Economic Growth - Development & Labour Migration

Introduction

A Global War for Talent

“A higher rate of global migration is desirable for four reasons: it is a source of innovation and dynamism; it responds to labour shortages; it meets the challenges posed by rapidly aging populations; and it provides an escape from poverty and persecution”

Ian Goldin, director of the Oxford Martin School and Professorial Fellow at Balliol College, University of Oxford

This revision note focuses on international labour migration – keep in mind that large migration can happen within a country too. In China there has been rural-urban migration in the last 20 years amounting to over 150 million people.

• Cross-border migration from one country to another has become an increasingly important feature of our globalizing world and it raises many important economic, social and political issues
• About 200-million people now live in countries in which they were not born
• Estimates compiled in 2009 suggested 580,000 to 820,000 Chinese migrants were living in Africa. In 2012 the figure is likely around 1 million

Migrant  Workers as a % of a country’s total population
Country	2010	Country	2010
Kuwait	76.6	World	3.1
Qatar	74.2	Sub-Saharan Africa (all income levels)	2.1
United Arab Emirates	43.8	Least developed countries	1.4
Singapore	38.7	Korea, Rep.	1.1
Australia	21.1	Mexico	0.6
Ireland	20.1	Philippines	0.5
United States	13.8	India	0.4
Germany	13.2	Brazil	0.4
United Kingdom	10.4	China	0.1
South Africa	3.7	Indonesia	0.1
Source: World Bank

 Factors affecting the direction and scale of migration

Many economic and social factors affect the rate of migration. In general, the incentive to migrate is strongest when the expected increase in earnings exceeds the cost of relocation.

• Differences between countries in wages and salaries on offer for equivalent jobs – reflected in differences in expected incomes over a working life
• Access to the benefits system of host countries plus state education, housing & health care
• Employment opportunities vary between nations, in particular for younger workers
• A desire to travel, learn a new language, build new skills and qualifications and develop networks
• A desire to escape political repression and corruption in the country of origin especially in failing states
• The impact of satellite television and the internet in changing people’s expectations
• The effects of cheaper trans-national phone calls and more affordable air travel and coach travel for example within the European Union
• The unwillingness of people within the domestic economy to take certain “drudge-filled” jobs such as porters, cleaners and petrol attendants

 Economic Benefits from Cross-Border Migration

Supporters of inward labour migration have argued that migration provides numerous advantages:

• Fresh skills: Migrants can provide complementary skills to domestic workers, which can raise theproductivity of both (a Brazilian child minder provides good quality child care at an affordable price which allows a highly paid female magazine editor to continue to work.)
• A driver of innovation and entrepreneurship: Inward migration can also be a driver of technological change and a fresh source of entrepreneurs. Much innovation comes from the work of teams of people who have different perspectives and experiences. Migrant networks accelerate the spread of technology.
• Pressure on government to reform: Labour migration can also put political pressure on failing governments and regimes e.g. a mass exodus of productive workers from Zimbabwe.
• Multiplier effects: New workers create new jobs, there is a multiplier effect if they find work and contribute to a nation’s GDP through a higher level of aggregate demand.
• Reducing skilled-labour shortages and expanding the labour supply: Migration can help to relieve labour shortages and help to control wage inflation. For example, recruitment of skilled workers from outside the European Union is important to many businesses in the UK, and evidence indicates they currently make a positive contribution to UK’s GDP.
• Making a country attractive to FDI: Availability and quality of labour is known to be a key investment location factor for many businesses. In a global battle for talent, if a country is not successful in attracting and keeping skilled workers then FDI in high-knowledge industries will eventually flow to other parts of the world.
• Income flows (remittances): Remittances sent home by migrants add to the gross national income of the home nations. And if these remittances boost spending in these countries, this creates a fresh demand for the exports of other nations. According to the economist Professor Ian Goldin from Oxford University, in Latin America and the Caribbean, more than 50-million people are supported by remittances, and the numbers are even higher in Africa and Asia.
• Tax revenues: Legal immigrants in work pay direct and indirect taxes and are likely to be net contributors to the government’s finances.

Supporters of allowing free movement of labour argue that labour mobility is a positive-sum game rather than a zero-sum game.

Disadvantages of inward migration

On the other side there are several pressure groups campaigning for tighter restrictions on migrant workers. Some of the arguments include:

• Welfare costs: Increasing cost of providing public services as migrants come into a country.
• Worker displacement: Possible displacement effects of domestic workers
• Social pressures: Social tensions arising from the problems of integrating hundreds of thousands of extra workers into local areas and regions.
• Pressure on property prices: Rising demand for housing which forces up prices and rents.
• Benefit claims: Many immigrants find it hard to get work
• Who really gains? The benefits of migration are focused mainly on employers, especially those who take on illegal workers at low wages.
• Poverty risk: Migration may have the effect of worsening the level of relative poverty in a society. And many migrant workers have complained of exploitation by businesses that have monopsony power in a local labour market.

Brain Drains – Human Capital Flight

Migration directly impacts the migrants, their families and their employers, and also impacts development indirectly.
Development in turn impacts migration. There is no doubt that migration is a very important driver of development.

Source: World Bank, Jan 2013

Every immigrant is also an emigrant. A brain drain is a term that describes the movement of highly skilled or professional people from their own country to another country where they can earn more money. It has been used to describe net outward migration of people from several European Union countries in recent times (notably Ireland, Greece and Spain) - another phrase for this is human capital flight.

A sizeable brain drain can bring economic costs and benefits for the sending nation. One disadvantage is that countries lose out on the benefits that might have accrued from the resources used in educating people who leave. Add to this the loss of tax revenue from those who choose to live and work overseas. A sizeable loss of skilled workers (many of whom may be younger and therefore more geographically mobile) could lead to labour shortages in the sender country, putting upward pressure on wages and labour costs. Some of this income earned overseas returns to the sender country in the form of remittances and many skilled migrants often leave only for a year or two - the percentage of permanent migration inside the EU is relatively small.

The benefits and costs of labour migration are hard to quantify and estimate. Much depends on

• The types of people who choose to migrate from one country to another.
• The ease with which they assimilate into a new country and whether they find regular jobs.
• Whether a rise in labour migration stimulates capital spending by firms and by government.
• Whether workers who come into a country decide to stay in the longer term or whether they regard migration as essentially a temporary exercise (e.g. to gain qualifications, learn some English) before moving back to their country of origin.