Labor Market and Fiscal Impacts of International Migration: Lectures 3 & 4 Gordon H. Hanson UCSD and...
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Transcript of Labor Market and Fiscal Impacts of International Migration: Lectures 3 & 4 Gordon H. Hanson UCSD and...
Labor Market and Fiscal Impacts of International Migration:
Lectures 3 & 4
Gordon H. HansonUCSD and NBER
2
Introduction
Last three lectures What explains small scale, positive selection, and positive sorting
in international migration
Illegal migration
Today What impact does international migration have on the labor
markets of sending and receiving countries? Do changes in national labor supply affect wages?
What are implications of global labor flows on fiscal accounts in sending countries for migrants? Does outflow of labor increase net tax burden on those that remain?
3
Rise in foreign born as share of OECD population
4
1995 2000 2005 Δ1995-2005
Australia 23.0 23.0 23.8 0.8
Austria 10.5 13.5
Belgium 9.7 10.3 12.1 2.4
Canada 16.6 17.4 19.1 2.5
Czech Republic 4.2 5.1 0.9
Denmark 4.8 5.8 6.5 1.7
Finland 2.0 2.6 3.4 1.4
Germany 11.5 12.5
Greece 10.3
Hungary 2.8 2.9 3.3 0.5
Ireland 6.9 8.7 11.0 4.1
Netherlands 9.1 10.1 10.6 1.5
New Zealand 16.2 17.2 19.4 3.2
Norway 5.5 6.8 8.2 2.7
Portugal 5.4 5.1 6.3 0.9
Slovak Republic 2.5 3.9
Spain 5.3
Sweden 10.5 11.3 12.4 1.9
Switzerland 21.4 21.9 23.8 2.4
United Kingdom 6.9 7.9 9.7 2.8
United States 9.3 11.0 12.9 3.6
5
Rising share of immigrants from low-income countries in the OECD
Low Income Sending Region 1990 2000 Change
Mexico, Central America, Caribbean 0.149 0.202 0.053
Southeast Asia 0.086 0.102 0.016
Eastern Europe 0.057 0.099 0.042
Middle East 0.062 0.063 0.001
South Asia 0.041 0.052 0.011
North Africa 0.050 0.044 -0.006
South America 0.031 0.041 0.010
Central, Southern Africa 0.029 0.036 0.007
Former Soviet Union 0.031 0.029 -0.002
Total 0.540 0.672 0.132
High Income Sending Region
Western Europe 0.355 0.244 -0.111
Asia, Oceania 0.065 0.055 -0.010
North America 0.040 0.029 -0.011
Total 0.460 0.328 -0.132
6
Educational composition of immigration
Share in adult immigrant pop. Share in adult resident pop.
primary
educationsecondry education
tertiary education
primary
educationsecondry education
tertiary education
1990 EU 8 0.616 0.210 0.174 0.332 0.485 0.183
Canada, US 0.388 0.180 0.433 0.118 0.486 0.397
Australia, N. Zealand 0.303 0.322 0.375 0.311 0.391 0.298
2000 EU 8 0.510 0.240 0.250 0.233 0.541 0.226
Canada, US 0.367 0.181 0.453 0.060 0.427 0.513
Australia, N. Zealand 0.285 0.267 0.448 0.248 0.425 0.327
7
National emigration rates vary and are persistent
Afghanistan
Albania
AlgeriaAngola
ArgentinaAustralia
Austria
Bahamas, The
BahrainBangladesh
Barbados
Belgium
BeninBhutanBolivia
BotswanaBrazil
Brunei
Bulgaria
Burkina FasoBurundi
Cambodia
Cameroon
Canada
Cape Verde
Central African RepublicChadChile
China
ColombiaComoros
Congo, Dem. Rep.Congo, Rep.Costa Rica
Cote d'Ivoire
Cuba
Cyprus
Czech RepublicDenmark
Djibouti
Dominican Republic
Ecuador
Egypt
El Salvador
Equatorial Guinea
Ethiopia
Fiji
Finland
FranceGabon
Gambia, TheGermanyGhana
GreeceGuatemala
GuineaGuinea-Bissau
Guyana
Haiti
HondurasHong Kong
Hungary
Iceland
IndiaIndonesiaIranIraq
Ireland
IsraelItaly
Jamaica
JapanJordan
KenyaKorea
Kuwait
Lao PDR
Lebanon
Lesotho
Liberia
Libya
Luxembourg
Macao, China
MadagascarMalawiMalaysiaMali
Malta
Mauritania
MauritiusMexico
Mongolia
Morocco
MozambiqueMyanmarNamibiaNepal
Netherlands
New Zealand
Nicaragua
NigerNigeria
Norway
OmanPakistan
Panama
Papua New GuineaParaguayPeru
PhilippinesPoland
Portugal
Qatar
Romania
RussiaRwandaSaudi Arabia
SenegalSierra LeoneSingapore
Solomon IslandsSomalia
South AfricaSpainSri Lanka
Sudan
Suriname
Swaziland
SwedenSwitzerland
Syrian Arab RepublicTaiwan
TanzaniaThailandTogo
Trinidad and Tobago
TunisiaTurkeyUK
USUgandaUnited Arab EmiratesUruguay
Venezuela, RBVietnamWest Bank and Gaza
ZambiaZimbabwe
0.1
.2.3
.4.5
Em
igra
tio
n r
ate
, 2
00
0
0 .1 .2 .3 .4 .5Emigration rate, 1990
8
Theory
Consider migration from a low wage country (eg, Mexico) to a high wage country (eg, the US)
How would migration effect wages and national income in the two countries?
Assumptions One good Two factors of production, labor and capital Only labor is mobile between countries All factors are fully employed (can relax this) Wage equals marginal revenue product
9
Solving for General Equilibrium
Putting the elements of the model together
Conditions for equilibrium in the labor market
Wage equals marginal revenue product of labor in US WUS = PUS*MPLUS
Wage equals marginal revenue product of labor in Mexico WMX = PMX*MPLMX
World labor supply LUS + LMX = L
10
Solving for General Equilibrium
Conditions for equilibrium in markets for capital
Rental price of capital = revenue MP of capital: US: RUS=PUS*MPKUS
MX: RMX = PMX*MPKMX
We assume capital is immobile between countries (or whatever capital will move already has)
As a result, equilibrium in K markets holds by assumption and remains in the background of the model
All action comes from competing national demands for labor
11
Demand for Labor in the US
W
LUS
PUS*MPLUS
12
Demand for Labor in Mexico
W
LMX
PMX*MPLMX
13
Global Supply of Labor
W
← LMX LUS →
L
14
Labor Market Equilibrium with Labor Mobility
W
← LMX LUS →
PUS*MPLUSPMX*MPLMX
1W1
L1US L1
MX
15
Labor Market Equilibrium without Labor Mobility
W
← LMX LUS →
PUS*MPLUSPMX*MPLMX
WUS
L0US
L0MX
WMX
16
Labor Market Equilibrium with Labor Mobility
W
← LMX LUS →
PUS*MPLUSPMX*MPLMX
WUS
L0US
L0MX
WMX
W1
Immigrants
17
Labor Market Equilibrium with Labor Mobility
W
← LMX LUS →
PUS*MPLUSPMX*MPLMX
WUS
L0US
L0MX
WMX
W1
Immigrants
A B
C
E
D F
18
Wage and Income Effects of Migration
US natives Loss in labor income = A Gain in capital income = B Gain in GNP = B Gain in GDP = B+C+D+E
Mexico natives Gain in labor income (migrants) = C+D Gain in labor income (non-migrants) = F Loss in capital income = D+F Gain in GNP = C Loss in GDP = D+E
Gain in global GNP = B+C
19
Trends in migrant share of population, N. America
20
Impact of Emigration on Wages
Does the exodus of labor due to emigration drive up wages in sending countries?
Estimated elasticity of wages with respect to emigration for Mexico:
Using nat’l data, 0.4-0.6 (Mishra, Aydemir & Borjas)
Using regional data, 0.7 (Hanson)
Problems in estimating the wage elasticity of emigration (all of which would appear to bias estimate toward zero):
Estimate is reduced form, net of effect of capital adjustment
Emigration may be negatively correlated with local wage shocks
21
Impact of Emigration on Wages
Estimation framework
Demand for labor (L):
Demand for leisure (H):
Labor supply constraint:
Solving for wages (W) as a function of emigration (M):
t tln W ln L , 0
t tln W ln H , 0
t t tN L H M
tt 0 t t
0
Mln W ln W m , m , 0 1
L
22
Impact of Emigration on Wages
Estimation framework
Specification:
The wage for a given education (E) and experience (X) cell at time t is a function of the emigration shock and other shocks
E, X, T dummies control for time-invariant shocks specific to each education/experience group and year-specific shocks for each education group and each experience group
Identification is based on variation in the emigration shock within education-experience groups over time
ext ext extln W m E X T E X E T X T
23
Emigrants as a share of male population by education group, Mexico 1960-2000
24
Labor impacts in receiving countries
There is an enormous literature on the impact of foreign labor inflows on the US labor market
Studies using national-level data find that immigration reduces wages for US native workers, with strongest effects being felt by low-skilled workers
Studies using city or state-level data find that immigration’s wage impacts are small
What are flaws in two approaches to studying labor market impacts of immigration? What is “true” impact of foreign labor inflows on labor markets?
25
Immigrant share of US workforce, by education
0
0.1
0.2
0.3
0.4
1960 1970 1980 1990 2000
Year
Fraction
High school dropouts
High school graduates
Somecollege
College graduates
26
US Immigrant supply shocks, by skill group
0.1
.2.3
.4.5
0.1
.2.3
.4.5
0 10 20 30 40 0 10 20 30 40
High school dropouts High school graduates
Some college College graduates
1960 1970 1980 1990 2000
Fra
ctio
n
Labor market experience
27
Immigrant share of Canadian workforce, by education
28
National-level regression (Borjas, 2003)
Let yijt be the mean value of a particular labor market outcome for native with education s, experience x, in year t. Stack the data across skill groups and calendar years and estimate:
yext = pext + E + X + T + (E × T) + (X × T) + (E × X) + ext,
E are fixed effects indicating educational attainment; X are fixed effects indicating work experience; T are fixed effects indicating calendar year; p is the immigrant share in the skill group.
Regressions weighted by sample size of education-experience-year cell. Standard errors clustered by education-experience.
Problems with this approach: Are there other shocks that could be correlated with immigration
inflows (eg, skill biased technological change)? What is counterfactual? Could immigration cause changes in
technology (which would have changed fixed effects)?
29
National-level results for US
Log weekly earnings
Employment rate (log odds)
Incarceration rate (log odds)
A. Least squares
Blacks -0.561 -0.489 0.100
(0.167) (0.092) (0.040)
Whites -0.669 -0.206 0.010
(0.250) (0.079) (0.015)
B. IV
Blacks -0.519 -0.488 0.105
(0.172) (0.098) (0.038)
Whites -0.640 -0.180 0.003
(0.255) (0.088) (0.016)
Multiply these coefficients by 0.73 to get a numerically sensible elasticity: dy/d(% change in supply)
30
US Simulation results, log weekly wage
1. Actual change
2. Predicted impact
3. % due to immigration
Blacks
High school dropouts -0.140 -0.083 59.5
High school graduates -0.085 -0.032 37.4
Some college 0.008 -0.033 --
College graduates 0.127 -0.044 --
All persons -0.060 -0.036 60.0
Whites
High school dropouts -0.206 -0.086 41.7
High school graduates -0.146 -0.033 22.8
Some college 0.050 -0.035 --
College graduates 0.102 -0.046 --
All persons -0.060 -0.037 61.7
31
Has immigration really changed the US wage structure?
32
Correlation in native wages & immigrant inflows for US cities (Card, 2005)
33
Assessing the literature
National level data find negative correlation between native wages and immigrant inflows by skill group
Are all relevant shocks controlled for?
Could immigration affect technology?
Area studies find a zero correlation between wages for low-skilled natives and immigration inflows
Isn’t the size of the local immigrant population endogenous (with more immigrants in locations with higher wages)?
How does one instrument for local immigrant stock?
34
Resolving difference in results at national & local level Possible explanations
Local technology is endogenous to labor supply (Acemoglu, 1998; Lewis, 2005) Possible but insufficient data to evaluate to date
Internal native migration hides wage effects at local level (Card, 2001; Borjas, 2006) Conflicting results in the literature
Explanations rejected by the data Immigrant and natives are imperfect substitutes (Ottaviano &
Peri, 2005) Plausible but data are inconsistent with this hypothesis in the US
Sectoral output mix adjusts to absorb immigrants without wage effects as in HO model (Lewis, 2005; Hanson & Slaughter, 2001) Data reject this hypothesis
35
Emigration and Remittances
Workers' Remittances as % of GDP
Region 1992 2000 2005
East Asia & Pacific 0.6 1.0 1.5
Europe & Central Asia 1.4 1.4
Latin America & Caribbean 0.7 1.0 2.0
Middle East & North Africa 8.3 3.1 4.1
South Asia 1.8 2.9 3.5
Sub-Saharan Africa 0.8 1.5 1.6
36
Emigration and Remittances
Emigrants share income gains with family members through remittances
Fulfillment of migration contract (Lucas & Stark) and/or consumption smoothing across borders (Rosenzweig & Stark)
Positive income shock in emigrant’s country is associated with larger remittances to sending country (Yang)
Remittances support both consumption and investment spending (Yang) and may deepen financial markets (Woodruff et al.)
But there is no reason to believe primary motivation of remittances is investment in the sending country
Impediments to remittances Service fees on money transfers average 11% and elasticity of
remittances w.r.t. services fees is -0.15 (Freund & Spatafora)
37
Effects of emigration on public finances
The outflow of labor means that sending countries lose access to future tax payments of emigrants
But they also shed the obligation to provide departing workers with income transfers
What is net effect of tax loss and spending savings?
Presumption is that the net effect is negative
Most emigrants are relatively highly educated
Emigrants receive many of their lifetime transfers prior to their departure in the form of public education and child healthcare
38
Fiscal impacts of emigration in India (Desai et al.) In 2000, individuals with tertiary education made up 60.5% of Indian
emigrants but just 4.5% of India’s total population
Between 1990 and 2000, emigration rate for tertiary educated rose from 2.8% to 4.3% (but only 0.3% to 0.4% for total population
US has 64.6% of India’s skilled emigrants (48.9% of all Indian emigrants)
Estimation procedure Produce counterfactual incomes: income emigrants would have earned
in India based on observed characteristics and returns to these characteristics in India (using Mincer wage regression)
Calculate income tax losses by running counterfactual income through Indian income tax schedule (and calculate indirect tax losses)
Calculate expenditure savings by identifying categories for which savings would exist – eg, not interest payments and national defense
Emigration to US cost India net tax contributions of 0.24% of GDP in 2000, partially offset by the tax take on remittances of 0.1% of GDP
39
Other Impacts of Emigration
Does emigration affect international trade? Bilateral migration is positively correlated with bilateral trade, though
causality is unclear (Gould, Head & Reis) Countries with larger bilateral Chinese populations do trade more,
especially in differentiated products (Rauch & Trindade)
Does emigration affect international knowledge flows? Chinese and Indian engineers in Silicon Valley have contributed to
FDI and business formation in their home countries (Saxenian) Countries that send students to democratic countries for university
have stronger democratic leanings later on (Spilimbergo)
40
What We Don’t Know
The impact of emigration on wages and net tax revenues Do results for Mexico and India generalize?
The impact of skilled emigration on the stock of human capital What is the primary cause of skilled emigration? Does skilled emigration cause a brain drain or a brain gain?
The relative contribution of labor productivity, returns to skill, and migration costs to migration flows Are migration costs large enough to explain small migration flows? Is there a skill bias in receiving country immigration policies? How do sending-country policies affect emigration?
How does migration interact with trade and capital flows? Are trade and migration substitutes or complements? Do remittances help deepen financial markets?