Download Supply-Side Effects of International Migration

Chapter 15
The International Migration of People
Jacques Chirac, Prime Minister of France: If there were fewer
immigrants, there would be less unemployment, fewer tensions
in certain towns and neighborhoods, and lower social cost.
Liberation [A Paris newspaper]: That has never been formally
proven.
Chirac: It is easy to imagine, nevertheless.
(From an October 30, 1984 interview)
International
Economics
Goals of this Chapter
• Present a brief history of international migration, the oldest
of the three components of globalization.
• Take the student beyond the popular labor supply model of
immigration by introducing the labor supply and demand
model of immigration.
• Use the labor supply and demand model of immigration to
frame the analysis of the gains and losses from
immigration on source and destination countries.
• Review the evidence on international migration’s welfare
effects.
• Examine how immigration is likely to influence countries’
rates of economic growth.
International
Economics
The History of International Migration
• Until the development of
agriculture some 10,0008,000 years ago, there were
few human-made barriers
to the movement of people.
• Because there were no
political boundaries, these
movements of people are
usually referred to as
“migrations” rather than
international migration or
immigration.
?
?
World Migration: 75,000-10,000 B.C.
International
Economics
The History of International Migration
• Beginning most likely in the Fertile Crescent of the Middle
East, permanent settlements arose.
• Urbanization required an increase in specialization and
exchange.
• Permanent settlements and the establishment of welldefined borders meant that people were increasingly seen
as citizens of some specific political area.
• Because of people’s nationality, movement from one
nation to another, defined as international migration,
often requires a change in allegiance and citizenship.
International
Economics
Table 15.1
Foreigners as Percentages of Population and Labor Force, 20001
Austria
Belgium
Denmark
France
Germany
Italy
Luxembourg
Netherlands
Sweden
Switzerland
United Kingdom
Japan
Australia
Canada
United States
Population
Labor Force
9.1
8.7
4.8
5.6
8.9
2.1
35.6
4.2
5.6
19.0
3.8
1.2
23.4
17.4
9.8
9.9
8.8
3.2
6.1
9.1
1.7
37.7
2.9
5.1
17.3
3.9
1.0
24.8
19.2
11.7
1The
definition of “foreign” differs among countries; in Australia, Canada, and the U.S., the percentages are for
“foreign-born” people, for the rest of the countries, the percentages are for people classified as ethnically-foreign
Source: OECD (2001), OECD Employment Outlook, Paris: OECD, June.
.
International
Economics
Immigration to the United States
Decade
1851-1860
1861-1870
1871-1880
1881-1890
1891-1900
1901-1910
1911-1920
1921-1930
1931-1940
1941-1950
1951-1960
1961-1970
1971-1980
1981-1990
1991-1998 (8 yrs.)
Number (thousands)
2,598
2,315
2,812
5,247
3,688
8,795
5,736
4,107
528
1,035
2,515
3,322
4,493
7,338
7,604
Rate1
10.4
5.7
3.5
0.4
0.7
1.5
1.7
2.1
3.1
4.1
1 Number of immigrants per thousand residents of the United States.
Source: United States Department of Commerce, Bureau of the Census, Statistical Abstract of the United States
1999, 117th Edition, Washington, DC, 1999.
International
Economics
Foreign-Born Population in the United States
year
1850
1860
1870
1880
1890
1900
1910
1920
% of Population
9.7
13.2
14.4
13.3
14.8
13.6
14.7
13.2
year
% of Population
1930
1940
1950
1960
1970
1980
1990
2000
11.6
8.8
6.9
5.4
4.7
6.2
7.9
10.4
Source: U.S. Census Bureau, www.census.gov, March 10, 2001.
International
Economics
Definitions
• Settlers: Immigrants who remain in another country as
permanent residents.
• Contract laborers: People who go to another country for
some limited period of time to perform a specific job.
• Professionals: Workers who perform technical or
management jobs, often work for multinational firms, and
often move from country to country.
• Asylum seekers and refugees: People who immigrate to
escape serious threats to their safety and well-being.
• Illegal immigrants: People who immigrate without
following the required formal legal procedures to gain
entry to another country.
• Involuntary immigrants: People who are moved from
one country to another against their will.
International
Economics
Supply-Side Effects of International Migration
• Economic incentives are most often the driving force
behind international migration.
• The most often-used model of immigration is based on the
assumption that people migrate to countries where they
expect to improve their well-being.
• The supply and demand model of immigration is based on
a standard model of a labor market.
• The simplest version of this model assumes that
international migration changes the supply of labor in the
source and destination countries but leaves the demand for
labor unchanged.
International
Economics
Supply-Side Effects of International Migration
• The labor demand curve is
the value of the marginal
product of labor (VMPL )
curve.
• The VMPL curve is the
product of the marginal
physical product of labor,
MPL, and the price of output,
P, or VMPL = MPL x P.
• The marginal product of
labor declines as more labor
is hired, so the VMPL curve
is downward-sloping.
Wage
The Labor Market
VMPL
0
Labor
International
Economics
Supply-Side Effects of International Migration
• As wages rise, the opportunity
cost of not working rises.
• All other things equal, a higher
wage will cause workers substitute
work for leisure.
• Higher wages also increase labor
income, and this positive income
effect leads people to acquire more
leisure when wages rise.
• The overall effect of higher wages
on the supply of labor is thus
theoretically ambiguous
• For convenience, we model the
supply of labor with a vertical
line; conclusions are unaffected by
this simplification, however.
W
C
B
A
# of workers
What Does the Labor
Supply Curve Look Like?
International
Economics
Supply-Side Effects of International Migration
• The wage is equal to w, where
the VMPL curve intersects the
labor supply curve.
• The area under the VMPL curve
represents the total value of
output produced in the
economy (GDP).
• Total labor income is equal to
the wage times the quantity of
labor, which is the rectangle B.
• The remaining value of output,
A, provides the income of the
remaining productive factors,
such as capital and land.
Wage
The Labor Market
c
SL
A
A
a
w
B
VMPL
0
q
Labor
International
Economics
A Two-Country Model of Migration
• The Figure shows the
labor market in two
countries, Morocco and
France.
• The supply and demand
conditions result in
equilibrium wages of 10
euros in France and 4
dirham in Morocco.
• Suppose that the
exchange rate is equal to
one euro = 2 dirham; in
this case the Moroccan
equilibrium occurs at 2
euros.
Wage
Morocco
Wage
France
SL
10
VMPL
SL
2
0
VMPL
100
0
50
Figure 15.7
The Labor Markets in Morocco and France
International
Economics
Migration from Morocco to France
• Suppose that 25
million workers
migrate from
Morocco to France.
• The supply of labor
curve shifts to the
left by 25 million in
Morocco.
• The labor supply
curve shifts to the
right in France.
• The wage rises in
Morocco; it fall sin
France.
Wage
Morocco
Wage
France
S
S’
10
S’
S
3
2
0
8
VMPL
VMPL
75
100
0
50
75
The Labor Markets Before and After Immigration
International
Economics
Who Gains and Who Loses Welfare?
Wage
Morocco
Wage
France
S’
S
D
10
E
8
S’
3
2
S
VMPL
d
F
e
H
g
f
0
G
VMPL
h
75
100
0
50
75
Figure 15.8
Distinguishing the Gains and Losses from
Immigration in Morocco and France
International
Economics
Summarizing the Gains and Losses from Migration:
1. Morocco:
Owners of other (non-labor) factors:
Remaining workers:
Net change in real income:
loss of e + g
gain of e
loss of g
! 87.50
+ 75.00
! 12.50
2. France:
Workers originally in France:
Owners of other (non-labor) factors:
Net change in real income:
loss of E
gain of E + G
gain of G
! 100.00
+ 125.00
+ 25.00
3. Immigrants:
Loss of wages in Morocco
Gain of wages in France
Net change in real income:
loss of h
gain of H
gain of (H ! h)
! 50.00
+ 200.00
+ 150.00
World (1 + 2 + 3):
Net change in Moroccan real income:
Net change in French real income:
Net change in immigrants’ real income:
Net gain:
loss of g
gain of G
gain of (H!h)
gain of (H+G) ! (h+g)
! 12.50
+ 25.00
+ 150.00
+$162.50
International
Economics
The Effects of Migration on World GDP
• The value of output
(GDP) changes in
both countries.
• GDP falls by the
amount of the areas
g + h in Morocco.
• GDP rises in France
by the sum of G + H.
• World GDP rises,
since G+H > g+h.
• Migration reallocates
labor to where its
marginal product is
greatest.
Wage
Morocco
Wage
France
S’
S
D
10
E
8
S’
3
S
VMPL
d
HH
F
e
gg
2
f
0
GG
VMPL
hh
75
100
0
50
75
Figure 15.9
The Gains and Losses of Output After Immigration
International
Economics
The Demand Effects of International Migration
• In general, the value of the marginal product (VMP) curve
does not remain constant when migrants enter or leave a
country.
• Because total income rises in the country that receives
immigrants, the demand for output and the demand for the
factors that produce output also increase.
• The new immigrants themselves contribute to the increased
demand as they spend their income on housing, food, and
many other goods and services produced in the economy.
• Immigrants are at the same time workers and consumers.
• A complete model of international migration therefore
should show both the supply effects and the demand
effects.
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Economics
The Complete Demand and Supply Effects of Migration
• The figure illustrates the
combined labor supply and
labor demand effects of
immigration in a typical
destination country.
• The wage does not fall from
A to B, as the supply-only
model suggested.
• The wage is likely to fall to
a lesser degree, say to C
because immigrants cause
the demand for labor to
increase along with the
supply of labor.
Figure 15.10
Immigration and Demand for Labor
in the Destination Country
Returns
SN SN+M
A
C
B
VPM2
VPM1
0
4 5
Millions of Workers
International
Economics
The Complete Demand and Supply Effects of Migration
• In the source country, the
departure of people
reduces the demand for,
and the of, labor.
• The demand curve for
labor shifts downward as
the supply curve of labor
shifts leftward.
• Wages rise only to C, not
to B as would be the case
if only the supply curve
shifted.
Figure 15.11
Immigration and Demand for
Labor in the Source Country
Returns
SN-M SN
B
C
A
VPM1
VPM2
0
Millions of Workers
International
Economics
The Complete Demand and Supply Effects of Migration
• If immigrants remit
income to the source
country, then total
demand for labor in the
source country may
increase even though
people leave the country.
• For example, the demand
curve for labor could
shift upward, from VMP1
to VMP3, in which case
the wage rises to D.
Figure 15.12
Immigration and Demand for Labor
In the Source Country with Remittances
Returns
SN-M SN
D
B
C
A
VPM3
VPM1
VPM2
0
Millions of Workers
International
Economics
Immigration’s External Effects
• Immigration may generate externalities that cause welfare
gains or losses to exceed those represented in the demand
and supply model of immigration.
• Immigrants could increase competition, which enhances
the efficiency with which the entire economy transforms
inputs into output.
• Immigrants may raise the overall level of technology
throughout the economy by introducing new products and
production methods.
• Increased population and a larger economy permits a
greater exploitation of economies of scale.
• Increased labor can cause negative externalities by
burdening existing infrastructure or crowding facilities.
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Economics
Externalities to International Migration
• Suppose immigration only
has direct supply effects, in
which case immigration
causes the wage to fall to b.
• Externalities may offset the
labor supply effect.
• The combined effects of
immigration, (1) the
increase in the supply of
labor from SN to SN+M, and
(2) the externalities’
positive effect on income
and the VMPL curve, could
actually raise the wage to c.
Figure 15.13
Immigration with positive externalities
in the destination country
Returns
SN SN+M
c
a
b
VPML’
VPML
0
Millions of Workers
International
Economics
Externalities to International Migration
• Immigration may bring
negative externalities.
• Negative externalities to
immigration could reduce
the wage to fall to C, not B.
• Total welfare for natives
could fall if negative
externalities cause a large
shift in the VPML curve.
• That is, if the area f, the
loss in real income accruing
to native labor and other
factors, is greater than g,
the gain in income to other
factors when immigrants
expand output.
Figure 15.14
Immigration with negative externalities
In the destination country
Returns
SN SN+M
f
A
B
g
C
VPML
VPML’
0
Millions of Workers
International
Economics
Figure 15.11
The Age Distribution of Immigrants to the U.S.:
1907 – 1910 & 1992 – 1995
Source: INS
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Economics
The Conclusions of Individual Case Studies
on Immigration’s Economic Effects
In their survey of immigration research, Rachel Friedberg and
Jennifer Hunt concluded that:
Despite the popular belief that immigrants have a large
adverse impact on the wages and employment opportunities of the
native-born population, the literature on this question does not
provide much support for this conclusion. Economic theory is
equivocal, and empirical estimates in a variety of settings and
using a variety of approaches have shown that the effect of
immigration on the labor market outcomes of natives is small.
There is no evidence of economically significant reductions in
native employment.
Source: Rachel M. Friedberg and Jennifer Hunt (1995), “The Impact of Immigrants on Host
Country Wages, Employment and Growth,” Journal of Economic Perspectives, Vol.
9(2), p. 42.
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Economics
Immigration and Economic Growth
There are several reasons why the relationship between
immigration and long-run economic growth will be
positive in the destination country:
• Immigrants are carriers of ideas and knowledge, and
therefore immigration increases the transfer of technology
from abroad.
• Immigrants often have talents and personalities that are
especially appropriate for innovation.
• Immigration tends to reduce the ability of vested interests
to take protectionist measures that slow the process of
creative destruction.
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Economics
Do Immigrants Congest or Create?
• The early social scientist William Petty wrote as far back
as 1682 that “... it is more likely that one ingenious curious
man may rather be found among 4 million than among 400
persons.”
• People are the critical input into the process through which
technology progresses, and because immigration increases
the stock of these creative inputs in the destination country,
it is likely to enhance the destination economy’s rate of
technological progress.
• Joseph Schumpeter pointed out that immigrants were good
candidates to become entrepreneurs because they are less
attached to the traditions of society and, therefore, more
willing to “be different”.
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Economics
The Brain Drain
• The brain drain refers to the migration of a educated and
talented people from developing countries to more
developed economies, which is often seen as reducing
growth in the poorer sources country and enhancing
growth in the richer destination countries.
• Because educated people are critical for the creation of
new technologies and the adaptation of existing
technologies from other countries, the long-run economic
growth rate of the source country may fall when educated
people migrate to other countries.
• Remittances from abroad and the eventual return of
migrants after gaining foreign experience can reduce, or
even more than offset, the brain drain’s negative effects.
International
Economics