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Do the Gains from International Migration “Go to the Immigrants”?
September 23, 2011
This morning, Justin Rowlatt of BBC World Service asked me a smart interview question: Sure, there are economic gains to migration, but don’t most of those gains simply go to the migrants?
We were discussing a new paper of mine on the global economic gains to international labor mobility. The latest and best economic research shows that the gains from even small reductions in worldwide barriers to migration would add trillions of dollars a year to the weakened global economy. That’s more than the world would gain from the total removal of all remaining policy barriers to trade and every last barrier to capital movement.
Much of this gain arises because workers from some poor countries are several hundred percent more productive when they move to richer countries. But that’s not the same as saying that most of the gains “go to the migrants”.
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To see why, imagine your reaction if I told you that the United States and the global economy are vastly more productive and prosperous today than they would have been if there had been no immigration to the United States since 1900. Then imagine that I added: “but most of those gains went to the immigrants”.
If I said such a thing you would be right to be puzzled. First, many of those immigrants aren’t alive anymore, but their immigration caused their non-immigrant descendants to be in the United States, adding more value than if they’d grown up and worked elsewhere. That gain is included in the estimates of the economic gains caused by migration. Roughly one quarter of the U.S. population has an immigrant grandparent, including me. And much more than that have an immigrant great-grandparent or great-great grandparent—probably including you, if you live in the United States. In other words, the gains I discuss are the gains to all people caused to be one place rather than another, by an original act of migration. Before long, the majority of people directly caused to have higher productivity by migration are not, themselves, migrants. Soon, “they” are “we”.
Second, even if we could somehow cordon off those descendants, we would be mistaken to measure their gains in isolation. It would be like saying that the economic gains from the immigration of Google founder Sergei Brin are limited to the increase in living standards experienced by Brin himself and his son. All immigrants and their descendants interact economically with non-migrants. Brin helped create a company—and, in part, an industry—that employs large numbers of non-migrants. Every dollar that all those people spend has an “economic multiplier”: their spending raising earnings and job prospects for people who produce the thing purchased, and when those people spend their incomes… so on, ad infinitum. Moreover, apart from stars like Brin, lower-skill workers convey a range of economic benefits to non-immigrant workers, including lower their cost of living, raise female labor force participation (see this and this), and raise the productivity of investments in new business. All of those effects, too, are included in any proper accounting of the gains to migration.
Third, and most obviously, many migrants send large fractions of their income back to the countries they came from. These flows sustain major portions of all the economic activity happening in Ecuador, the Philippines, and Kazakhstan. Dean Yang has a nice review of the latest research on those flows and their huge impacts on development.
The research discussed in my paper measures the gains to the world economy, not to specific individuals. And they measure the gains at an unspecified future time, perhaps far off, relative to how the economy would have fared without migration up to that time. Those gains are spread across vast numbers of people. At the very moment a migrant worker gets his or her first paycheck in the destination country, it is right to say that the majority of the gain goes to the migrant. But from that instant onwards, things get much more complicated.
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2 Responses to “Do the Gains from International Migration “Go to the Immigrants”?”
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We value frank and constructive exchanges and encourage you to use your real name in your comments.
October 11th, 2011 at 11:19 pm
Dear Mr Clemens
Briefly, I live in a tiny island city that is already the 2nd most crowded in the world. The prices of housing/property are extremely high, as is the cost of private transportation, electricity etc. Our wage costs are high – 20% of it goes to a retirement fund, and the employer contributes a slightly lesser amount to the same fund. Our currency is kept strong as we import a huge amount.
(Note: Our retirement fund savings are used by the government for investment. The investment results are not revealed and the money is not returned in a lump sum on retirement.)
As with most developed countries, the birth rate has gone down below replacement level. With rising education, low level jobs are shunned. The government has imported a huge number of foreigners from the 3rd world in the name of increasing population growth and filling jobs which are not taken up. The crowding is getting very unhealthy as we have no suburb and the infrastructure is lagging behind.
The truth is, most of the foreigners are middle class and directly displace locals from their jobs – they are willing to accept lower wages and live very cheaply, as every dollar they remit goes a very long way due our strong currency (minimal restrictions on hiring exist). These immigrants are given permanent residence or citizenship freely – they use privilege this to purchase property, and after a few years of slog, cash out on the much higher price (driven up by foreigner purchase and government policy) and retire home rich. Others will move to Western countries with their children. None (nor their children) have sincerely expressed desire to remain in our country.
For very many reasons*, this policy is supported by the electorate/election results (for example, we only have one government owned newspaper company, so every person feeling disquiet feels that his is an isolated case?).
From this very brief description, can you please let me know if my country is an exception, as I do not see any of the benefits from migration, present or future, you cite in your paper? Is this the wrong policy to adopt given our vastly different circumstances?
Thank you.
*I apologise for not being able to use my real name.
October 12th, 2011 at 6:52 pm
Thanks very much for this thoughtful comment.
Nations that consist only of one large urban area are an interesting case. Singapore and Hong Kong have around 7,000 people per square km. The U.S. as a whole has 32 people per square km. By comparison, metropolitan New York City has about 1,100 people per square km. So there are island city-nations that have an order of magnitude higher density than the densest places in top migrant destination countries.
Does that mean that it would raise economic welfare to shut people out of island city-nations? I don’t think a general rule can be made without looking at a specific country. But I think it’s useful to think about policies of that kind in the context of cities that are not nations, like New York. Much of what you discuss is true there as well: congestion, very high prices for real estate and other things, huge competition for jobs from immigrant workers.
There are no rigid quotas for movement into New York from poorer and less populous parts of the country. But there are numerous regulations on that movement that are more flexible than rigid quotas. If you want to live there you have to pay people who got there before you for the privilege, either by buying or renting property, and you have to pay a rate that rises when more people want it. If you drive in from New Jersey, you have to pay $12 dollars every time, and there may soon be other congestion charges. If you want to work there as a taxi driver, you have to buy or rent a \medallion\ (permit) that costs $687,000. And so on. All of these and countless other mechanisms limit the ability of people from elsewhere to live and work in New York whenever they feel like it.
But these forces have something in common: flexibility to economic conditions. Past a certain point, a quota keeps out everybody, period. A fee or a price mechanism keeps out some people but lets it the people who value movement the most, and it flexibly allows in more when conditions require it.
This is part of why China has been getting more and more lax in its enforcement of its Hukou system, which effectively puts rigid quotas on the movement of people from some regions of China to Chinese cities. Those quotas, set for political rather than economic reasons, have been economically harmful and would have been much more so if they had been tightly enforced. Many of those gleaming high-rises in Shanghai were built, and are now cleaned, but ‘illegal’ workers. The de-facto system has moved away from rigid political quotas to flexible economic management.
So where does this leave city-nations? I put forward the thought exercise above because I think it’s important for city-nations contemplating rigid political barriers to immigration to consider the reasons that few cities within other countries have such barriers. The reasons for the general lack of such barriers in other countries go far beyond the economic, but they contain a large economic element too: banning people from moving to New York or Los Angeles would impoverish those cities and the entire country of the United States. Those economic forces would be little different if New York or Los Angeles were a city-nation, though the politics would be different.
If land prices in a city-nation rise, that is a flexible and self-correcting mechanism to limit movement, as it is in New York. If wages for low-skill work go down, that too is such a mechanism. Relying on those mechanisms, instead of quotas, is what almost all cities-within-nations do, and this benefits those cities economically. That fact should be considered carefully by city-nations pondering the economic effects of different candidate immigration policies. But how the economic goals balance against other, non-economic goals in any given country’s situation will obviously be more complex.