Migration, economic welfare and development: Are migration policies right?

22 April 2008 11:00 - 12:30 GMT+01 (BST)
Public event

Speakers:

Gonzalo Fanjul Suárez - Head of Research, Intermón Oxfam

Tommaso Frattini - Research Officer, Centre for Research and Analysis on Migration, University College London

Massimiliano Calì - Research Officer, International Economic Development Group, ODI

Chair:

Ron Skeldon - Professorial Fellow in Geography, University of Sussex

Description

International migration is a hotly debated topic in rich and poor countries.  Opinions on the economic desirability of migration flows for both sending and receiving countries vary considerably.  The camps are divided on a range of issues: for example, between those who welcome immigration in rich economies as a much-needed way of filling the gaps in domestic labour markets, and those who are concerned about its possible negative impact on the local workforce and on congestion. Opinions also differ between those who stress the benefits of international migration on sending countries through remittances, increased trade and investment linkages, and those who warn about the negative impact of migration on domestic capacity in sending countries.

At a time when the potential contribution of migration to economic growth, poverty reduction and welfare is being increasingly scrutinised in both developed and developing countries, it is crucial to examine the real weight of these arguments in order to inform the right evidence-based migration policies.

As empirical evidence is slowly starting to emerge, this ODI event aims to present some of the latest thinking of the economic impact of migration on both receiving and sending countries in both developed and developing countries.  In the light of such evidence, it covers evidence related to the current state of migration policies in European countries, as well as policy stances towards emigration from developing countries and suggests possible policies to maximise the benefits of migration while minimising its costs.

Massimiliano Cali, ODI

Massimiliano Cali presented on the impact of emigration on source countries, including evidence and policy options. Most migrants come from developing countries, and research at ODI has analysed the economic effects of emigration in sending countries. Cali considered four main channels through which migration has an impact: via effects on domestic capacity, remittances, network effects and return migration.

  • These channels have both positive and negative static and dynamic effects. One negative static effect of migration is that migration directly reduces the available supply of labour, particularly skilled labour, but there are positive static effects such as through return migration and remittances.
  • The dynamic effects of migration are mostly positive. Micro and macro level studies suggest that migration might stimulate human capital formation to the extent that the ‘brain gain’ offsets the ‘brain drain’. This is true even for health professionals’ migration. Cross-sectional as well as panel data show positive correlation between the stock of skilled migrants and the skill base at home.
  • Remittances have positive effects on sending countries. At the micro level, remittances reduce poverty, provide insurance against negative shocks and foster the accumulation of factors of production. The macro level effects are debatable; outcomes can either be positive or negative depending on whether remittances are used to finance investment or consumption. There are positive multiplier effects but there are concerns about ‘Dutch Disease’ effects of large capital flows, although there is no empirical evidence for such concerns. 
  • Other channels such as network effects and return migration have overall positive effects on the source country’s economy, in terms of trade, skills and access to capital. Studies on network effects conclude that migration increases exports from the source country to the host country. With that, migration also increases FDI investment in the source country. Migrants may return as capital providers and upgrade the skills level in the source country.
  • Restricting migration is an undesirable policy which prevents the positive effects of migration and may raise the ‘brain waste’. Other policy implications include: facilitating expansion of the skills base and training capacity to stimulate a supply response in skill production, reducing transfer fees to maximise the inflow and the efficiency of remittances, reinforcing incentives for return migration.

Tommaso Frattini, CREAM, Department of Economics, UCL

Tommaso Frattini presented a study he had made for the Low Pay Commission on the labour market impact of immigration in the UK. The main points included:

  • According to a British social survey, highly educated individuals are less likely to believe that immigration lowers wages than those with lower education levels.
  • The study compared wages of residents before and after immigration across 17 regions in the UK. The model suggests that migration affects wages through its effects on skill composition. It has small direct negative effects for the relatively low skilled workers, who compete with immigrants. However this effect is much lower than the increase in real wages over the same time frame. The income of the tenth wage percentile has increased in real terms by 4.5% per year between 1997 and 2005.  On the other hand the effects are positive for the other workers. The net effects on both average and median wages are positive.
  •  Consideration of alternative adjustment mechanisms suggests that changes in factor supplies are accommodated by changes in output and technology. Firms may increase the use of unskilled labour, by producing goods and services that use unskilled labour more intensively, in reaction to the increase in its supply.
  • There is evidence that immigrants are more educated than natives, however immigration does not exert pressure on wages of those highly educated because immigrant employment concentrates in the lowest wage occupations (there is substantial ‘brain waste’ among migrants in the UK).

Gonzalo Fanjul Suarez, Intermon Oxfam

Gonzalo Fanjul Suarez argued that a fairer and more intelligent migration policy would be in everybody’s interest. The presentation was based on a policy paper by Intermon Oxfam about immigration to Spain in the past ten years. Fanjul stressed that considerations when dealing with immigration are completely different from those for other types of trade because immigration deals with people. He presented the following points to support his arguments:

  • There have been enormous gains from immigration in Spain, including a 0.4% growth in national income, a five billion euros net contribution in 2005, 1.3 million jobs created (300,000 for Spanish women), 20 billion euros in remittances (2004-06). However, there have also been negative effects, such as social and cultural tension, economic cycles’ vulnerability, and massive irregular migration. 
  • There are two certainties; one is that the argument that legal ‘regularizations’ of immigrants are the main pull factor is false. Factors such as employment opportunities motivate immigration, and as inequality increases so will migration. The second is that the obsessive control of borders is a very bad idea; it is hypocritical, expensive, unfair and cruel, short-sighted, and useless.
  • Spain can do more for the common interest by having more open and ordered frontiers, meaning permanent and circular migration. This can be done with five basic conditions; a common European migration policy, equal basic rights for all and increasing legal benefits, cracking down on irregular hiring, adapting social spending to rises in population, and making migration part of development policies.
  • Spain can also do more for the common interest by encouraging more and better remittances. This can be done by increasing migrants’ income, reducing the cost of sending money, and increasing the development impact. This will help to avoid or compensate for the ‘brain drain’ and enhance civil and labour rights for migrants.

Discussion

Doesn’t migration have really large climate costs; isn’t climate change going to change migration, and does this mean we need to find more room for migrants?

  • Tommaso Frattini responded that he does not think that migration from southern Europe to northern Europe has anything to do with climate change.
  • Gonzalo Fanjul Suarez agreed that immigration in Spain might have increased due to climate change, because there are numerous examples of West Africans moving to the coast because of the climate, therefore moving near the border and closer to the Canary Islands.

Hasn’t migration increased the price of housing in the UK?

  • Frattini stated that there is no evidence of the effect of immigration on housing; if migration induced an increase in prices then this would represent a redistribution of wealth to house owners.

Is the lack of concern on the impact of immigration on wages on the part of skilled workers because those effects have not yet hit them?

  • Massimiliano Cali responded stating that we should welcome the effects of cyclical migration, because it would be a way to avoid brain waste. Migrants are highly educated and can not find jobs equal to their skill level. It would be good if migrants could work their way up the labour force and have higher remittances.
  • Tommaso Frattini suggested that we are moving towards a policy that accepts skilled migration, but on the other hand it is not clear that the effect of skilled labours is the same as unskilled, there might be more complementaries.

Does the argument that migration may stimulate human capital formation, and increase the level of ‘brain gain’ apply to countries that have a weak supply side in training?

  • Massimiliano Cali responded: In the brain drain vs. brain gain, there will be losers and winners. Those countries that have a thin skilled base at home face brain drain; recent field work shows that certain states in India find it difficult to increase their supply of health professionals as there are not enough teachers. However, developing training capacity in those counties might be possible with the help of receiving countries.

Referring to the model used to estimate the impact of migration on wages; does it only look at the static effect? In the long run competition and externalities might have a positive effect on low skilled and high skilled workers; have these dynamic positive effects been felt yet?

  • Tommaso Frattini responded: The long run effects maybe different. He agreed that migration is beneficial to the host country because it helps bring new ideas. A study in US shows that it is beneficial because it increases demand in the host country.

What is Spain’s view on temporary migration? Are there schemes that work for developing countries and its workers?

  • Gonzalo Fanjul Suarez responded: Temporary migration legally allows migrants to enter Spain with a contract from a hiring company, however most contracts are obtained illegally. Families often save up a lot of money to able to afford these illegal services. It is even harder for migrants to leave Spain, because they are not sure if they will be allowed back. There are two alternatives, incentives could be created for workers to come back and visas could be granted to allow migrants to go to Spain and look for a job, which would better match supply and demand.

Is a common EU migration policy possible and helpful, given that some Northern European countries are much more restrictive than others?

  • Gonzalo Fanjul Suarez responded: A common EU policy is extremely difficult. Spain has recently proposed common migration policies, and it is becoming more evident that a common approach is a more intelligent approach. In the future countries like Germany might be interested.

Is there an economic basis for redirecting aid to migration, rather than spending on other aid targets?

  • Massimiliano Cali responded: If it is cheaper to train health professionals in a cheaper country then why not, but this should not be part of aid budgets.  To the extent that migration may represent a viable export strategy for certain countries in certain sectors, the expansion of training capacity could be part of an aid for trade strategy.
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