The Costs and Benefits of Immigration

Nick Rowe provides a concise framework for thinking through the issues (excerpt):

Thinking about Costs and Benefits of Immigration

I find this a useful way to organise my thoughts about the costs and benefits of immigration. It may work for you too. I start out with a neutral benchmark, where immigration has neither costs nor benefits for the original population. Then I think of different ways in which that neutral benchmark could be wrong. This post is just a list (no doubt incomplete) of things that might create costs or benefits from immigration. I make no attempt to say which is bigger. It depends.

I am writing this mostly for non-economists. I should warn you that the economics of migration is not my area. I'm a macroeconomist, and most economists who specialise in immigration are microeconomists. This may give me a different perspective.

In case you think it matters: I migrated to Canada from the UK 40 years ago (and to Quebec from Ontario 30 years ago). This may influence my perspective.

And for what it's worth: I think that Canadian immigration policy is probably in the same ballpark as the right immigration policy for Canada. Though it is probably different for different countries….

The situation in Malaysia is a little different – we have mainly guest workers, rather than immigrants, though this nuance requires little modification to the framework offered above. Worth a read.

Thinking About Labour Markets: Partial Equilibrium Fallacies

I think by this time we all know that empirically, a minimum wage doesn’t seem to have the negative effect on employment that conventional economic analysis says it does. The reason for that is the Econ 101 standby of analysing policy changes based on ceteris paribus – a partial equilibrium approach. Holding everything constant and changing just one variable is a very useful way of thinking about economic issues, but it risks missing out on real world implications when you forget that economic systems are, in fact, actually systems.

Emigration And Affirmative Action [UPDATED]

Everyone knows that reporting in the mainstream media is biased. Unfortunately, they’re not the only ones (excerpt):

Malaysia’s got talent, but they’re being driven away, mostly to Singapore – world economic report

The huge presence of foreign workers in Malaysia has led to static wages, according to the WEF report.

Affirmative action policies and an overreliance on cheap foreign labour have led to Malaysia's best and brightest leaving to find greener pastures, particularly in Singapore, according to a new report released by the World Economic Forum.

Brain Drain Issue Overblown?

I didn’t comment on the World Bank report on the issue of Brain Drain in Malaysia because it didn’t seem necessary. Apart from the weaknesses in the methodology used, it really didn’t say anything more than what most all know or suspect. That brain drain can be a problem everyone knows or think they know, and the causes aren’t all that hard to figure out anyway.

Now here comes a dissenting view from, of all people, a World Bank economist:

Worrying Too Much about Brain Drain?

Brain drain worries policymakers around the world. For example, a search today in Google News gives a host of stories in the past month alone concerning efforts by universities in Vietnam to stop brain drain, demands for wage increases to stop the brain drain of doctors in Pakistan, claims that Malaysia’s brain drain hinders its economic progress, efforts to stem brain drain in Jamaica, a plea to “stop the brain drain” in Cyprus, and even fears of massive brain drain from the state of New York.

But does high-skilled emigration really pose such a threat? The last five years has seen a surge in empirical research on the subject, which John Gibson and I use to answer eight key questions about brain drain in a paper forthcoming in the Journal of Economic Perspectives and now out in the World Bank working paper series...

...Recent evidence should counteract many of the myths and common concerns about brain drain. Brain drain rates are not skyrocketing. Africa is not the most affected region for brain drain; small island states are. Skilled migrants enjoy massive increases in their living standards as a result of emigrating, and skilled migrants end up remitting back as much as the fiscal cost of their absence.

Ultimately then, given the massive individual gains from migration, any belief that brain drain is detrimental for development must rely on large externalities of high-skilled individuals. This is the area where the existing empirical literature is weakest, but the estimates that do exist suggest that the production externalities of brain drain (at the margin at least) are quite small.

The paper suggests then that worries about brain drain are likely to be overblown, but also that there are still large knowledge gaps on certain impacts, and almost no rigorous evidence as to the impacts of policy actions in this area. Given how prevalent brain drain concerns are, there seems to be plenty of fruitful avenues for future research and policy experimentation going forward – with the paper ending with some ideas on directions for these.

So, on the face of it, the loss from brain drain appears small – which is really counterintuitive. Maybe its the global perspective of the paper, which averages over losses to individual countries. The paper does point out some cool data trends that are worth noting – like the ratio of skilled immigration globally hasn’t increased at all, and in fact may have fallen in the past decade.

Technical Notes:

Gibson, John & David McKenzie, "Eight questions about brain drain", The World Bank, Policy Research working paper no. WPS 5668, May 2011