Transborder Migration: Licit and Illicit

Op-ed in the Institute for International Economic Studies Newsletter Kudan Square No. 28

September 1, 2009

Considerable attention is paid to international trade in goods, but research shows that the gains from the liberalization of cross-border movement in labor would be far larger. Today 180 million people, or about 3 percent of global population, live outside their country of birth. Still, this is a lower percentage than was observed 100 years ago. Legal migration raises important economic and ethical issues; these include the rights of individuals to seek betterment for themselves and their families set against the social externalities in both the sending and receiving countries that such movements may entail. Undocumented migration and human trafficking, while smaller in quantitative terms, raise distinct problems and concerns, as do asylum seekers and refugees.

Movement from poorer to richer countries accounts for the largest share of documented cross-border migration, 37 percent. Mexico, with more than 10 million emigrants, is the single largest "sender" country, and the United States, with nearly 35 million immigrants, the largest "receiver." There is no reason to believe that pressures for trans-border movement will ease in the near future: To put it in some historical perspective, in 1870 wages in the United States were 2.5 times as large as in Ireland; today the US wage is seven times greater than that in Mexico. With income differentials continuing to widen between rich and poor countries, the cost of transportation falling, and some high income areas such as Western Europe and Northeast Asia facing the challenge of increasingly aged populations, the incentives to migrate are unlikely to abate and may well increase. Indeed, evidence suggests that trans-border migration of skilled workers has accelerated in recent years.

Migration creates both costs and benefits, and how to handle the pressure for cross-border movements of people is a source of growing political controversy. Recent polling data indicate that the public in most countries, both developed and developing, favor increasing restrictions on immigration. Yet to the extent that this phenomenon is regulated, it is generally at the national level-there are no comprehensive global rules or institutions governing the movement of people. Most policies are adopted unilaterally or bilaterally, with power distributed asymmetrically between the typically rich receiving countries and the poor sending countries.

Even at the existing national and subnational level, the appropriate role of public policy is controversial, as evidenced by the ongoing grappling over immigration reform in the United States. But the issues are broader than just the ones highlighted in the US debate; for example where policies of receiving jurisdictions actively subsidize or encourage the outward migration by skilled workers from sending countries. This "brain drain" is primarily a concern for developing countries, though in recent years concern has been expressed in some continental European countries about similar outward migration. The United Kingdom is the single largest exporter of skilled migrants (1.4 million) but the Philippines, India, and Mexico are not far behind at 1.1 million, 1.0 million, and 0.9 million, respectively. Haiti, where 84 percent of its citizens with tertiary educations have left the country, is an extreme case, but other countries such as Ghana, Mozambique, Kenya, Laos, and Uganda lose more than one-third of their university graduates to emigration, temporarily if not permanently.

Traditional neoclassical economic analysis of migration suggests that it helps comparable workers in the sending country (whose wages rise as rivals emigrate) and hurts comparable workers in the receiving country, who face new competition. It also helps employers in the receiving country who hire the new immigrants (by allowing them to pay lower wages than they otherwise would have to pay natives), and hurts employers in the sending country (who face rising labor costs as the work force shrinks due to emigration).

This simple neoclassical analysis surely contains fundamental truths about the nature of trans-border population movements, but it is not the whole story. If certain occupations or professions are complementary to each other, then the influx of migrants in one profession may actually increase the incomes received for the other. (As an illustration, if an influx of nurses drives down healthcare costs, overall demand for healthcare services may increase, benefiting physicians and administrators.)

And, apart from the impact on private-wage rates and incomes, any substantial population movement will have public-finance implications for both the sending and receiving communities. At the simplest level, migrants both use public services, placing demands on the public expenditures, and pay taxes, contributing revenues to the public coffer. The same holds in reverse for the sending community. It has been argued that financial sustainability issues with pay-as-go social security systems in countries with aging workforces may create incentives to liberalize immigration.

The situation is further complicated if the migrants are in public-sector occupations such as teaching. In the case of the receiving country, the downward pressure on wage rates in the receiving country has a positive social externality. So, for example, if the migrants put downward pressure on public teacher salaries, the state can provide public education at a lower cost. The reverse negative externality holds for the sending country. In the Philippines, for example, the emigration of large numbers of health professionals has had an adverse impact on public health. Similar claims are frequently made with respect to countries in sub-Saharan Africa where the number of physicians who have emigrated exceeds the number practicing at home.

Migrants also embody human capital that is often a publicly financed investment, and migration could be interpreted as a sort of capital transfer from the sending to the receiving country. When they emigrate, in essence that investment is scrapped, while the receiving country receives an investment (a worker with x-years of publicly financed education or training) for which it pays nothing. The importance of such considerations obviously increases with the level of publicly financed education embodied in the migrant.

This implicit transfer may be fully or partially offset by remittances, estimated to be at least $167 billion in 2005. In the case of the Philippines, for example, these remittances currently average more than $1 billion per month, equivalent to one-quarter of merchandise exports. The United States is the largest source of these remittances.

Less directly, skilled émigrés may contribute to development at home by promoting network linkages between the sending and receiving economies, facilitating technology transfer as well as investment. This phenomenon has been documented extensively, particularly with respect to the role of emigrant Indian information technology specialists in encouraging the development of the Indian IT sector.

A final complication occurs when the emigration of highly skilled workers has become so institutionalized that capacity is created (nurse training, for example) expressly to produce workers "for export," as is the case in the Philippines. The ethical conundrum is deepened when national or subnational governments of some receiving countries actively recruit, and even use development-assistance funds to subsidize, the immigration of skilled Filipinos.

Technological change is affecting these patterns. Advances in information technology have contributed to an expansion of off-shoring of back office and call center functions by firms from high-wage developed countries, most prominently American firms, from which India, China, and the Philippines rank among the prime beneficiaries, though the phenomenon is spreading more widely, including to Francophone countries in the Maghreb and West Africa. These expanding employment opportunities dampen the incentives for emigration. Yet the same technological advances, together with increasing attention to the remittance market by financial and telecommunications firms, have reduced the costs of money transfers and boosted remittances.

Additional issues are raised by illegal cross-border movements, human trafficking, and related abuses. Considerable uncertainty surrounds the quantitative magnitude of these illegal activities, and caution is warranted in assessing both their extent and progress in their eradication. That said, progress appears to be the greatest with respect to impeding illegal cross-border trafficking; relatively less improvement has been made with respect to local sex and labor trafficking. Despite being "domestic" or "internal" in nature, the latter has a cross-border dimension as well, particularly in the case of child sex tourism, where the customers are often foreigners.

There are a number of policies that developed and developing countries could adopt to make the process of cross-border migration both more efficient and equitable. But at present, apart from negotiations within the stalled Doha Round of the World Trade Organization, there really is no multilateral mechanism for addressing these issues. That means governments will continue to address the issue in a haphazard manner while the number of migrants grows.

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Marcus Noland Senior Research Staff