Chapter 15 The International Migration of People

1
Chapter 15The 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)

2
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 migrations
  welfare effects.
  
• Examine how immigration is likely to influence
  countries rates of economic growth.

3
The History of International Migration

• Until the development of agriculture some
  10,000-8,000 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.

4
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
  well-defined borders meant that people were
  increasingly seen as citizens of some specific
  political area.
• Because of peoples nationality, movement from
  one nation to another, defined as international
  migration, often requires a change in allegiance
  and citizenship.

5
Table 15.1Foreigners as Percentages of
Population and Labor Force, 20001

• Population Labor Force
• Austria 9.1 9.9
• Belgium 8.7 8.8
• Denmark 4.8 3.2
• France 5.6 6.1
• Germany 8.9 9.1
• Italy 2.1 1.7
• Luxembourg 35.6 37.7
• Netherlands 4.2 2.9
• Sweden 5.6 5.1
• Switzerland 19.0 17.3
• United Kingdom 3.8 3.9
• Japan 1.2 1.0
• Australia 23.4 24.8
• Canada 17.4 19.2
• United States 9.8 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.
  

6
Immigration to the United States

• Decade Number (thousands)
  Rate1
  
• 1851-1860 2,598
• 1861-1870 2,315
• 1871-1880 2,812
• 1881-1890 5,247
• 1891-1900 3,688
• 1901-1910 8,795
  10.4
  
• 1911-1920 5,736 5.7
• 1921-1930 4,107 3.5
• 1931-1940 528 0.4
• 1941-1950 1,035 0.7
• 1951-1960 2,515 1.5
• 1961-1970 3,322 1.7
• 1971-1980 4,493 2.1
• 1981-1990 7,338 3.1
• 1991-1998 (8 yrs.) 7,604 4.1
• 1 Number of immigrants per thousand residents of
  the United States.
  

7
Foreign-Born Population in the United States

• year of Population year of Population
• 1850 9.7 1930 11.6
• 1860 13.2 1940 8.8
• 1870 14.4 1950 6.9
• 1880 13.3 1960 5.4
• 1890 14.8 1970 4.7
• 1900 13.6 1980 6.2
• 1910 14.7 1990 7.9
• 1920 13.2 2000 10.4
• Source U.S. Census Bureau, www.census.gov,
  March 10, 2001.

8
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.

9
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.

10
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.

11
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.

12
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.

13
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.

14
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.

15
Who Gains and Who Loses Welfare?
16
Summarizing the Gains and Losses from Migration

• 1. Morocco
• Owners of other (non-labor) factors loss of e
  g - 87.50
  
• Remaining workers gain of e 75.00
• Net change in real income loss of g -
  12.50
  
• 2. France
• Workers originally in France loss of E -
  100.00
  
• Owners of other (non-labor) factors gain of E
  G 125.00
  
• Net change in real income gain of G
  25.00
  
• 3. Immigrants
• Loss of wages in Morocco loss of h - 50.00
• Gain of wages in France gain of H 200.00
• Net change in real income gain of (H - h)
  150.00
  
• World (1 2 3)
• Net change in Moroccan real income loss of g
  - 12.50
  
• Net change in French real income gain of G
  25.00
  
• Net change in immigrants real income gain of
  (H -h) 150.00
  

17
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 GH gh.
• Migration reallocates labor to where its marginal
  product is greatest.

18
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.

19
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.

20
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.

21
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.

22
Immigrations 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.

23
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 SNM,
  and (2) the externalities positive effect on
  income and the VMPL curve, could actually raise
  the wage to c.

24
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.

25
Figure 15.11The Age Distribution of Immigrants
to the U.S. 1907 1910 1992 1995
Source INS
26
The Conclusions of Individual Case Studies on
Immigrations 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.

27
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.

28
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 economys 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.

29
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
  drains negative effects.