The Economics of Migration Lecture 16 – Tuesday, 8 November 2011 J A Morrison 1 The Inspection Line, Ellis Island
Dec 22, 2015
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
25
(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
48
So, remittances matter.
In thinking about their effects, we might consider a
number of issues…
49
(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…
54