Economics of International Migration2 Jan Brzozowski, PhD Cracow University of Economics

Theories of international migration Why people move? Who migrates? Neoclassical theory Criticism: wage disparities in world economy Segmented labor market New economics of labor migration Social networks Institutional theory

Why people move? Who migrates? Would you migrate to a different country upon graduation? What factors do matter in this decision?

Neoclassical theory Explains migration from „top” and „down” perspective Top (macro) – interplay of global imbalances in world economy Down – explanation of individual behavior of homo oeconomicus

Macroeconomic explanation Migration as the outcome of unequal distribution of the factors of production across countries Some countries have oversupply of labor in relation to capital, while others the oversupply of capital relative to labor

Home/sending countriesHost/destination countries Abundance of labor Scarcity of capital Economic underdevelopment Low wages High return to capital Abundance of capital Relative scarcity of labor High level of economic Development High wages Low return on capital Labor flow Capital flow

What is the outcome? Short-term: decrease of wages at destination due to increased competition, increase of wages at home, decreased returns to capital at home, increased returns to capital at destination Long-term: through adjustment the gradual equalization of wages and capital remuneration in both countries, equilibrium reached The gradual decrease of the intensity of capital and labor movements in the long run, as the economies become similar

Microeconomic explanation Migration modeled as a rational decision of an individual (homo oeconomicus) Cost-benefit analysis, taking into the account current and future income, employment/deportation probability etc. Migation perceived as investment Migrants move to the destinations where the rate of return to migration is the highest

E. Lee (1966) extension of this model

Predictions of neoclassical theory Migrants will move from LDCs to developed economies Capital will move in opposite direction Migrants will move between countries which have the biggest disparity in terms of wages (they will maximise their income) International migration flows will lead to gradual convergence of global economy, equalization of wages and decrease of labor mobility as prices are equal

wage disparities in world economy Source: Conference Board Of Canada, 2011

There is no global convergence And international migration has a stake in this process Immigrants to US (millions) Trade as % of US GDP Massey and Taylor, 2007

Lant Pritchett (2006) gives the example Zambia: GDP per capita in 2000 equals to 60% of the GDP pc in 1964 Of course this is mostly due to bad economic policy, but… The population in this period has grown three-fold, from 3.5 to 10 million For many poor countries the labor is the main „export product” But they are unable to export their workforce

World Bank study (2006) A tiny liberalization in migration policies in the high-income countries (3% increase of labour force by 2025) would increase world GDP by 365 billions USD Average income pc in developing countries would increase by 0.86% and in developed countries by 0.36%

Why not? Political factor is the main limitation We have globalization and liberalization processes within WTO, but not within ILO No free movement of people worldwide (with the notable exeption of the EU)

Segmented labor market: dual labor market theory (Piore, 1983) White-collar jobs (managers, lawyers etc.) Pink-collar jobs (clerks, secretaries) Blue-collar jobs (miners, mechanics) 3-D Jobs (waiters, taxi drivcleaners ) Primary sector White-collar Pink-collar Semi-skilled jobs Secondary sector 3-D Jobs (difficult, dirty&dangerous) Migrants Natives

New economics of labor migration Decisions taken not by the individuals, but within the household Households in developing economies are risk-avoiders: instead of maximising income, they try to diversify the sources of income Migration – way to allocate factors of production (i.e. labor) and secure income by future remittance flows The decision to send a member of a household for international migration might be taken to decrease the relative deprivation

Relative deprivation (Stark, 1985) Feeling of deprivation is relative Even households with upper-midle income might be affected by relative deprivation, if international migration affects the income structure in the sending region If poorer households send migrants and get richer, the economic structure is changed, and wealthier households are affected. They might be forced to send their members to work abroad

Social networks Migration as an act which creates social capital Migration is more likely in regions which are linked by cross-border ties, which bridge the host and origin regions Networks provide a reliable framework for bilateral flows of people (circular migration), capital and information

Example Venda das casas: Governador Valadares, MG (Brazil) Home cleaning&cooking services in Boston, MA (US) dominated by female migrants from Governador Valadares Most of work undocumented/irregular When migrant returns to Brazil, she sells her working place to a prospective migrant throug social network

Institutional theory Emphasises the role of intermediary agents, linking supply and demand Professional recruitment agencies: operate as representatives of national/regional goverments, employer associations etc. For example: nationally-induced immigration campaign in Brazil and Argentina in late 19 century, medical staff recruitment in UK after 2004

Irregular agencies/intermediaries: document forging, human trafficking/smuggling Mostly controlled by criminal organizaitons Migrant exploitation and victimization (slave work, extortions/debt repayment, drug smuggling)