1. Migration Policies

2. What are we talking about? Migration as great absentee in the era of globalisation. Migration policies restrict the movement of persons across jurisdictions by establishing: - quotas in terms of maximum number of work permits -rules concerning the allocation of quotas, admission procedures and lenght of permits -years/procedures to obtain citizenship -rules for asylum policies

3. Outline Measures and cross country comparisons Theory –A Competitive Labor Market –An Economy with Wage Rigidities –Wage Rigidities and Unemployment Benefits –What Drives Migration Decisions? –Effects on Income Distribution of Skill-biased Migration Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

4. Outline (cont.) Empirical Evidence – Wage and Employment Effects – Determinants of Migration – Fiscal Effects Policy issues: –Closing the Welfare Door? –Adopting a Points System? Why do Migration Policies Exist? Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

5. Measuring the Strictness of Migration Policies Quantitative indicator developed by www.frdb.org transforming qualitative information on scalar measure of strictness (higher scores denote more strict regulations). Draws on information onwww.frdb.org Existence of Quota system Number of certificates and procedures required to be admitted as a foreigner Number of years required to obtain Permanent Residence Number of certificates required to legally reside in the territory Number of Years required to obtain first Residence Permit Measures and cross country comparisons Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

7. Trends in migration policies

8. Evolution in individual countries

9. Deteriorating perceptions % of respondents agreeing with the following statements GermanySpainFranceUKItaly (1) "immigration bad for country's economy" ESS 20022923284325 ESS 20063824394541 2006-20029111216 "immigrants make country worse place to live" ESS 20023334374139 ESS 20064135424654 2006-2002715514 "unemployed immigrants should be made to leave" ESS 20025025325349 Harris 20096771517879 2009-20021746192530 Notes: 1) The ESS survey took place in Italy only in 2002 and 2004.

10. Not always so Strict Up to the 1950s migration encouraged in Europe Restrictive stance since the beginning of the 1970s together with rise of unemployment More migration to the US at the beginning of the XXth Century (www.ellisislandrecords.org )www.ellisislandrecords.org Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Measures and cross country comparisons

12. A Competitive Labor Market Wages adjust fully to changes in labor supply. Focus on the short-run: no changes in the capital stock. Labor demand unaffected by immigration. Migration like labor supply shock Assuming that migrants and natives are perfect substitutes (homogenous labor), the impact of immigration on employment depends on the elasticity of labor supply If labor supply is rigid, no effect on employment among natives If labor supply is elastic, employment among natives decline, but no unemployment Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory

13. Immigration to competitive labour markets With rigid LS With elastic LS L1L1 L0L0 L L w w w0w0 w1w1 LdLd LdLd LsLs LsLs w0w0 w1w1 L0L0 L1L1 A1A1 A2A2 B A B B=immigration surplus

14. An Economy with Wage Rigidities w L w N Unemp With a minimum wageWith semi-rigid wages w L w0w0 w1w1 N Unemp LsLs LsLs LdLd LdLd Theory N+M

15. In imperfect labour markets, migration involves unemployment In imperfect labour markets, migration affect income of natives in a variety of ways: changes in wages changes in employment, and changes in unemployment taxes other externalities related to U? (crime?) Theory

16. Wage Rigidities and Unemployment Benefits There is also a fiscal effect of migration, insofar as immigration affects unemployment in the destination countries This fiscal externality is larger if labor is not homeogenous and unemployment benefits attract more low-skilled migrants, more likely to become unemployed or crowd-out low-skilled natives Theory

17. What Drives Migration Decisions? Decision based on estimated discounted net present value (NPV) of migration where –w F = wage in the destination country –w H = wage in the origin country Analogies with theories of human capital Theory C0C0 NPV t = 1    (w F (t) - w H (t)) TeTe δtδt

18. Migration occurs if : where –(w F - w H )= wage differential between the foreign and the own country –C 0 = frontloaded migration costs –δ = discount factor What Drives Migration Decisions?

19. Migration and a Minimum Guaranteed Income Theory w country 1 skill level skilled migrants go to country 1 unskilled migrants go to country 2 safety net in country 1: also the unskilled go to country 1 s*s** country 2 country 1 country 2 s* w skill level

20. Migration and skills Skill composition of migrants depends on differences in rates of return of skilled and unskilled workers in the origin and destination region/country Highly educated end up in the country/region that values them the most Unemployment benefits creating income floor reduce skill content of migration Theory

21. Effects on Income Distribution Assuming that skilled and unskilled labor are complements Immigration affects income distribution only insofar as migration affects the skill composition of the population If more low-skilled income inequality increases If more high-skilled, income inequality declines Theory

22. Effects on Employment and Wages Negligible effects of migration on wages and employment among natives This finding can be reconciled with economic theory when account is taken of – self-selection of migrants in high-wage regions (“greasing the wheels” effect) – changes in migration patterns of native workers – changes in the regional output mix Empirical evidence

23. “Greasing the Wheels” Effect Empirical evidence

24. Local U matters

25. Convergence in Regional Wage Rates Source: Borjas (2001a). Each observation represents a convergence coefficient estimated in a particular decade for a particular skill group. The measure of immigrant penetration gives the log of the number of immigrants in a particular skill group who arrived during a particular decade relative to the number of natives in that skill group at the beginning of the decade. The points on the scatter diagram are weighted by the inverse of the squared of the standard error of the convergence coefficient.

26. Determinants of Migration (Hunt)

27. Location choices of migrants (Costa and Kahn)

28. Fiscal effects

29. Net Fiscal Position of migrants Country share of net contributors (SNC) among migrants SNC: migrants over natives Average net position (ANP) (euros) Natives- Migrants ANP overall Austria 78,3%1,349481**0,40 Belgium 84,0%0,9111788***0,51 Denmark 52,2%0,84-1063-0,11 Finland 47,2%0,80-2863-0,32 France 44,5%0,81-2285-0,27 Germany + 64,4%1,2131370,42 Ireland 50,3%1,06-1937-0,49 Luxembourg 54,9%0,99-18870,88 Norway 55,7%0,86-13281,14 Spain 91,7%1,548047***1,14 Sweden 49,0%0,778390,96 United Kingdom 68,9%1,2312533**0,73

30. Residual dependency/social free-riding Coefficient s of migrant dummies in probit regression of benefit receipt Non Contributory Extra EU 25 Austria-0.07*** Belgium0.14*** Denmark0.04 Finland0.16*** France0.29*** Germany + 0.15*** Greece-0.05*** Ireland-0.03 Italy-0.01 Luxembourg0.10** Netherlands0.42*** Portugal-0.18*** Spain-0.02*** Sweden0.01 United Kingdom-0.22*** Contributory Extra EU 25 Austria-0.01 Belgium-0.20*** Denmark0.06*** Finland0.07*** France-0.10*** Germany + 0.03** Greece-0.08*** Ireland-0.19*** Italy0.00 Luxembourg-0.10*** Netherlands-0.13* Portugal-0.12*** Spain-0.09*** Sweden-0.24*** United Kingdom-0.15***

31. Closing the Welfare Door? Policy issues

32. Skill composition of migrants is deteriorating Ratio of the share of individuals with tertiary education in the migrant population and the same share in the native population Country Relative Share ‘90 Relative Share ‘00 Δ 2000-1990 Spain2,191,15-1,05 Portugal1,851,03-0,82 Greece1,790,99-0,80 Italy1,600,91-0,69 Germany1,981,36-0,61 Norway1,481,05-0,43 Ireland2,832,50-0,33 Netherlands1,080,87-0,21 France1,321,12-0,20 Belgium1,050,87-0,18 Austria0,770,71-0,06 Finland1,031,01-0,02 Denmark0,780,810,03 Uk1,671,830,16 Sweden1,111,290,18 Sources: Own extrapolations on data from Docquier (2006) and Barro-Lee (2000)

33. Pros and cons of closing the welfare door –Popular policy. It would address concerns of public opinion. –It would affect the size of migration flows (increase by 1 stdev of generosity implies 3% higher migration) more than their skill composition –Difficult to enforce: experience of California –Problems in the assimilation of migrants –Equity considerations Policy issues

34. Adopting a point system? Skilled migration is better for rigid countries Simplification of policies (including asylum) Is it effective in selecting migrants? Risk of “brain drain”? Equity considerations. Policy issues

35. Skill distribution of migrants ad natives (IALS scores) GermanyNew Zealand Policy issues

36. Evidence on brain drain effects on LDC growth Source: Docquier – Rappoport (2004)

37. Migration policies are already getting selective Everywhere tightening of migration policies towards the unskilled While race to attract highly skilled migrants Explicit point systems in an increasing number of countries (Canada since 67, Australia since 84, New Zealand since 91, Switzerland since 96) Policy issues

38. Why do Migration Policies Exist? Migration policies are essentially redistributive policies supported by workers at the low end of the skill distribution. Immobile taxpayers can also benefit from tight migration policies because they are vulnerable to fiscal spillovers associated with inflows of migrants who draw benefits from social welfare systems. Aging increases the political power of these groups, while an increase in the educational attainments of the domesticworkforce may weaken the anti-immigration constituency.

39. Why do Migration Policies Exist? (cont.) Migration policies can, at best, induce some gradualism in migration flows that would otherwise occur in large waves. Pressures on welfare systems that exert negative fiscal spillovers on the domestic population can be reduced by either restricting access to welfare by migrants or by adopting explicitly selective migration policies

40. Review questions Why do employers generally support migration, while unions do not? What are the effects of migration on income distribution at home? What is the relation between internal and international migration? Why does empirical work often not find the strong effects of migration on native wages that are predicted by economic theory?

41. Review questions (cont.) What does the Roy model predict about the skill composition of migration? How do the elasticities of labor demand and labor supply affect the economic impact of migration? What is the greasing-the-wheels effect? What are the pros and cons of a points system? What are the pros and cons of a policy that closes the welfare door to migrants?