Applied Research in Public Policy Making
Fall 2024
Martin GUZI
martin.guzi@econ.muni.cz
Benefits and costs of migration
Week 2

Outline
1.Theory of migration
2.Push and pull factors of migration
3.Benefits and costs of migration
4.Remittances
•

THEORY OF MIGRATION
•


•Adam Smith (1776) was the first economist to write on migration:
•... the wages of labour vary more from place to place than the price of provisions. The prices of
bread and butcher's meat are generally the same or very nearly the same through the greater part of
the United Kingdom. These and most other things which are sold by retail, the way in which the
labouring poor buy all things, are generally fully as cheap or cheaper in great towns than in the
remoter parts of the country ... But the wages of labour in a great town and its neighbourhood are
frequently a fourth or a fifth part higher than at a few miles distance. Eighteen pence a day may
be reckoned the common price of labour in London and its neighbourhood. At a few miles distance it
falls to eight pence, the usual price of common labour through the greater part of the low country
of Scotland, where it varies a good deal less than in England. Such a difference of prices, which
it seems is not always sufficient to transport a man from one parish to another, would necessarily
occasion so great a transportation of the most bulky commodities, not only from one parish to
another, but from one end of the kingdom to the other. After all that has been said of the levity
and inconstancy of human nature, it appears evidently from experience that a man is of all sorts of
luggage the most difficult to be transported.
•An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

•Adam Smith (1776) was the first economist to write on migration:
•... the wages of labour vary more from place to place than the price of provisions. The prices of
bread and butcher's meat are generally the same or very nearly the same through the greater part of
the United Kingdom. These and most other things which are sold by retail, the way in which the
labouring poor buy all things, are generally fully as cheap or cheaper in great towns than in the
remoter parts of the country ... But the wages of labour in a great town and its neighbourhood are
frequently a fourth or a fifth part higher than at a few miles distance. Eighteen pence a day may
be reckoned the common price of labour in London and its neighbourhood. At a few miles distance it
falls to eight pence, the usual price of common labour through the greater part of the low country
of Scotland, where it varies a good deal less than in England. Such a difference of prices, which
it seems is not always sufficient to transport a man from one parish to another, would necessarily
occasion so great a transportation of the most bulky commodities, not only from one parish to
another, but from one end of the kingdom to the other. After all that has been said of the levity
and inconstancy of human nature, it appears evidently from experience that a man is of all sorts of
luggage the most difficult to be transported.
•An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

•Smith found trade to be more intense than migration. The reason is that migration is hampered by
certain barriers that trade is not.
•Regional differences in commodity or factor prices provide opportunities for arbitrage.
•Intercity movements of goods (trade) arbitrages away commodity price differentials, whereas
intercity movements of people (migration) arbitrages away wage differentials.
•Smith suggested that migration is a response to spatial differences in the returns to labor
supply.

Thus the movement of goods and finance between countries is easier, and greater in magnitude, than
the movement of people. Sending your money or your goods to some distant economy is much easier
than sending yourself.

Theory of migration:
migration as human capital investment
•Becker (1964) argues that migration is an investment because it involves the incurring of direct
and indirect costs up-front in order to realize an (uncertain) payoff in the future.
•The migrant’s goal is to maximize utility by choosing the location that offers the highest
net return to human capital.
•People can migrate for reasons other than income maximization (e.g. family reunification,
political asylum).
1.
•

Non-monetary gains enjoyed from moving (e.g., amenities such as better climate and
recreational opportunities, a desirable social, political or religious environment, or more
desirable quantities of public goods available at the destination) are not counted among
migration returns in the migration model.This does not mean that the influences of
amenities and consumption goods are irrelevant. Spatial differences
in such influences on migration will already be accounted for by geographic differences in
living costs (his model includes spatial differences in real pecuniary returns to migration).
For example, a more pleasant climate in California versus Minnesota should already be
reflected in higher prices for California real estate.

Empirical observations by Becker (1964)
•Imperfect transferability of human capital, especially in high-skill areas, across borders
limits migration
•Younger persons are more likely to migrate than older persons
•Temporary migrants have less incentives
to invest in skills than permanent residents
•More able people tend to migrate more
•Migration is relatively low despite huge real international earnings differences
 Becker (1964), Human Capital: A Theoretical and Empirical Analysis with Special Reference to
Education

DETERMINANTS OF MIGRATION
•


Why people do migrate (relocate)?
•
•For work
•For study
•Marriage
•Retirement
•Housing amenities
(e.g. air quality, culture, university)
•
http://media.economist.com/images/20090321/1209US1.jpg

n 2013, 232 million people – 3.2 per cent of the world's population – lived outside their country
of origin. - See more at: http://www.unfpa.org/migration#sthash.cQdrQRj1.dpuf

•One out of five permanent migrants in 2016 was a humanitarian migrant (900,000 people).
•United States (17%) and Germany (50%) were main destinations.
•
Source: INTERNATIONAL MIGRATION OUTLOOK 2017

Permanent migration flows to OECD countries by category of entry
Source: INTERNATIONAL MIGRATION OUTLOOK 2019
•The family migration accounts for more than a half of all migration excluding free movement.

PUSH AND PULL FACTORS
•


Push factors
Pull factors
Economic
Economic
High unemployment
Demand for labor
Poverty
High wages
High taxes
Strong economic growth
Poor health care
Opportunity for advancement
Overpopulation
Schooling
Technology
Political and social
Generous welfare benefits
Discrimination
Low cost of living
War or oppression
Corruption
Political and social
Crime
Family and friends
Compulsory military service
Rights and freedoms
Law and order
Other
Safety
Natural disaster
Famine
Other
Climate change
Amenities
Immigration push and pull factors
The Economics of Immigration, by Bansak, Simpson & Zavodny ©2015

Push factors
Pull factors
Economic
Economic
High unemployment
Demand for labor
Poverty
High wages
High taxes
Strong economic growth
Poor health care
Opportunity for advancement
Overpopulation
Schooling
Technology
Political and social
Generous welfare benefits
Discrimination
Low cost of living
War or oppression
Corruption
Political and social
Crime
Family and friends
Compulsory military service
Rights and freedoms
Law and order
Other
Safety
Natural disaster
Famine
Other
Climate change
Amenities
Immigration push and pull factors
The Economics of Immigration, by Bansak, Simpson & Zavodny ©2015

•



•Source: http://download.gsb.bund.de/BIB/global_flow/
•


Roy-Borjas Model – Selection of immigrants
•Roy (OEP 1951); Borjas (AER 1987)
•Consider two countries, A and B
–Identical mean earnings
–Different income distributions: returns to human capital higher in A
•Individual returns to migration depend on one’s skills
•In which country can skilled workers earn more?
–Migration patterns:
–Skilled migration to A and unskilled migration to B

Skilled workers fare better in A

If immigrants have above-average skills, the immigrant flow is positively selected. If immigrants
have below-average skills, the immigrant flow is negatively selected.
Frequency
Skills
Positively selected
Immigrant Flow
Negatively selected
Immigrant Flow
Skills
The Self-Selection of the immigrant







The Roy model of migration illustrates the self-selection of migrants on skill. How can you
describe the migration motives of the low-skilled workers?
1.Low-skilled workers prefer to migrate to a country with higher income inequality.
2.Low-skilled workers prefer to migrate to a country with the more compressed income distribution
(and lower income inequality).
3.Low-skilled workers prefer to migrate to a neighbouring country to minimize travelling costs.
4.There are no economic incentives to migration for low-skilled workers.

•Puerto Ricans can move freely to the US without the legal restrictions. About 10% of the
population born outside PR during 1970-2000.
•
Migration between Puerto Rico and the US
•Return to skills is much higher in PR than in the US.
The patterns of migration can be understood with Roy model – relative payoffs for skills across
countries determine the skill composition of the immigrant flow.

The international migrant population globally has increased in size but remained relatively stable
as a proportion of the world’s population
Source: World Migration Report 2020
The number of people living in a country other than where they were born
Migrants in 2019:
1 in every 30 people
48 % are females
14 % are children
74% are of working age 20-64
60 % are migrant workers
2 % are students
10 % are refugees
15% are displaced (BD, MM)

In last 5 years, more than 30,900 have died before trying to reach other country.
Migration flows







Top 20 world destinations (left) and origins (right) of international migrants in 2019 (millions)
Source: World Migration Report 2020


Legal barriers to mobility
•In medieval Europe (feudalism) serfs were prohibited to move without lord's consent
•Barriers to internal migration in Czarist Russia and the USSR
•China’s internal passport system (“Hukou”)
•State specific occupational licensing laws act as barriers to internal migration in the US
•Visa

Occupation licensing is a legal requirement in order to practice a profession
•In the US in 1970s, about 10 percent of workers had to have licenses, but by 2008, almost 30
percent of the work force needed them.
•Louisiana, requires licenses for florists, math teachers need to be relicensed every time they
move from one state to another.
•Workers with licenses must pay upfront costs and face limited geographic mobility.
•
•
•
https://www.nytimes.com/2014/05/29/opinion/why-license-a-florist.html

https://www.nytimes.com/2014/05/29/opinion/why-license-a-florist.html
MINNEAPOLIS — IN Minnesota, more classroom time is required to become a cosmetologist than to
become a lawyer. Becoming a manicurist takes double the number of hours of instruction as a
paramedic. In Louisiana, the only state in the country that requires licenses for florists, monks
were until recently forbidden to sell coffins because they were not licensed funeral directors.
These regulations are not just unusual cases of state laws run amok but deliberate policies from
one of the fastest growing labor market institutions in the United States: government licensing of
jobs. This form of regulation — largely established by state governments and implemented through
their licensing boards — is often referred to as “the right to practice.” Under these laws, working
in a licensed occupation is illegal without first meeting government standards.
In the 1970s, about 10 percent of individuals who worked had to have licenses, but by 2008, almost
30 percent of the work force needed them.
With this explosion of licensing laws has come a national patchwork of stealth regulation that has,
among other things, restricted labor markets, innovation and worker mobility. There is a role for
government in protecting the public from incompetent or unscrupulous service providers, but there
is little reason for math teachers to be relicensed every time they move from one state to another.
These requirements put additional burdens on teachers that reduce the ability of good teachers to
find work and schools to find good teachers.
Having more flexible reciprocity between states for occupations like teachers would allow these
professionals to move to jobs more easily. But even better would be to stop requiring licenses for
jobs whose potential harm to the public is minimal, like tour guides, and instead allow for
certification. This lesser form of regulation provides a distinction in the eyes of a consumer but
does not forbid others from offering the service.
There is good reason for workers in licensed fields to push for the laws. Jobs in a
service-oriented economy are more likely to be licensed, which raises wages by about 15 percent, as
I found in research with the Princeton economist Alan B. Krueger, the former head of President
Obama’s Council of Economic Advisers. This is largely because of the ability of regulated
professions working through state legislators and regulatory boards to limit the supply of
practitioners and to drive up costs to consumers.
Yet the growth of occupational regulation has prompted rare bipartisan opposition. On the left,
there are concerns about inflated prices for essential services like plumbers and the availability
of those services for people in or near poverty. Many of the jobs that require licenses are
relatively low-skilled, like barbers and nurse’s aides, and licensing creates a barrier that might
keep low-income people out of those positions.
Occupational licensing, moreover, does nothing to close the inequality gap in the United States.
For consumers, there is likely to be a redistribution effect in the “wrong” direction, as higher
income consumers have more choice among higher quality purveyors of a service and lower income
individuals are left with fewer affordable service options.
On the right, the issue is one of economic liberty. From that perspective, government-issued
licenses largely protect occupations from competition. Conservatives often see members of the
regulated occupation supporting licensing laws under claims of “public health and safety.” However,
these laws do much more to stop competition and less to enhance the quality of the service.
Also, all consumers do not demand the same level of quality. If licensure “improves quality” by
restricting entry into the profession, then some consumers will be forced to pay for more “quality”
than they want or need. Not everyone wants a board-licensed hairdresser.
If both the left and right oppose more occupational regulation, why is it growing? From the time of
medieval guilds, service providers have had strong incentives to create barriers to entry for their
professions in order to raise wages. The Dartmouth economist Charles Wheelan’s research showed in
the late 1990s that respiratory therapists who organized themselves and raised their profession’s
dues in order to lobby for licensing laws tended to be more successful in getting these statutes
passed. In contrast, consumers who will be affected by the higher fees of, say, a licensed
manicurist are unorganized and arguably underrepresented in the political process.
Given these arguments from both the left and the right, can the growth of occupational regulation
be reversed or slowed down? Last week, Representative Eric Cantor, Republican of Virginia, said he
would ask governors around the country to take a closer look at licensing practices. And during the
2012-13 legislative sessions, Gov. Terry E. Branstad of Iowa, a Republican, vetoed the licensing of
addictive disorder counselors and related occupations. In Indiana, Gov. Mike Pence, a Republican,
vetoed the licensing of diabetes counselors and anesthesiologist assistants and dietitians. Both
Mr. Branstad and Mr. Pence mentioned that this type of regulation would result in economic losses
to consumers, higher prices and less employment.
Occupational licensure has a large and growing impact on labor markets and consumers, but has yet
to draw significant public attention or scrutiny. The left and right seem to be in agreement that
policy makers need to revisit the process for creating licensure regulations and consider amending
or rolling back existing laws in favor of lesser forms of regulations such as certification.
Ultimately, we all would benefit from wiser, not more, occupational licensing.

In the craft and related occupations, the proportion of licensed workers is 38% in Germany and 7%
in Spain, while the average proportion of licensed workers at the state level is 33 and 17%
•The prevalence of licensing varies significantly across member states: ranging between 14% in
Denmark and 33% in Germany
•
•Occupational licensing is least common in managerial occupations (e.g., managers, executives) and
elementary occupations (e.g., food preparation, cleaners) and most common among plant and machine
operators, technicians (e.g., electricians), and professionals (e.g., lawyers).
•
Fig. 1
Pagliero, 2019 (https://link.springer.com/article/10.1007/s11151-019-09711-8)

Changes in immigration regimes in 22 Western liberal states
Source: Hass et al. 2016
•Over the past 70 years, immigration regimes (in Western countries) have been heavily concentrated
on border control and more recently on exit and return measures (e.g. deportation). Policies have
become more targeted on specific migrant groups providing multiple entry channels for low and
high-skilled workers, permanent and temporary migrants, family members, students, entrepreneurs,
and asylum seekers. Governments have liberalised entry for ‘wanted’ migrants, while policies have
become more restrictive to prevent the entry and (irregular) stay of ‘unwanted’ migrants.

Figure 27.2 reveals that over the past 70 years, policy changes in major (mostly Western)
destination countries have been heavily concentrated on border control and more recently on exit
and return measures, while admission regulations and post-entry integration policies have become
overall less restrictive over the past few decades. However, policies have become more fine-grained
and targeted on specific migrant groups which are reflected in the creation of multiple entry
channels for low and high-skilled workers, permanent and temporary migrants, family members,
students, entrepreneurs, and asylum seekers. Obviously, for each of these migrant categories, entry
and post-entry regula- tions have not changed uniformly for the different legal categories but have
become stricter for some migrant groups while turning more liberal for other groups. These trends
and patterns reflect the extent to which governments have liberalised regular entry channels and
stay perspectives for ‘wanted’ migrants, while border control and enforcement policies, as well as
return and deportation measures, have become more restrictive in an apparent attempt to prevent the
entry and (irregular) stay of ‘unwanted’ migrants.

•
https://www.passportindex.org/


Passport fees
around the world
(Passport fee for 10 years in USD)
https://www.passport-collector.com/passport-fees-around-world-2018-2/

COSTS AND BENEFITS OF MIGRATION
•


Receiving economies
(mostly developed countries)
Short-run
Long-run
+ lower wages, advantage for employers
+ lower labour costs
+ growing demand for social capital from the migrants (flats - accommodation, education, health and
social insurance, energies, waste collection etc.)
+ increased demand for social capital from the migrants
+ inflow of highly-qualified labour force
+ inflow of highly-qualified labor force
– decrease in the real wages
+ increased state budget revenues
– increase in the unemployment rate of the domestic population (mostly with low qualification)
+ increase in the economical effectiveness
+ increase of the competitiveness of the domestic companies
– problems of migrants to adapt in the new environment
– growth of criminality
+ lower labour costs
+ lower wages, advantage for employers
+ increased state budget revenues
+ increase in the economical effectiveness
+ growing demand for social capital from the migrants (flats - accommodation, education, health and
social insurance, energies, waste collection etc.)
+ inflow of highly-qualified labour force
+ increased demand for social capital from the migrants
– decrease in the real wages
+ inflow of highly-qualified labor force
+ increase of the competitiveness of the domestic companies
– growth of criminality
– increase in the unemployment rate of the domestic population (mostly with low qualification)

>

Receiving economies
(mostly developed countries)
Short-run
Long-run
+ lower wages, advantage for employers
+ lower labour costs
+ growing demand for social capital from the migrants (flats - accommodation, education, health and
social insurance, energies, waste collection etc.)
+ increased demand for social capital from the migrants
+ inflow of highly-qualified labour force
+ inflow of highly-qualified labor force
– decrease in the real wages
+ increased state budget revenues
– increase in the unemployment rate of the domestic population (mostly with low qualification)
+ increase in the economical effectiveness
+ increase of the competitiveness of the domestic companies
– problems of migrants to adapt in the new environment
– growth of criminality

Sending economies
(mostly developing countries)
Short-run
Long-run
+ decrease in the unemployment rate
+ decrease in the unemployment rate
+ increase in the level of remittances (thanks to the growing revenues of the migrant workers)
– losses in the form of cost for migration (travelling, accommodation in the receiving economy
etc..)
+ potential re-emigration – return of the migrants with new experiences and knowledge, as well as
accumulated capital
– brain drain
– lost investment due to brain drain to those workers (economical loss)
– decrease of the level of the labor productivity influenced by the loss of qualified labor force
– decrease in the pensions and incomes
+ decrease in the unemployment rate
– losses in the form of cost for migration (travelling, accommodation in the receiving economy
etc..)
+ increase in the level of remittances (thanks to the growing revenues of the migrant workers)
+ potential re-emigration – return of the migrants with new experiences and knowledge, as well as
accumulated capital
– brain drain
– lost investment due to brain drain to those workers (economical loss)
+ decrease in the unemployment rate
– decrease of the level of the labor productivity influenced by the loss of qualified labor force
– decrease in the pensions and incomes

>

Sending economies
(mostly developing countries)
Short-run
Long-run
+ decrease in the unemployment rate
+ decrease in the unemployment rate
+ increase in the level of remittances (thanks to the growing revenues of the migrant workers)
– losses in the form of cost for migration (travelling, accommodation in the receiving economy
etc..)
+ potential re-emigration – return of the migrants with new experiences and knowledge, as well as
accumulated capital
– brain drain
– lost investment due to brain drain to those workers (economical loss)
– decrease of the level of the labor productivity influenced by the loss of qualified labor force
– decrease in the pensions and incomes

REMITTANCES
•


REMITTANCES
•Financial or in-kind transfers made by migrants directly to families or communities in their
countries of origin.
•Official estimates (by World Bank) on the scale of remittances are likely underestimated.
•Globally, remittances are now more than three times the amount of official development assistance.
•The biggest beneficents are middle income countries.
•
•
•
–

706 billions USD
Estimated volume of remittances sent by migrants in 2019
(up from 126 billion in 2000).

Officially recorded remittances to developing countries amounted to a record $550 billion in 2019.



Remittance Flows dropped during the pandemic
Remittances to Low- and Middle-Income Countries (LMIC) are expected to grow by 1.4 percent to reach
$656 billion in 2023, following a very strong 8 percent growth in 2022 and 10.6 percent in 2021.

Remittances
•Moneys sent back home by immigrants (why?)
•Large inflows, esp. for developing countries
•Macroeconomic effects of remittances:
–economic growth
–employment
–prices
–exchange rate
•High remittances may create dependency,  increase local prices, appreciate exchange rate
–
•
•

Microeconomic effects of remittances
•Remittances go directly to households in emigrants’ home countries
•Reduce poverty and increase consumption
•Allow higher spending on education and health care, hence better life for children and people
•Help starting a small business (investment)
•Facilitate the return of migrants
•
•
•
•




https://remittanceprices.worldbank.org/
World bank monitors the cost of international remittance services since 2008 when the cost to send
money was 10%. G20 set a target to reduce costs to 5%. Sustainable Development Goal (SDG) 10.c.1
aims to reduce this cost to 3% on average by 2030. Faster adoption of digital financial services,
which make remittances cheaper and more convenient, should be a priority.

Výsledok vyhľadávania obrázkov pre dopyt day of family remittances



Social remittances
•In addition to money, migration leads to the circulation of ideas, practices, skills, identities,
and social capital.
•Research shows how emigrants influence social protests, elections, and calls for greater
transparency or reform.
•Migration may affect traditional gender norms

Which one is the push-factor
of migration?
A.
A.Average income
B.Ethnic conflict
C.Democracy
D.Unemployment benefits

Why do people migrate most?
A.For work, family reasons and better living
B.For political reasons
C.For education
D.All of above
E.

Reading
•Chapter 2 - Why People Become Immigrants
•Chapter 3 - Where Immigrants go