Migrant and Host Country Workers: Substitutes or Complements? Kiriya Kulkolkarn Faculty of Economics, Thammasat University Tanapong Potipiti Faculty of Economics, Chulalongkorn University

Map of Migration Flows Source:

How many immigrants are there? World: 191 million (6% of labor force in 2005) –Luxembourg (62% of labor force in 2001) –Switzerland (18% of labor force in 2001) Source: United Nations USA –1970: 5.3% of labor force –2005: 14.7% of labor force – : 4.1 million new immigrants ( million were undocumented ) –86% of net increase in employment Source: Ottaviano and Peri, 2006, Sum et al., 2006 Thailand –1987: 38,000 –1995: 700,000 –2007: millions (6% of labor force) Source: Ministry of Labor, Thailand

Debates on Immigration Bad Immigrants steal jobs of local workers. –1.7 million fewer young (16- 34) American men were employed in 2005 than 5 yrs earlier Immigrants depress native wages. –Real annual wages of U.S. natives with less than high school education fell by 11.5% during Fiscal cost, crime, racism Good Immigrants allow the economy to work more smoothly by filling vacancies across the jobs spectrum, at both the top and the bottom –3D jobs –Professionals –Sunset industries Immigrants help smooth the peaks and troughs. (Ethier, 1985) Immigrants make better use of native workers. Source: Ottaviano and Peri, 2006, Sum et al., 2006

Does the statistical evidence support public concerns? “ There is surprisingly little evidence to support this … Most research finds that a 10 percent increase in the fraction of immigrants in the population reduces the wages of even the least skilled native-born workers by at most 1 percent … Evidence of immigrants reducing employment or labor-force participation rates or increasing the unemployment rate is even harder to find ” (Friedberg and Hunt,1999, p. 358).

Why do Burmese migrate to Thailand? economic motives –Income and wage disparities –HDI disparities –unemployment and forced labor –inflation, shortages, rationing political motives (1988, 1990 and beyond)

IndicatorBurmaThailandRatioSource Per cap. inc. (Rupees, , COL adj) Myrdal 1967 Table 11-1 Per cap. income 1978 ($, official exch rate) World Dev. Report 1980 Some rough comparisons

What do migrants typically experience in Thailand? Occupations –Dirty, difficult (degrading) and dangerous. Fisheries, farming, construction, personal services; factory work –Among registered workers: 24% in fisheries; 18% in farming; 14% in domestic services; others in manufacturing, mining, quarrying, construction –Unregistered workers in these occptns and also market/trade; hotels, restaurants, prostitution Wages and conditions; job security –Wages frequently reported as ~2/3 - 3/4 Thai equivalents –Few rights; none for unregistered workers Regulatory and legal environment –Thailand introduced permit system 1996 –Registration and legal status Registration costs (equiv to 1 mo. income)

Impact of migrant workers on the Thai economy Opposition to admission of more workers –59% of Thais surveyed by ABAC thought no more workers should be admitted; 83% believed that immigration reduces native wages; only 10% were in favor of increased migration (Economist, Jan ) Migrant workers delay the ‘ sunset ’ for labor-intensive industries; these are still important contributors to Thai merchandise exports Over time, movement of foreign workers to industries w/ fixed locations (agriculture, fisheries, construction etc) -- and of investments in ‘ footloose ’ industries to where migrant workers are clustered

Impact of migrant workers on Thai wages Sussangkarn (1996): Wages of Thai workers with less than a primary education: rise by 3.5% with more than a primary education: fall Kulkolkarn and Potipiti (2007): no evidence of the impact of immigration on Thai wages Bryant and Rukumnuaykit (2007): immigration reduces the wages of Thai workers

What does the economic theories say? Standard Model –Same skill: Perfect substitute Immigrants lower native wages –Different skill: Imperfect substitutes Immigrants may lower or increases native wages Efficiency Wage Model –Small numbers of immigrants increases native wages –Large numbers of immigrants decreases native wages

Stylized Facts 1. Immigrants have lower education. 2. Natives are more versatile. 3. Immigrants release native workers to do higher wage jobs. The existing models has not yet captured all these facts in one model. In our model, natives possess 1 unit of type-1 skill and 1 unit of type-2 skill. Migrants own 1 unit type- 2 skill but  (< 1) unit of type-1 skill.

My model Production function of the output of the economy Full employment Production function of the intermediate goods: h and b

3 possible outcomes 1. Migrants work in sector h. Natives work in sectors h and b. Wages are equal in both sectors. Some natives move to sector b after immigration. Immigration decreases the wage of natives.

3 possible outcomes 2. Migrants work in sector h. Natives work in sector b. Natives and migrants receive different wages. Immigration can increase the wages of natives above the pre-immigration level. Additional migrants decreases their own wages.

3 possible outcomes 3. Migrants work in sectors h and b. Natives work in sector b. Natives and migrants receive different wages. Additional migrants decreases native wage and their own wages.

Migrant and Host-Country Workers: Substitutes or Complements 3 stages as # of immigrants increases 1. Migrants enter into one labor submarket while natives work in both submarkets 2. Migrants work in one labor submarket while natives work in another. 3. Migrants work in both submarkets while natives work in one submarket. The results depends also on –Skill similarity –Production technology

Impacts of Immigration Native wage can be higher Native wage cannot be higher wnwn w* m Stage 3 Stage 2 Stage 1 wnwn m w*

Implications The relationship between immigrants and wage is not monotonic. Not a bell curve but an S curve –# of immigrants, skill similarity, production technology Policy that helps native workers Number of immigrants must be large enough Allow immigrants who are very different from natives Limit immigrants to work only in some sectors