrants having more elastic demand and lower search costs.
23
that occupations that employed more immigrants had slower wage growth, but this
correlation falls to zero once she instruments for immigrants’ occupational choice.8
In
applications of the area studies approach outside of the US, findings of little or no impact
of immigration on regional wages include Addison and Worswick (2002) for Australia;
Pischke and Velling (1997) for Germany; Zorlu and Hartog (2005) for the Netherlands
and Norway (2005); Carrasco, Jimeno, and Ortega (2008) for Spain; and Dustmann,
Fabri, and Preston (2005) in the UK.9
In light of the theoretical results presented in section III, it is surprising that an
immigration-induced increase in the relative supply of low-skilled US labor would not
depress relative wages for native workers in this skill group. Yet, the estimated wage
impact of immigration depends in part on whether one treats the labor market as national
or local in scope. The literature offers several possible ways to reconcile the differences
in results at the national and sub-national levels.
1. An immigrant influx in a region induces natives to move out, such that estimating
immigration’s labor-impact at the sub-national level understates its true effect.
The impact of immigration on the migration of native labor is another issue about
which there is disagreement. Card (2001, 2005) finds that across US cities, higher
presence of low-skilled immigrants is associated with higher levels of employment of
low-skilled labor, with one new immigrant on net adding about one new net worker to a
labor market, suggesting that native outmigration does not offset the labor supply effects
of arriving immigrant workers. Pischke and Velling (1997) find a similar absence of
8
In earlier work, Hunt (1992) and Carrington and de Lima (1996) find evidence of minimal labor-market
effects from the forced return of expatriates in France and Portugal, following the end of colonialism.
9
Negative wage effects of immigration have been found in Germany (De New and Zimmerman, 1994) and
Austria (Hofer and Huber, 2003).
24
native displacement effects in Germany. Borjas (2006), using the regional counterpart to
the national-level education-experience cells in Borjas (2003), comes to the opposite
conclusion. He finds that the growth in the native workforce is smaller in regional
education-experience cells in which the growth in immigrant presence has been larger.
Moreover, he shows that not accounting for the internal migration of natives causes area
studies regressions to understate the wage effects of immigration by about half. Hatton
and Taini (2005), using data on regional labor markets in the UK, also find evidence that
the arrival of immigrant workers displaces local native workers.
We have another instance in which time-series evidence suggests one thing while
cross-sectional evidence suggests something else. The cross-section evidence is again
subject to concerns about the endogeneity of immigrant settlement patterns, but these
concerns have been insufficient for the literature to come to a consensus about how
immigration affects the location decisions of natives.
2. Immigration induces firms to raise investment and increase innovation, partially or
fully offsetting the wage impacts of labor inflows.
While this idea is plausible, there is relatively little empirical research on the
impact of immigration on investment or innovation at the regional or national level.
There is some evidence that immigration is associated with changes in technology, or at
least with changes in production techniques. Lewis (2005) finds that regions absorb
immigrants through their industries becoming more intensive in the use of immigrant
labor. In particular, industries in US metropolitan areas that have received larger inflows
of low-skilled immigrant labor have increased their relative labor intensity by more.
These industries have also been slower to adopt new technologies, suggesting changes in
25
labor supply may affect incentives for technology adoption, as in Acemoglu (1998).
Gandal, Hanson, and Slaughter (2004) find evidence of similar within-industry changes
in factor intensity in response to the Russian immigration in Israel in the early 1990s.
Incidentally, Lewis’ (2005) results rule out changes in sectoral mix accounting for
regional absorption of immigrant labor, as could occur in a simple Heckscher-Ohlin
model. He finds little evidence that regions have absorbed incoming immigrants by
shifting employment towards sectors that are more intensive in low-skilled labor.
3. Immigrant and native workers are imperfect substitutes in production, such that on net
foreign labor inflows do not hurt native workers (and may actually help them).
In initial work, Ottaviano and Peri (2007) found evidence that immigrant and
native labor were imperfect substitutes. They estimated a negative and significant
correlation between immigrant-native relative wages and immigrant-native relative
employment, across Borjas’ (2003) education-experience cells. However, their results
appear sensitive to how one defines skill groups. Simply by dropping high school
students from the sample, the finding of imperfect substitutability between immigrants
and natives disappears. More generally, Borjas, Grogger, and Hanson (2008) show that
across a wide variety of specifications one cannot reject the hypothesis that comparably
skilled immigrants and natives are perfect substitutes in employment, in line with earlier
work by Jaeger (1997). Whatever one thinks about the wage effects of immigration, lowskilled
immigrant and native workers appear to be in the same labor market.
To date, the literature offers two approaches for estimating the wage effects of
migration, which yield quite different results. The national-level approach is subject to
26
concerns about how one controls for changes in technology, though these should be at
least partly allayed by the fact that countries with very different types of migration shocks
exhibit similar migration wage elasticities. The area studies approach is subject to
concerns about the endogeneity of immigrant settlement patterns, with it being difficult to
assess the validity of proposed solutions to this problem.
The literature’s near obsession with the wage impacts of immigration leaves the
impression that these are sufficient to identify immigration’s impact on national income.
In an economy without distortions, even if all workers lose from immigration, the income
gain to capital owners will be sufficient to ensure that national income increases. Indeed,
it is unlikely that an economy could experience a gain in national income from
immigration without at least some workers being hurt. So far, empirical research has had
little to say about the impact of immigration on non-labor income.
C. FISCAL CONSEQUENCES
By changing labor supply, international migration may alter a country’s fiscal
accounts. With emigrants being positively selection in terms of schooling, sending
countries are deprived of high-income taxpayers. To the extent that education and health
care are publicly provided, sending countries may have made substantial investments in
these individuals while young only to have receiving countries reap the returns.
While there is a large body of theoretical literature on the taxation of skilled
emigration (see, e.g., Bhagwati and Wilson, 1989; Docquier and Rapoport, 2007),
empirical research on the subject is sparse. In a recent contribution, Desai, Kapur, and
McHale (2008) examine the fiscal effects of brain drain from India. In 2000, individuals
with tertiary education accounted for 61% of Indian emigrants but just 5% of India’s total
27
population. Between 1990 and 2000, the emigration rate for the tertiary educated rose
from 2.8% to 4.3%, but from just 0.3% to 0.4% for the population as a whole. Desai et
al. examine Indian emigration to the US, which in 2000 was host to 65% of India’s
skilled emigrants. First, they use Mincer wage regressions to produce a counterfactual
income series that gives emigrants the income they would have earned in India based on
their observed characteristics and the returns to these characteristics in India. On the tax
side, they calculate income tax losses by running the counterfactual income series
through the Indian income tax schedule. They also calculate indirect tax losses using
estimates of indirect tax payments per unit of gross national income. On the spending
side, they calculate expenditure savings by taking the categories for which savings would
exist and then estimating savings per individual. Their results suggest Indian emigration
to the US cost India net tax contributions of 0.24% of GDP in 2000. Remittances by
skilled emigrants generated a tax gain of 0.1% of GDP, partially offsetting these losses.
For India, the tax consequences of skilled emigration appear to be small, though small
countries with high emigration rates may face larger impacts.
In receiving countries, immigration may exacerbate inefficiencies associated with
a country’s system of public finance. Where immigrants pay more in taxes than they
receive in government benefits, immigration reduces the net tax burden on native
taxpayers. The total impact of immigration on native residents—the sum of the
immigration surplus (the pretax income gain) and the net fiscal transfer from
immigrants—would be unambiguously positive. With progressive income taxes and
means-tested entitlement programs in many receiving countries, positive fiscal
consequences from immigration would appear to be more likely the more skilled the
28
labor inflow. In contexts where immigrants pay less in taxes than they receive in
government benefits, immigration increases the net tax burden on natives, necessitating
an increase in taxes on natives, a reduction in government benefits to natives, or
increased borrowing from future generations.
There are also dynamic fiscal effects from immigration (Auerbach and
Oreopoulos, 1999). If the net tax burden on residents of a country is expected to increase
in the future, immigration increases the tax base over which this burden can be spread
and reduces the increase that natives would have to bear (Collado and Valera, 2004). But
this is only true if the descendents of immigrants see their incomes rise to a point where
they make positive net tax contributions. If the children of immigrants have their
educational attainment lag behind that of natives, high levels of immigration today could
instead increase the future tax burden on the native population.
In the US, immigrant households have historically made greater use of subsidized
health care, income support to poor families, food stamps and other types of public
assistance (Borjas and Hinton, 1996). Immigrant households tend to be larger than native
households, have more children, and have very low incomes, making them eligible for
more types of benefits. In the last decade, however, the difference between immigrant
and native use of welfare programs in the US has fallen or even reversed, largely because
of a sweeping reform of welfare policy in 1996, one effect of which was to restrict noncitizens
from having access to many federally funded benefit programs. While
immigrant households still make greater use of public healthcare than native households,
they make comparable or less use of other types of public assistance (Borjas, 2003;
Capps et al., 2005). In the European Union, the concern is that enlargement to include
29
lower income countries in Central and Eastern Europe will lead to low-skilled migration
to higher income countries, and increases in welfare usage (Sinn, 2002).
Calculating the total fiscal consequences of immigration, while straightforward
conceptually, is difficult in practice. To estimate them correctly, one needs to know many
details about the income, spending, and employment behavior of the population of
immigrants. As a result, there are few comprehensive analyses of the fiscal impact of
immigration. In one of the few such studies, Smith and Edmonston (1996) estimate that
in 1996 immigration imposed a short-run fiscal burden on the average US native
household of $200, or 0.2 percent of U.S. GDP. In that year, a back of the envelope
calculation suggests that, following the logic of equation (3), the immigration surplus was
about 0.1 percent of GDP (Borjas, 1999b), meaning that immigration in the mid-1990s
reduced the annual income of US residents by about 0.1 percent of GDP. Given the
uncertainties involved in making this calculation, this estimate is unlikely to be
statistically indistinguishable from zero. While we cannot say with much conviction
whether the aggregate fiscal impact of immigration on the US economy is positive or
negative, it does appear the total impact is small.10
Tax and transfer policies create a motivation for a government to restrict
immigration, even where the level of immigration is set by a social planner. If
immigrants are primarily individuals with low incomes relative to natives, increased labor
inflows may exacerbate distortions created by social-insurance programs or means-tested
entitlement programs, making a departure from free immigration the constrained social
10
This estimate is based on short run considerations. Allowing for dynamics could change the results.
30
optimum (Wellisch and Walz, 1998).11
Pay as you go pension systems create a further
incentive for politicians to manipulate the timing and level of immigration (Scholten and
Thum, 1996; Razin and Sadka, 1999). Given its graying population and unfunded
pension liabilities, one might expect Western Europe to be opening itself more
aggressively to foreign labor inflows. However, concerns over possible increases in
expenditure on social insurance programs may temper the region’s enthusiasm for using
immigration to solve its pension problems (Boeri and Brücker, 2005).
In the US, the fiscal consequences of immigration appear to matter for
immigration policy preferences. Hanson, Scheve, and Slaughter (2007) find that U.S.
natives who are more exposed to immigrant fiscal pressures – those living in states that
have large immigrant populations and that provide immigrants access to generous public
benefits – are more in favor of reducing immigration. This public-finance cleavage is
strongest among natives with high earnings potential, who tend to be in high tax brackets.
Facchini and Mayda (2006) obtain similar results for Europe. More educated individuals
are more opposed to immigration in countries where immigrants are less skilled and
governments are more generous in the benefits they provide.
The evidence that does exist suggests that the short run consequences of
international migration are modest. However, the literature has only examined a handful
of countries. While there is theoretical literature on the dynamic consequences of
migration, as well as its impacts on political economy, empirical work on these subjects
11
In the long run, immigrants may affect voting outcomes directly through their participation in the
political process (Razin, Sadka, and Swagel, 2002; Ortega, 2004).
31
is sparse. We cannot say much to policy markers about the net fiscal impacts of
international migration other than preliminary evidence suggests they are not very big.
D. HUMAN CAPITAL ACCUMULATION
International migration has the potential to affect the accumulation of human
capital in both sending and receiving countries. In receiving countries, migration may
increase the relative supply of high-skilled labor (e.g., Canada), low-skilled labor (e.g.,
Spain), or both high and low-skilled labor (e.g., the US). To the extent wages fall for the
skill group whose relative supply increases, native workers have an incentive to select out
of that skill group. Alternatively, immigration may affect native schooling decisions by
increasing competition for scarce educational resources.
Using data on the US, Borjas (2004) estimates a negative correlation between the
number of foreign students and the number of native-born students in university graduate
programs, suggesting that foreign students may crowd out natives. Even with crowding
out, the arrival of foreign students may still lead to an increase in the net supply of skilled
labor in the US. Stuen, Mobarak, and Maskus (2006) find that university departments
with more foreign graduate students have more publications in scientific journals,
suggesting inflows of foreign students may spur knowledge creation.
Looking lower down the skill ladder, Betts and Lofstrom (2000) and Hoxby
(1998) present evidence that immigration adversely affects college attendance for US
natives, particularly for minority students, and Betts (1999) finds that increases in the
number of student-age immigrants in a US locality are associated with decreases in the
32
likelihood that local black and Latino students will complete a high school degree.12
For
Israel, Paserman and Gould (2008) find that having more immigrants in one’s grade
school class is associated with a lower likelihood that a student will subsequently
matriculate in or graduate from high school. While the precise mechanisms behind these
relationships are unclear, it does appear that the performance of native students
deteriorates following a local influx of immigrant students.
In sending economies, the focus of research has been on how opportunities for
emigration affect the incentive to acquire skill. In poor countries, the income gain from
emigration is often substantial. Moreover, the gain to migration is larger for individuals
with higher education levels (Rosenzweig, 2007; Grogger and Hanson, 2008). An
increase in the probability that individuals from a poor sending country will be allowed to
emigrate to the US or Europe may thus increase the incentive to obtain higher levels of
education. The quantitative impact of this brain gain effect depends on the elasticity of
the sending-country supply of educational services and the perceived probability of
migrating successfully. Where seats in colleges and universities are in limited supply,
increases in the demand for higher education may have little effect on the local number of
educated workers.13
Relatedly, where receiving countries allocate immigration visas in a
non-random manner (say, by reserving entry slots for family members of existing US
residents), many sending-country residents may have little hope of moving abroad,
leaving their incentive to acquire skill unaffected by emigration opportunities.
Only a handful of empirical papers have examined the relationship between
emigration and human-capital accumulation. For a cross-section of countries, Beine,
12
In related work, Betts and Farlie (2003) find that immigration induces natives to select out of public
schools and into private schools.
13
Unless, of course, individuals are able to migrate abroad for their education. See Rosenzweig (2006).
33
Docquier, and Rapoport (2006) report a positive correlation between emigration to rich
countries and the increase in the stock of human capital. This finding is consistent with
emigration increasing the incentive to acquire education. However, it is not clear that one
can make inferences about the causal impact of brain drain on educational attainment
from the cross-section correlation between emigration and schooling. Individuals are
likely to treat education and migration as joint decisions, making the two outcomes
simultaneously determined. For causal inference, one would need to observe changes in
human-capital accumulation in sending countries before and after there were unexpected
and exogenous shocks in the opportunity to emigrate. The literature has yet to uncover
such experiments in the data, meaning we still have an incomplete sense of how
emigration affects supplies of human capital.
In a related line of research, the literature examines whether studying abroad is a
vehicle for more permanent migration. In the US, many of the individuals who succeed
in obtaining temporary or permanent immigration visas reserved for skilled workers are
foreign students enrolled in US universities. Coming to the US on a student visa may
increase the likelihood of obtaining an employment visa. Studying abroad is thus partly
about completing higher education and partly about creating opportunities for migration.
Rosenzweig (2006) finds that the latter effect tends to dominate. In the US, the inflow of
foreign students is higher from countries where earnings for skilled workers are lower
and where university capacity is higher, not lower.
Other evidence suggests international migration may increase the flow of ideas
between countries. In China, India, and Taiwan, the migration of skilled labor to Silicon
Valley – where Indian and Chinese immigrants account for one third of the engineering
34
labor force – has been followed by increased trade with and investment from the US
(Saxenian, 2002). Spilimbergo (2008) suggests there is an association between a
country’s democratic tendencies and the political systems of the countries under which its
students did their university training. He finds a positive correlation between the
democracy index in for a sending country and the average democracy index in the
countries in which a country’s emigrant students have studied. Migration flows may also
help erode barriers to trade. Successive waves of emigration from China have created
communities of ethnic Chinese throughout Southeast Asia, as well as in South Asia and
on the east coast of Africa. Rauch and Trindade (2002) find that bilateral trade is
positively correlated with the interaction between the two countries’ Chinese populations,
consistent with ethnic business networks facilitating trade.
In receiving countries, immigration appears to disrupt the schooling of natives.
The arrival of immigrants in native student’s age and schooling group is associated with
deterioration in his performance at school or in his access to schooling. The literature has
yet to uncover the mechanisms behind these effects. In sending countries, the literature
has yet to identify how opportunities to emigrate affect the incentive to acquire skill, an
issue of first order performance for understanding how emigration affects economic
development. There is indirect and anecdotal evidence that international migration
promotes the flow of ideas between countries.
5 DISCUSSION
There is ample evidence that international migration raises gross incomes for
migrants, while it redistributes incomes within sending and receiving countries. Because
35
the net impact of immigration on receiving countries appears to be small and because the
gain to migration appears to be so large (owing to enormous international differences in
labor productivity), it is natural to presume international migration raises global income.
At this point, however, the literature does not allow one to do much more than make
presumptions. There remain many unknowns in evaluating migration’s impact.
Economic theory supports the presumption that international migration expands
global output. Moving labor from low productivity to high productivity countries
improves allocative efficiency in the world economy. No study suggests there are large
negative consequences from global migration that would overturn this intuition. In the
US, which is the largest receiving country for immigrants, the short run net impact of
immigration, to a first approximation, appears to be a wash (Borjas, 1999b). The global
gains from migration are largely captured by migrants themselves, which they share with
family members at home through remittances. Unless there are large unmeasured
negative externalities from migration or migration exacerbates existing distortions in
ways that have not yet been detected, one would be hard pressed, on economic grounds,
to justify highly restrictive barriers to global labor flows.
While the gross income gain to migration appears to be large, the net gain is
unknown. There is little comprehensive evidence on the magnitude of migration costs.
Measuring these costs may explain why global labor flows are so small. Of course, a
portion of migration costs are a byproduct of receiving-country restrictions on
immigration. Restrictions raise the premium on obtaining a student visa, or other form of
temporary entry, which facilitate more permanent emigration. They also create an
incentive for illegal migration, allowing smugglers to capture a portion of the gains to
36
migration and dissipating another portion by subjecting migrants to psychic costs and
physical risks associated with crossing borders without permission. There is evidence
that migrants underestimate the gains to migration (McKenzie, Gibson, and Stillman,
2007) and use networks to lower assimilation or job search costs (Munshi, 2003),
suggesting uncertainty and informational barriers affect labor mobility.
The impact of immigration on receiving country labor markets is hotly disputed.
The evidence would seem to favor the argument that wage effects from immigration do
exist. Studies using national level data, while subject to concerns about their ability to
control for all relevant labor market shocks, yield consistent qualitative results across
sending and receiving countries (with Israel being an exception). The results are also
consistent with observed changes in native labor supply. Studies using local level data,
whose results suggest immigration has little wage impact, are subject to concerns about
the endogeneity of immigrant settlement patterns that have yet to be fully resolved.
The literature has focused on the wage effects of immigration, while largely
ignoring impacts on non-labor income. In theory, one would expect the gains in nonlabor
income (plus the gains to workers that complement foreign labor) to more than
offset the losses to workers than compete with immigrant labor. There seems to be an
implicit premise in existing research that knowing how immigration affects wages is
sufficient to know how it affects national income. Grounding empirical work in global
general equilibrium may help address this shortcoming.
The net fiscal consequences of international migration are also poorly understood.
In sending countries, there have only been a handful of studies on emigration’s fiscal
impacts and these have focused on the movement of high-skilled workers to high-income
37
destinations. In receiving countries, the impact of immigration on the net tax burden of
the native population is a central issue in political opposition to labor inflows. While
there are many studies on how immigration affects government expenditure, there are
few on how it affects government revenue, making it difficult to evaluate the net fiscal
impact of labor inflows. The few studies that do exist are now dated.
A further unknown is the effect of emigration on the incentive to acquire skill in
sending countries. In the cross-section, countries that have higher emigrant stocks abroad
also have faster growth in the number of educated adults, but this association may or may
not be informative about the consequences of brain drain. We still do not know how
changes in the opportunity to emigrate affect human capital accumulation. Many
individuals migrate abroad to complete their education, with many ultimately returning to
their home countries. This circular migration is important for the accumulation of skill in
developing countries, though migrants from the poorest countries are those most tempted
to emigrate permanently. The policy implications for developing countries are unclear.
While a mantra of the development community is that education is a public good, and
therefore deserving of subsidies, improving high school or university training in the very
poorest nations might actually increase brain drain by making it easier for high-ability
individuals to obtain student visas, and ultimately employment visas, from rich countries
(Rosenzweig, 2006). Yet, even where migration is permanent, having emigrants abroad
may help a country lower its barriers to trade, investment, and technology flows.
The economics literature has yet to provide policy makers all the inputs they
would need to choose sensible migration policies, even if officials were inclined to base
their decisions on welfare grounds. While the evidence suggests international migration
38
raises global income, there are many relevant details we do not know that are essential for
determining how open borders should be and whether receiving countries should favor
immigrants from particular countries or with particular characteristics.
39
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47
Table 1: Percent of Foreign-Born Population in Total Population
Change
1995 2000 2005 1995-2005
Australia 23.0 23.0 23.8 0.8
Austria 10.5 13.5
Belgium 9.7 10.3 12.1 2.4
Canada 16.6 17.4 19.1 2.5
Czech Republic 4.2 5.1 0.9
Denmark 4.8 5.8 6.5 1.7
Finland 2.0 2.6 3.4 1.4
France (a) 10.0 8.1
Germany (b) 11.5 12.5
Greece (c) 10.3
Hungary 2.8 2.9 3.3 0.5
Ireland (d) 6.9 8.7 11.0 4.1
Italy (c) 2.5
Luxembourg 30.9 33.2 33.4 2.5
Mexico 0.4 0.5 0.4 0.0
Netherlands 9.1 10.1 10.6 1.5
New Zealand (d) 16.2 17.2 19.4 3.2
Norway 5.5 6.8 8.2 2.7
Poland
Portugal 5.4 5.1 6.3 0.9
Slovak Republic (c) 2.5 3.9
Spain (c) 5.3
Sweden 10.5 11.3 12.4 1.9
Switzerland 21.4 21.9 23.8 2.4
Turkey 1.9
United Kingdom 6.9 7.9 9.7 2.8
US 9.3 11.0 12.9 3.6
Notes: (a) 2000 value is from 1999; (b) 2004 value is from 2003; (c) 2000 value is
from 2001; (d) 1995 value is from 1996. Source: International Migration Outlook,
OECD, 2006 (1995 data) and 2007.
48
Table 2: Share of OECD Immigrants by Sending Region, 2000
Share of Immigrants by
OECD Receiving Region
Change in
OECD Share
Low Income
Sending Region
All
OECD
North
America Europe
Asia,
Oceania 1990 to 2000
Mex., Cen. Am., Caribe 0.202 0.374 0.025 0.002 0.053
Southeast Asia 0.102 0.137 0.039 0.160 0.016
Eastern Europe 0.099 0.049 0.161 0.116 0.042
Middle East 0.063 0.032 0.113 0.029 0.001
South Asia 0.052 0.052 0.055 0.036 0.011
North Africa 0.044 0.009 0.098 0.018 -0.006
South America 0.041 0.050 0.031 0.035 0.010
Cen., So. Africa 0.036 0.021 0.061 0.021 0.007
Former Soviet Union 0.029 0.023 0.042 0.010 -0.002
Pacific Islands 0.004 0.003 0.001 0.027 0.000
Total 0.672 0.750 0.626 0.454 0.132
High Income
Sending Region
Western Europe 0.244 0.152 0.336 0.368 -0.111
Asia, Oceania 0.055 0.062 0.018 0.156 -0.010
North America 0.029 0.037 0.020 0.023 -0.011
Total 0.328 0.251 0.374 0.547 -0.132
Notes: This table shows data for 2000 on the share of different sending regions in the
adult immigrant population of the entire OECD and of three OECD subregions. High
Income North America includes Canada and the U.S. and High Income Asia and Oceania
includes Australia, Hong Kong, Japan, Korea, New Zealand, Singapore, and Taiwan.
Source: author’s calculations using data from Beine, Docquier and Rapoport (2007).
49
Table 3: Share of OECD immigrants by destination region and education, 2000
Education Group
Destination Region All Primary Secondary Tertiary
North America 0.514 0.352 0.540 0.655
Europe 0.384 0.560 0.349 0.236
Australia & Oceania 0.102 0.088 0.111 0.109
All OECD 0.355 0.292 0.353
Notes: This table shows the share of immigrants in OECD countries by schooling group
and destination region for North America (Canada, Mexico the US); Australia & Oceania
(Australia, Japan, New Zealand, Korea), and Europe (other OECD members as of 2000).
Source: Grogger and Hanson (2008).
Table 4: Gain in annual income from migrating from Mexico to the US
Income measure Source Value
US-Mexico difference in per capita GDP
World Development
Indicators
$24,800
US-Mexico difference in average annual
earnings of 28 to 32 year old males with 9-
11 years of education
Hanson (2006) $10,600
Estimated gain in annual earnings from US
migration for a 35 year-old urban Mexican
male with 9-12 years of education
Clemons,
Montenegro, and
Pritchett (2008)
$9,200
Average gain in income for a legal immigrant
from Mexico with 9-12 years of education
Rosenzweig (2007) $15,900
All figures are in 2000 US dollars and adjusted for PPP.
50
Figure 1
Fraction of World population comprised of international migrants
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
1980 1985 1990 1995 2000 2005
Source: United Nations (2005).
51
Figure 2: Persistence in Emigration Rates
Afghanistan
Albania
Algeria
Angola
ArgentinaAustralia
Austria
Bahamas, The
BahrainBangladesh
Barbados
Belgium
BeninBhutan
Bolivia
BotswanaBrazil
Brunei
Bulgaria
Burkina FasoBurundi
Cambodia
Cameroon
Canada
Cape Verde
Central African RepublicChad
Chile
China
Colombia
Comoros
Congo, Dem. Rep.
Congo, Rep.Costa Rica
Cote d'Ivoire
Cuba
Cyprus
Czech RepublicDenmark
Djibouti
Dominican Republic
Ecuador
Egypt
El Salvador
Equatorial Guinea
Ethiopia
Fiji
Finland
France
Gabon
Gambia, TheGermany
Ghana
GreeceGuatemala
Guinea
Guinea-Bissau
Guyana
Haiti
Honduras
Hong Kong
Hungary
Iceland
IndiaIndonesia
IranIraq
Ireland
Israel
Italy
Jamaica
Japan
Jordan
Kenya
Korea
Kuwait
Lao PDR
Lebanon
Lesotho
Liberia
Libya
Luxembourg
Macao, China
MadagascarMalawi
MalaysiaMali
Malta
Mauritania
Mauritius
Mexico
Mongolia
Morocco
MozambiqueMyanmarNamibiaNepal
Netherlands
New Zealand
Nicaragua
NigerNigeria
Norway
Oman
Pakistan
Panama
Papua New GuineaParaguay
Peru
PhilippinesPoland
Portugal
Qatar
Romania
RussiaRwandaSaudi Arabia
SenegalSierra Leone
Singapore
Solomon Islands
Somalia
South Africa
SpainSri Lanka
Sudan
Suriname
Swaziland
Sweden
Switzerland
Syrian Arab Republic
Taiwan
TanzaniaThailandTogo
Trinidad and Tobago
TunisiaTurkey
UK
USUgandaUnited Arab Emirates
Uruguay
Venezuela, RB
VietnamWest Bank and Gaza
ZambiaZimbabwe
0.1.2.3.4.5
Emigrationrate,2000
0 .1 .2 .3 .4 .5
Emigration rate, 1990
Source: author’s calculations using data from Beine, Docquier and Rapoport (2007).
52
Figure 3: Positive selection of emigrants, 2000
Afghanistan
AlbaniaAlgeria
Angola
Argentina
Armenia
Australia
Austria
Azerbaijan
Bahamas, The
BahrainBangladesh
Barbados
Belarus
Belgium
Benin
Bhutan
Bolivia
Bosnia and Herzegovina
Botswana
Brazil
Brunei
Bulgaria
Burkina Faso
Burundi
CambodiaCameroon
Canada
Cape Verde
Central African Republic
Chad
Chile
China
Colombia
Comoros
Congo, Dem. Rep.
Congo, Rep.
Costa Rica
Cote d'Ivoire
Croatia
Cuba Cyprus
Czech Republic
Denmark
Djibouti
Dominican Republic
East Timor
Ecuador
Egypt
El Salvador
Equatorial Guinea
Eritrea
EstoniaEthiopia
Fiji
Finland
France
Gabon
Gambia, The
Georgia
Germany
Ghana
Greece
Guatemala
Guinea
Guinea-Bissau
Guyana
Haiti
Honduras
Hong Kong
Hungary
Iceland
India
Indonesia
Iran
Iraq
Ireland
Israel
Italy
Jamaica
Japan
Jordan
Kazakhstan
Kenya
Korea
Kuwait
Kyrgyzstan
Lao PDR
Latvia
Lebanon
Lesotho
Liberia
Libya
LithuaniaLuxembourg
Macao, China
Macedonia
Madagascar
Malawi
Malaysia
Mali
Malta
Mauritania
Mauritius
Mexico
Moldova
Mongolia
Morocco
Mozambique
MyanmarNamibia
Nepal
Netherlands
New Zealand
Nicaragua
Niger
Nigeria
Norway
Oman
Pakistan
Panama
Papua New Guinea
Paraguay
Peru
PhilippinesPoland
Portugal
Qatar
Romania
Russia
Rwanda
Saudi Arabia
Senegal
Serbia
Sierra Leone
Singapore Slovakia
Slovenia
Solomon Islands
Somalia
South Africa
Spain
Sri Lanka
Sudan
Suriname
Swaziland
Sweden
Switzerland
Syrian Arab Republic
Taiwan
Tajikistan
Tanzania
Thailand
Togo
Trinidad and Tobago
Tunisia
Turkey
Turkmenistan
UK
US
Uganda
Ukraine
United Arab Emirates
Uruguay
Uzbekistan
Venezuela, RB
Vietnam
West Bank and Gaza
Zambia
Zimbabwe
-8-6-4-202
Logoddsofemigrationfortertiaryeducated
-8 -6 -4 -2 0 2
Log odds of emigration for primary educated
Source: Grogger and Hanson (2008).
53
Figure 4