The Economics of Migration

Lecture 16 – Tuesday, 8 November 2011J A Morrison 1

The Inspection Line, Ellis Island

2Vito Andolini

Alexander HamiltonAlbert Einstein

Discussion Section Adjustment

- Only 1 discussion section this Thursday: 1:30 PM

- What about 3:25 section?

attend the 1:30 section

or

Make-up: next Tuesday, 4-4:50 (my office) 3

PS 0304 Int’l Pol Econ• Unit 1: Studying the Global Economy

– Topic 1: Introductory

– Topic 2: Perspectives on IPE

– Topic 3: Explaining Foreign Economic Policy

• Unit 2: Trading Goods & Services– Topic 4: Trade in Theory

– Topic 5: Trade in Practice

• Unit 3: The International Monetary System– Topic 6: The IMS in Theory

– Topic 7: The IMS in Practice

• Unit 4: Migration– Economics of Migration

– Politics of Migration

• Unit 5: Special Topics in IPE 4

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By comparison, students find migration much less abstract than money (or even trade).

This is partly because the material itself is less esoteric

(“price-specie-flow,” “portfolio investment,” &c.).

And partly because many of you have had personal experience with international migration! 5

The Economics of Migration

I. The Basics of International Migration

II. Labor as a Factor of ProductionIII.Labor as a Special Factor

IV.Remittances

6

The Economics of Migration

I. The Basics of International Migration

II. Labor as a Factor of ProductionIII.Labor as a Special FactorIV.Remittances

7

What is International Migration?

• International Migration: the movement of people across political boundaries

• Duration of Stay– Temporary: tourists, students, medical

patients, religious pilgrims– Permanent: immigrants, refugees, migrant

workers

• Direction– Immigration: movement/relocation into a

country– Emigration: movement/relocation from a

country8

Why do people migrate?

9

We might think in terms of “pushes” and “pulls.”

But the impetus is the same: people migrate presumably because

leaving is preferable to staying.

10

(But this is not to say that these “choices” are not

sometimes coerced.)

11

What variables influence migration patterns?

12

Influences on Migration• Economic: wages, employment level,

quality of opportunities (including training)

• Non-Economic: war/conflict, violence, corruption, freedom, quality of services, familial ties, stability, cultural/ethnic ties

• Costs of Migrating: legal restraints, transport costs, dislocation/disorientation, persecution, loss of that which is left behind

13

The Economics of Migration

I. The Basics of International Migration

II. Labor as a Factor of ProductionIII.Labor as a Special Factor

IV.Remittances

14

II. Labor as a Factor of Production

1. The Economic Effects of Migration2. Combining Inputs, Distributing

Products3. Have Trade and Factor Mobility

been Substitutes?

15

What are the economic effects of migration?

16

Factor-Price-Equalization

AHigh Labor Low Wages

BLow Labor

High Wages

There are incentives for migration until wages in country A equal wages in country B.

A Labor

Decreases

Wages Rise

BLabor

Increases

Wages Fall

Migration

Stolper-Samuelson, again• SS tells us that trade helps the abundant

factors but hurts the scarce factors• Migration has similar effects:

Initial Endowment

Return on Labor

Return on Capital

Labor Rich/Capital Poor

Rises Falls

Labor Poor/Capital Rich

Falls Rises

Distributional Effects of Immigrants

• Greatest effect for Low Skill Labor – Affect wages of high school dropouts (13%

of US Natives)

• Effects confined to small number of industries

• Rising wage inequality seems to be driven more by technological advancements and trade than by immigration

II. Labor as a Factor of Production

1. The Economic Effects of Migration2. Combining Inputs, Distributing

Products• Have Trade and Factor Mobility

been Substitutes?

20

Broadly conceived, there are two major components to

economic activity:

(1) combine inputs (land, labor, capital) to produce

desirable products

(2) distribute those products to those who desire them

21

Of course, the inputs aren’t always gathered together

nicely.

Nor are the consumers necessarily close to the

producers.

22

International economic exchange is a means by

which factors and products can be rearranged.

Migration might be considered as a relocation

of labor—a factor of production.

23

Of course, there is more than one way to skin a cat.

Rather than moving labor, perhaps capital and/or

products could be moved.

These different options might be substitutes.

24

We have two types of potential substitutes:

(1) Substitutability of moving various factors

(2) Substitutability of factor mobility and trade

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(1) Moving Factors as Substitutes

• Assume: Inputs are disparately located

• Scenario 1: Bring Capital to Workers– Capital is exported and invested in

country with workers– Production occurs in workers’ home

country

• Scenario 2: Bring Workers to Capital–Workers migrate to country with capital– Production occurs where capital lies 26

(2) Factor Mobility and Trade as Substitutes

• Assume: producers are located away from consumers

• Scenario 1: Factor Mobility with No Trade– Inputs are relocated to country with

consumers– Products are produced within borders; trade is

unnecessary

• Scenario 2: Trade with Factor Immobility– Inputs remain– Products produced outside of consuming

country– Products traded to consuming country

27

II. Labor as a Factor of Production

1. The Economic Effects of Migration2. Combining Inputs, Distributing

Products3. Have Trade and Factor Mobility

been Substitutes?

28

The notion here is that moving labor should have

the same effects as moving other inputs and/or trading finished goods & services.

Does this empirically hold true?

29

Collins, O’Rourke, & Williamson (1999) empirically examine the substitutability of factor mobility

and trade across time.

30

They find convincingly that factor mobility and trade were not

substitutes.

And policymakers never considered them as such.

Why weren’t these things substitutes?

31

Because labor isn’t just another factor.

People are special.

The Economics of Migration

I. The Basics of International Migration

II. Labor as a Factor of ProductionIII.Labor as a Special Factor

IV.Remittances

32

Even considered strictly as a factor of production, labor works differently from other

factors.

33

Labor is more mobile than land.

But it is far less mobile than capital and than most goods

and services.

34

Of the things that can be transported, labor is the hardest to move—even when treated with utter

disregard.

35A slave ship.

Migrants also affect the BoP through remittances (sending money back

home).

And migrants frequently move as “bundles” (as

families). 36

Fiscal Implications of Migration

• Immigrants– Need more schooling, health care, &

unemployment assistance– Support social security, work more hours,

pay considerable taxes

• Emigrants: how to make them pay income tax?– All US citizens must pay income tax no

matter where they reside or earn income

Overall fiscal effect is unclear but most likely positive effect for host countries

37

The Economics of Migration

I. The Basics of International Migration

II. Labor as a Factor of ProductionIII.Labor as a Special Factor

IV.Remittances

38

A remittance is the transfer of money across space,

often internationally.

39

IV. Remittances

1. Background on Remittances2. The Political Economy of

Remittances

40

Remittances: Then & Now

• Originally developed to finance overseas purchases and investments

• Remittances have become a major means by which individuals support families abroad

• Remittances for everyone–Wealthy: British “remittance man”

supported by family– Poor: Migrant workers supporting family

back home 41

Extraordinary Growth Recently

• Kapur & McHale: – 1980: $17.7bn – 1990: $30.6bn – 2002: $80bn

• World Bank 2008 remittances: $305bn (nearly 2% of GDP for developing countries)– Philippines alone had $16.3bn!

• Recent financial crisis: down to $290bn for 2009 42

Top Sources of Remittances

43

Top Receivers of Remittances

44

Remittances dwarf foreign aid.

2001: remittances were twice the value of foreign

aid.

45

So, we know that the remittances that follow from migration has

huge economic effects.

But migrants might also influence patterns of foreign investment

more broadly...

46

David Leblang has just published an article in the

Amer Pol Sci Review showing that “migrant networks…

promote both portfolio and FDI.” (Leblang, 2010)

46

How might we explain this effect?

47

Leblang: migrants mitigate cross-border information

asymmetries.

You invest overseas where friends & family can provide

on-the-ground intel.

IV. Remittances

1. Background on Remittances2. The Political Economy of

Remittances

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So, remittances matter.

In thinking about their effects, we might consider a

number of issues…

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(1) Should remittance-sending nations consider

remittances as a substitute for foreign aid?

Should we allow more migration and more capital flows so as to encourage

these processes?50

(2) Should remittance-receiving nations consider remittances as a substitute

industry and/or relief measure?

(e.g. Some states in the southern US used to distribute “welfare” in the form of one-way

bus tickets to Chicago and Detroit.) 51

(3) How should governments regulate and

tax remittances?

Can and should they use capital restrictions? Or should we create a new regime to perform this

function?52

(4) What are the implications of remittances

for security?

Does this money go to fund terrorists and/or militants?

53

Next time, we’ll consider the politics of international

migration…

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