The Economics of Immigration

Cynthia Bansak, Nicole B. Simpson, Madeline Zavodny

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317752981
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Economics of Immigration provides students with the tools needed to examine the economic impact of immigration and immigration policies over the past century. Students will develop an understanding of why and how people migrate across borders and will learn how to analyze the economic causes and effects of immigration. The main objectives of the book are for students to understand the decision to migrate; to understand the impact of immigration on markets and government budgets; and to understand the consequences of immigration policies in a global context.

From the first chapter, students will develop an appreciation of the importance of immigration as a separate academic field within labor economics and international economics. Topics covered include the effect of immigration on labor markets, housing markets, international trade, tax revenues, human capital accumulation, and government fiscal balances. The book also considers the impact of immigration on what firms choose to produce, and even on the ethnic diversity of restaurants and on financial markets, as well as the theory and evidence on immigrants' economic assimilation. The textbook includes a comparative study of immigration policies in a number of immigrant-receiving and sending countries, beginning with the history of immigration policy in the United States. Finally, the book explores immigration topics that directly affect developing countries, such as remittances, brain drain, human trafficking, and rural-urban internal migration. Readers will also be fully equipped with the tools needed to understand and contribute to policy debates on this controversial topic.

This is the first textbook to comprehensively cover the economics of immigration, and it is suitable both for economics students and for students studying migration in other disciplines, such as sociology and politics.

Part 1
Trends in Immigration

1
Why Study the Economics of Immigration?

Economics is the study of how societies allocate scarce resources. Immigration is the movement of people across national borders. It may not be obvious what these two topics have in common. But they actually have quite a bit in common. More people moving to a country can mean more workers producing more things, which reduces the level of scarcity and raises the standard of living. Or, more people moving to a country can mean more people competing for scarce resources, which reduces the standard of living.

Which of these two opposing views is correct? The economics of immigration applies economic tools to the topic of immigration to answer questions like whether immigration affects wages, poverty and income inequality in a country. The economics of immigration examines many other consequences of immigration as well, such as the effects on tax revenues and government expenditures, the effects on how and what firms decide to produce and the effects on innovation and technology, to name just a few. The economics of immigration also examines questions like what determines whether people choose to move and where they decide to go. It even examines how immigration affects the ethnic diversity of restaurants and financial markets! The economics of immigration is a booming field within economics.

More than 230 million people, or 3 percent of the world’s population, are immigrants (United Nations, 2013). Immigration is a truly global concept—virtually every country in the world continually experiences both inflows and outflows of people. Some countries, like Australia, Canada and the United States, have long histories of receiving large numbers of immigrants. Other countries, like Ireland, Italy and the United Kingdom, sometimes have had more people leaving than entering, or a net outflow of people, but at other times have had more people entering than leaving, or a net inflow of people. Developed and developing countries alike experience out-migration by people looking for better opportunities elsewhere while also experiencing in-migration by people from other countries looking for better opportunities there.

Although 230 million immigrants globally seems like a lot of people, it pales in comparison to the number of people who would like to move to another country. Gallup polls indicate that more than 640 million people—13 percent of the world’s adult population—would like to move permanently to another country (Gallup, 2012a). Among people who would like to move, the United States is the most preferred destination (23 percent), followed by the United Kingdom (7 percent) and Canada (6 percent). About 1.1 billion people—26 percent of the world’s adult population—would like to go to another country temporarily in order to work (Gallup, 2012b). Almost one-half of adults living in sub-Saharan Africa would like to move to another country temporarily in order to work, and one-third of them would like to move abroad permanently.

One reason why so many people would like to work or live in another country is that they may earn much more if they move. Michael Clemens, Claudio Montenegro and Lant Pritchett (2009) have calculated what they call “the place premium,” or the wage gains to immigrants who move to the United States. The average worker who migrates from Yemen, a country in the Middle East, to the United States earns 15 times more in the United States than in Yemen—$1,940 a month in the United States versus $126 a month in Yemen, adjusting for the exchange rate and differences in prices (purchasing power parity) across the two countries. The average worker who moves from Mexico to the United States earns 2.5 times more, and the average worker from Haiti earns 10 times more.

The possibility of large income gains is not limited to immigrants who move to the United States, or even to industrialized countries in general. Developing countries attract immigrants from even poorer countries. For example, Thailand has some 2.5 to 3 million migrant workers, most of them from neighboring Myanmar (World Bank, 2013). Gross domestic product (GDP) per capita is almost five times higher in Thailand than in Myanmar. But as Myanmar’s economy has begun improving in recent years, fewer people are migrating to Thailand and some migrants are returning home, creating concerns that Thailand may experience a labor shortage in the coming years.

There are other reasons for moving to another country besides to work, of course. People may want to move to another country in order to study or to join family members. More than four million students were enrolled at a university outside their country of citizenship in 2010 (OECD, 2012). The United States is the top destination for foreign students (19 percent), closely followed by the United Kingdom (18 percent). Many foreign students view studying abroad as a temporary move, but some do so hoping that it will enable them to live permanently in that country. Likewise, some people who move to join family members who live or work abroad may view it as a temporary move, while others view it as a permanent move.

From an economic perspective, the key question in immigration is not why so many people become immigrants, but why so few. If more than one-quarter of the world’s population would like to move to another country at least temporarily, why has only 3 percent of the world’s population actually done so? Policies that limit immigration are one reason. Countries impose many restrictions on immigration. These restrictions discourage some potential migrants from moving at all, and they cause others to migrate illegally instead of legally.

Being unable to afford to immigrate, either legally or illegally, is another reason why some people who would like to move to another country do not do so. Moving is costly. Legal migrants may need to pay for a passport and a visa and hire a lawyer or an agent to help them migrate. They also have to pay for transportation. Workers from Bangladesh spend between $1,935 and $3,870 to obtain low-skilled jobs in the Middle East, for example (World Bank, 2013). This is 2.5 to 5 times the average annual income in Bangladesh. Only people who can save or borrow that much can access jobs in the Middle East, which pay far more than jobs in Bangladesh. The people who may gain the most from migrating may be the least able to afford to do so. Likewise, illegal migrants may need to pay a smuggler to help them enter a country illicitly. This can cost hundreds, thousands, or even tens of thousands of dollars, depending on the distance, difficulty and discomfort involved.

There are non-monetary costs to moving as well. Migrants may miss their families, their friends and their culture. If their family stays behind, migrants may not be there as their children grow up or when their parents die. Immigrants who are unable to return home regularly may not be able to attend family weddings, birthdays, graduations, funerals and other important events. They may struggle to learn another language and to adapt to another culture. Such non-monetary costs, often called “psychic costs,” may be even higher than the monetary costs.

Immigration has been rising globally during the past few decades and is likely to continue to become more common. Although immigrating is expensive, its cost has fallen over time. In addition, incomes have risen in much of the developing world. As average incomes rise, more people can afford to migrate. Immigration is also rising because people are more aware of better opportunities elsewhere. Cell phones and email have made it easier for immigrants to let friends and family members back home know when jobs are available abroad. Television, movies and the Internet have made people more aware of global differences in living standards. A “youth bulge” in many developing countries has increased the population of young adults, the group most likely to migrate in search of better opportunities. Repressive political regimes in some countries have motivated people to leave voluntarily in some cases and led to refugee crises in other cases.

Types of immigrants

Immigrants can be classified into different, sometimes overlapping groups. This book uses the term immigrants to mean people who are not citizens at birth of the country in which they currently live. (A section called “Economics of immigration terminology” later in this chapter discusses this definition further.) One way to classify immigrants is based on whether they choose to move or are forced to do so. Other ways include their duration of migration, whether they migrate legally and how skilled they are.

Most of the world’s immigrants are voluntary immigrants—they choose to move. People choose to move for a variety of reasons, including to work, to study and to join family members. But there are two important exceptions: refugees and asylum seekers (sometimes jointly called humanitarian immigrants), and victims of human trafficking.

Refugees are people who leave their home country because of persecution, war or violence. At the end of 2013, there were 16.7 million refugees worldwide (UNHCR, 2014).¹ The number and location of refugees can change quickly if a war or violence erupts. For example, more than two million people fled Syria during the first two years of the civil war that began there in 2011 (UNHCR, 2013).

Some refugees return home when conditions improve, while others are never able to return. Many live for years in desperate conditions in neighboring countries that do not welcome them. Some are ultimately resettled by the United Nations High Commissioner for Refugees (UNHCR) in countries that agree to accept them. In many industrialized countries, refugees are eligible for public assistance programs.

Refugees are often confused with asylum seekers. Asylum seekers are international migrants who apply for asylum, or protection as a refugee, after entering a foreign country. In essence, asylum seekers are people who have left their home country and whose claims for refugee status have not yet been evaluated. The country they are in must determine whether they meet the grounds for being considered a refugee. The UNHCR specifies those grounds as a well-founded fear of persecution in the home country for reasons of race, religion, nationality, political opinion or membership in a particular social group. Asylum seekers who are denied refugee status usually must leave the destination country and are deported back to their origin country, although they sometimes stay and become illegal immigrants. Distinguishing legitimate asylum seekers from economic migrants—people who move for a better life but do not meet the criteria to be considered a refugee—can be difficult.

Victims of human trafficking are migrants who are deceived or coerced and then exploited. They are typically forced to work against their will for little or no pay and are not free to leave. The U.S. State Department (2013) reports that as many as 27 million people are victims of human trafficking today, although not all of them have moved across an international border. Some victims of human trafficking start out as voluntary migrants but are instead enslaved or exploited. For example, women might believe they are going abroad to work as housekeepers but are forced into prostitution after they have left home.

A second way to classify immigrants is based on whether they are permanent or temporary. Migrants may be “birds of passage,” migrants who plan to work abroad for a while in order to earn enough money to return home and buy land, start a business or retire (Piore, 1979). Workers also might move temporarily in order to send money home to support their relatives. Other motives for temporary migration include studying and visiting family members. Temporary migrants are sometimes called “sojourners.” Permanent migrants are immigrants who do not return to their origin country to live. Some of them choose to become citizens of their new country while others do not. People who intend to be temporary migrants may end up becoming permanent migrants, and vice versa. Immigration policy can affect this choice. For example, policies that make it difficult for migrants to move back and forth may prompt them to settle permanently in the destination and bring their families there.

People who are very short-term migrants—people who travel to another country to visit but not to live, such as people taking a foreign vacation or taking a business trip to another country—are not considered immigrants, even temporary ones. They are visitors. It is not clear exactly how long a stay needs to be to distinguish a visitor from a temporary immigrant. Is someone who stays for six months every year with her children who live in another country a visitor, a temporary immigrant or a permanent immigrant? When someone has moved to a new country and no longer has a residence in another country, he is clearly an immigrant. But is someone who has homes in two countries then an immigrant in neither country? There is no clear answer to these questions from an economic standpoint.

Another way to classify immigrants is based on whether they are legal or not. Legal immigrants have permission to enter and live, at least temporarily, in a country. Illegal immigrants do not. There are two main ways that people can become illegal immigrants. They can enter a country illicitly, such as by crossing a border without permission. (The U.S. government refers to this as “entry without in...