Labor Mobility and the World Economy

Contents

Preface Federico Foders and Rolf J. Langhammer

International Migration in the Long Run: Positive Selection, Negative Selection, and Policy
Timothy J. Hatton and Jeffrey G. Williamson

I. Labor Mobility and Globalization

Modelling Migration and Development in Economic History and Geography
Frank Barry (Comment Timothy J. Hatton)

Immigration and Wages in General Equilibrium: A Theoretical Perspective
Gabriel Felbermayr and Wilhelm Kohler (Comment Joaquim Ramos Silva)

Ethnic Networks and International Trade
Gil S. Epstein and Ira N. Gang (Comment Jutta Allmendinger and Christian Gaggermeier)

Are International Capital Movement and International Labor Migration Substitutes under National Externality?
Kar-yiu Wong (Comment Jörn Kleinert)

Some Economics of Immigration from an LDC to a DC: Stressing the Case of a Nordic Welfare State
Sheetal K. Chand and Martin Paldam (Comment Holger Bonin)

II. Integrated Labor Markets and Global Governance

Outsourcing and International Labor Mobility: A Political Economy Analysis
Sanjay Jain, Devesh Kapur and Sharun W. Mukand (Comment Johannes Bröcker)

Do We Need an International Regime for Migration?
Stefania Pasquetti (Comment Doris König)

Do Values Matter for Intra-EU Migration?
Holger Wolf (Comment Herbert Brücker)

Refugees, Asylum Seekers, and Policy in Europe
Timothy J. Hatton and Jeffrey G. Williamson (Comment Martin Paldam)

III. Labor Mobility and Public Policy

The Distinct Political Economies of Trade and Migration Policy: Through the Window of Endogenous Policy Models, with a Focus on North America
David Greenaway and Douglas R. Nelson (Comment Gerald Willmann)

Growth Effects of the Brain Drain
Per Lundborg (Comment Gabriel Felbermayr)

List of Contributors

Preface

An increasing number of landings of illegal migrants on the coast of Italy and Spain, but also the recent riots, car-burnings, and street battles that occurred all across France and that have been attributed to the migrant community, seem to indicate that migration is likely to stay high on the European policy agenda for some time. The flow of migrants from poor to rich countries does not, however, constitute a typically European problem. U.S. public policy has also been facing a continued (legal and illegal) inflow of labor from different regions, notably Mexico and other Latin American countries. And similar developments in other advanced countries (Australia, Canada) as well as in selected fast-growing emerging markets in Eastern Europe and East Asia imply that these countries too are being compelled to adjust their public policies in order to relieve migratory pressures and deal with their consequences.

The world economy already saw rising cross-border labor flows in the 1990s and most forecasts predict that South-North and South-South migration will remain at relatively high levels over the next decades and possibly even turn into a major global challenge for policy makers in the 21st century. Although migrants currently amount to less than 3 percent of the world’s population, the concentration of immigrants in only a few host countries and regions raises some important questions in the receiving and sending countries as well as at the supranational level: What structural relationships exist between labor, trade, and capital flows? Are they substitutes or complements? Over the recent past, has there been any progress in modeling labor mobility in a globalization framework? Does immigration (emigration) spur or slow down long-run economic growth? What forces hamper the international integration of labor markets? Do we need improved coordination and/or harmonization of national immigration policies at the regional and global level? Do we need an international/regional regime to manage labor flows?

Against this background, the 2004 Kiel Week Conference on "Labor Mobility and the World Economy" provided economists, other social scientists, and policy makers with a forum to discuss current developments in migration theory and policy.

The first paper included in the conference volume was written jointly by Timothy J. Hatton and Jeffrey G. Williamson. It draws heavily on economic history and focuses on the secular drift from the very positive to much more negative immigrant selection that took place in the first global century after 1820 and in the second era of globalization after 1950, and aims at finding explanations for that drift. It then explores the political economy of immigrant restriction in the past, in an attempt to derive lessons for the present. In doing so, the authors critically review around two centuries of immigration trends and policies in Europe and the United States.

Given the broad scope of this starting point, Frank Barry asks whether economic theory, especially some models of imperfect labor mobility, may be useful in explaining migration in a globalized world in which all factors of production are highly mobile. Although the standard approach consists in adopting a heterogeneous-agent framework, he introduces an alternative model and claims that his approach contributes, among other things, to simplifying welfare evaluations. He builds a model based on the well-known Harris–Todaro model, which allows labor-market-disequilibrium-cum-emigration to be analyzed. Moreover, his model incorporates a variable representing the role of governance in development which enables him to extend the standard analysis in a new way to assess the impact of migration on welfare under different governance regimes.

In their paper, Gabriel Felbermayr and Wilhelm Kohler focus on a phenomenon known as skill-based selection in immigration policies and propose a model of the Ricardo–Viner type featuring three levels of skills. They apply the latter to work out both the wage and welfare effects of alternative immigration scenarios, thereby taking into account several of the adjustment mechanisms suggested by the related empirical literature dealing with changes in the prices of tradable and nontradable goods. A crucial thrust of the paper is that it considers the general equilibrium repercussions of endogenous price adjustments and draws largely counterintuitive conclusions about the welfare effects of skill-based immigration policies.

There is a well-established literature on the role of networks, particularly ethnic networks, in international trade. Ethnic networks are seen as a way to overcome informal barriers to trade such as information costs, risk, and uncertainty by building trust and, to a certain degree, by substituting for the difficulty of enforcing contracts internationally. The networks studied by Gil S. Epstein and Ira N. Gang are those which emerge from the interaction (i) between migrants and natives in the host country and (ii) between migrants and natives in their home country. One of the central issues addressed is the extent to which ethnic networks need to be associated with incomplete assimilation of migrants in the host country for them to have a major impact on exports and imports. A related issue, the relationship between international capital movements and international labor movements, has been discussed before in the literature on foreign direct investment and remittances. In this volume, it is touched upon by Kar-yiu Wong who, employing a model of two economies of different size featuring identical technologies and factor endowment ratios, investigates whether capital and labor movements may be substitutes in a world that enjoys a free flow of goods and services. His analyses encompass substitution in both the price sense and the quantity sense.

The paper by Sheetal K. Chand and Martin Paldam deals with the economic consequences of migration from a less developed country to a developed country and asks whether cultural differences and the institutions of the developed country can cause both a shortfall in and a redistribution of the potential benefits of migration. They explicitly differentiate two mechanisms, the selection of immigrants and the incentives for labor market participation faced by immigrants, in three stylized cases, a Dubai-like guest worker society, a U.S.-like immigrant society, and a Nordic-like tax-based welfare state.

The political economy of worker displacement in an environment characterized by individual-specific uncertainty about the precise distributional consequences of a change in immigration policy is analyzed by Sanjay Jain, Devesh Kapur, and Sharun W. Mukand. The policy shift is assumed to lead to the displacement of high-paid Northern workers by low-paid, skilled Southern workers who were previously barred from entering the country and directly competing with Northern workers. The authors show that in an attempt to contain adverse distributional consequences, the dilemma faced by the Northern politician is that limiting the inflow of human capital might exacerbate the outflow of jobs, as firms "outsource" or "offshore" tasks that had previously been performed domestically. They then go on to ask several questions: Does the outsourcing of service sector jobs raise larger political concerns than the loss of manufacturing jobs and if so, why? Why does the displacement of information technology workers seem to generate a disproportionate amount of political backlash?

The next contribution refers to the pros and cons of international regimes for migration. Since more and more countries are being affected by migration, either as a country of origin, of destination, or of transit, or all of these simultaneously, migration has become an international phenomenon which, in the opinion of Stefania Pasquetti, requires multilateral, rather than unilateral action, by all the states concerned. The European Union is one of the areas of the world economy that has adopted a regional policy with respect to the full mobility of its citizens within the EU as well as with respect to the immigration and asylum of third-country citizens, including a new approach to foster the latter’s integration. Her paper focuses on the record of the EU migration policies in the field of (legal) migration and cooperation with the countries of origin. Moreover, it also addresses the conditions that should be met by the European Commission to provide improved management of labor flows at the supranational level.

The link between the traditional determinants of migration and the role of social values in the context of European integration is scrutinized from an empirical point of view by Holger Wolf. Choosing the empirical fact that Europeans tend to be relatively immobile across borders as a starting point, he sets out to investigate the reasons for this behavior. He gives particular attention to location-specific utility and explores the importance of formal and informal barriers to migration and the perceived benefits and costs of migration, thereby extending the traditional approach to encompass the contribution of social values in shaping the individual’s decision to migrate.

In 2004, the number of refugees worldwide reached 12 million, up from 3 million in the early 1970s. And the number of people seeking asylum in the developed world increased tenfold, from about 50,000 per annum to half a million over the same period. Governments and international agencies have grappled with the twin problems of providing adequate humanitarian assistance in the Third World and avoiding floods of unwanted asylum seekers arriving on the doorsteps of the First World. In another contribution to the conference, Timothy J. Hatton and Jeffrey G. Williamson draw on the recent literature and ongoing research to address a series of questions that are relevant to the refugee debate. First, they examine the causes of refugee displacements and asylum flows, focusing on the effects of conflict, political upheaval, and economic incentives to migrate. Then, they analyze the evolution of policies towards asylum seekers and the consequences of those policies for Europe. Finally, they ask whether greater international coordination could produce better outcomes for refugee-receiving countries as well as for the refugees themselves.

The question whether the domestic politics of international trade differ in any fundamental way from the domestic politics of immigration has been raised before. It has to be acknowledged, however, that it is still extremely difficult to say exactly how and, more importantly, why both politics tend to differ. The paper by David Greenaway and Douglas R. Nelson uses a common frame of reference, namely endogenous policy models, as a tool to inquire into this topic. These models capture the essential insight underlying much of political economy analyses, namely that material interests tend to drive policy preferences. The paper aims at establishing whether both trade and immigration politics appear to be essentially about material interest and whether the differences between trade and immigration politics also show up in institutional aspects such as the way both areas of public policy are organized.

In the final contribution, Per Lundborg investigates the effects on growth and welfare of emigration-related variables such as (i) the emigration of educated and uneducated labor and (ii) the emigration probability itself. Using a Grossman–Helpman model of endogenous growth, he seeks to find answers to the question whether the prospects of emigration to a high-wage country raise the expected returns to education, stimulate human capital formation, and augment the rate of economic growth in the sending country. In addition, he also touches upon the role played by tuition fees in economic growth within the broader context of migration.