Sunday, September 14, 2003

On the Advantages of International Labour Migration

Today I don't feel so alone. This is not because the girl in the flat above me is playing Spanish pop music at full blast. No, the World Bank has seen fit to dedicate a full chapter to labour migration. Even if they are far more tentative than I would be, and even though they place a lot more emphasis on temporary migration than I would, what they say is largely sound sense. Incidentally, what is clear is that what they call TMNP (temporary movement of natural persons) seems to be becoming the next big thing in connection with Mode 4 and GATS (all of this in a subsequent post). What it boils down to is 'services are on the move'. You know, try as I might, I just can't think of a single economic argument against international labour mobility, but few economists seem to recognise this. Surprising, isn't it.

With globalization—the dramatic expansion of cross-border trade and investment—has come an upsurge in international labor mobility. Falling costs of transportation and communication have reduced the distances between peoples, and the drive for better lives has motivated workers to move to areas where jobs are more plentiful and pay is better. Foreign-born persons now account for 10 percent of the total population in the United States, 5 percent in Europe, and 1 percent in Japan. In Canada and Australia, foreign-born persons represent 17 and 24 percent of the total population, respectively. Even so, today’s movement of people is still well below levels experienced in the late nineteenth century, and migration rates, now hampered by restrictive policies, are well below cross-border flow of goods and investment. By 2000, according to the United Nations, 175 million persons were living outside their country of birth—about 3 percent of the world’s population. By contrast, global exports of goods reached almost a third of GDP, and financial flows were well above 10 percent. While long term and settlement migration are still predominant in most developed countries, migrant flows are now more diverse and complex, with migrants moving back and forth more readily and rapidly. Temporary movement, in particular by highly skilled workers, has seen the largest growth in the past decade.

Both developed and developing countries have much to gain from an increased flow of workers. Rich countries benefit because they gain workers whose skills are in short supply. Also, as demographics drive up the average age in rich countries, migration allows an influx of younger workers who contribute to pension systems that would otherwise be actuarially unviable. Poor countries gain from higher wages as well as from the remittances that accrue from migration. In 2001, worker remittances alone provided some $70 billion to developing countries, nearly 40 percent more than all development assistance and significantly more than net debt flows to developing countries. Returning workers also often bring new skills back to the sending country. To be sure, there are costs to both receiving and sending countries: labor markets and social services may be strained in the rich countries, and developing countries may lose skilled workers who have been educated with public resources. Nonetheless, if a temporary visa system were introduced in rich countries permitting movement of labor up to 3 percent of the total labor force, world incomes would rise by nearly $160 billion (Walmsley and Winters 2002).

The shrinking share of young adults in the developed countries, particularly in Japan and Western Europe, and the rising share of young people in South Asia, Africa, and other parts of the world are complementary drivers of labor movement. Growing numbers of young people in the developing world have acquired the education and training needed to assume skilled positions in developed economies. And as the numbers of the foreign-born grow in developed countries, their presence makes it easier and more attractive for newcomers to join them (Hutton and Williamson 2002).

Newer factors are compounding the more familiar drivers of migration. The developing world’s rising share of educated workers—those who have completed secondary education— has jumped from one-third to nearly one-half over the past three decades. Increasingly, the growing pool of skilled developing-country labor is meeting industrial-country shortages, as the marketplace for skills widens to encompass the entire globe. Meanwhile, continued declines in transportation and communication costs and thus greater access to information on migration opportunities via global media, the Internet, and diaspora networks in receiving countries are breaking down barriers to migration(Nielson 2002).

Remittances from foreign workers, both permanent and temporary, are the second-largest source of external funding for developing countries, after foreign direct investment (FDI). In 2001, workers’ remittances to developing countries stood at $72.3 billion, considerably higher than total official development assistance and private non-FDI flows, and 42 percent of total FDI flows to developing countries that year (table 4.2). For most of the 1990s, remittance receipts exceeded official development assistance (World Bank 2003).

While the temporary movement of workers is not likely to unduly disrupt the sending country’s labor market, the potential effects of such mobility on segments of the receiving country’s labor market may at times be more significant. There, the concern arises that mobile foreign workers may be in direct competition with nationals of the host country working permanently in the same occupations. Even if the migrant’s stay is temporary, the growing number of foreign workers and the continuous influx of workers over different time horizons under contract-based flows could increase competition in the labor market (OECD 2002d). From this angle it is easy to see why immigration can be controversial in receiving countries. There is evidence that unskilled migration reduces the relative wages of unskilled workers in industrial countries (Borjas, Freeman, and Katz 1997).

An inflow of unskilled workers from the South will benefit highly skilled workers in the North. Their jobs are not threatened by the latter, and the presence of immigrants will lower prices for many goods and services consumed by the skilled workers. But the same inflow will reduce real wages of unskilled northern workers (World Bank 2001), and over time contribute to a deterioration in income distribution. Against this latter trend, however, demographic and educational trends in affluent countries will combine in the coming decades to raise the relative wages of unskilled labor in the absence of migration. As these demographic effects will likely be large, scope may therefore exist for increased flows of unskilled labor in an environment of relative wage stability. Despite the acknowledged benefits of temporary migration, the norm in receiving countries is to continue to impede the movement of low-skilled or unskilled workers through various restrictions. Such restrictions can contribute to the recent sharp rise observed in undocumented low-skilled workers throughout the OECD area.

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