Category Archives: Immigration

China: Future Migration Hotspot?

China is still a sending state, more migrants leave than come in. According to the World Bank, about 1.5 million people emigrated from China in 2012, on net. I am not sure how much of that includes emigration to Hong Kong and Macau. Still, compared to the United States, which received, on net, 5 million immigrants, China does not seem like a major attraction to migrants. But, will China always be a sending state, or will it soon begin to receive net immigration? Immigration is already an important facet of the Chinese economy, and there is reason to suspect that China, like Western Europe and the United States, will, down the road, become a receiving state.

Historically, China has always been a sending state. The World Bank measures net migration as the number of immigrants minus the number of emigrants. China has had a negative figure since 1962, which is when the data I have starts at. But, net emigration does not imply no immigration, and, as their economy continues to grow, with a growing demand for labor, immigrants have turned into vital means for growing productivity. While the amount of net emigration remains significant — although, the data includes emigration to Hong Kong and Macau (two important net recipients of Chinese migrants) —, the number has been steadily decreasing since the early 2000s: from 2.2 million immigrants, on net, to 1.5 million.

The country, however, is going through a structural change. It is going through a process similar to that of the U.S., between 1820–1910. Industrialization has brought with it one of the largest internal migrations in the world, as large amounts of people move between provinces. This includes movements from rural areas to the cities, and movement from poorer (typically, rural and agricultural) to wealthier regions. While there are not always known opportunities for higher paying jobs in the cities — migrants are often displaced by a falling demand for labor in the rural areas —, it is true that Chinese industry is a sponge, in need of a growing labor supply.

Domestic labor is not always enough, especially given China’s low population growth rate (0.5 percent, in 2012). If the demand for labor increases, and the labor supply is more-or-less stable, we should expect higher wages. According to the “neoclassical” theory of migration, where changes in relative wages cause migration between countries, we expect rising Chinese wages to attract migrants. This does not necessarily mean, though, that immigration will occur up until wage rates between countries are equalized — in fact, emigration to China may push wages up, inviting even more immigration.

If there are economies of scale, larger populations mean higher real wageMonopolistically Competitive Markets. As population grows, all else equal, so does output. This lowers the average cost and price, raising the real wage. Larger population also means a larger amount of firms, greater product diversity, and the accompanying welfare gains to the consumer. This result was formalized by Paul Krugman, in his work on trade theory.

Trade, or the movement of goods and capital, creates the same effect as an increase in population: an increase in the division-of-labor. But, if trade is restricted, or if bad policies elsewhere leads to low growth and high unemployment, the movement of labor may replace the movement of goods. Consider some of the “stylized facts” of sending states: history of low growth, extractive political institutions, and relatively low wages. Sending states each have a division-of-labor which is significantly isolated from the world’s. While China’s political climate may still be unattractive to many, the economic factors may grow in relevance. The country is surrounded by many others which are worse-off, and growing Chinese wage rates will become increasingly attractive.

Other factors, besides relative wages, that determines migration are “linkages.” Think of a linkage as a shared history. For example, many Indians migrated to the United Kingdom, because India is a former colony. Similarly, Spain attracts a disproportionate amount of South American migrants, because of their shared history. Countries with linkages are more likely to be involved in a migration pattern than countries without them, all else equal. China has shared histories with not only its neighbors (many of which, however, are also growing and/or prosperous), but also with populations one might at first suspect. The Chinese have invested heavily throughout Africa, and many Africans have migrated to do business in China. As African networks in China grow, this might attract larger flows in the future.

Growth, however, does not always mean less emigration. The evidence shows that growth may actually lead to increasing emigration rates, below a certain threshold per capita income,

Emigration Flow to GDPPC

In early stages of development, other factors may dominate the marginal increase in relative wage. Since the poor are typically credit constrained, rising incomes will help them finance migration decisions. Networks in other countries may also attract large emigration flows. If early flows were restricted by asymmetric information, where potential migrants were simply unaware of the opportunity, growing networks in receiving states will correct this asymmetry and increase the flow of migration. Changes in relative income are important to consider, too. If early growth raises certain incomes disproportionately, the relative wage rates between countries for the non-affected income groups remain the same. Maybe this explains, in part, why China attracts high-skilled labor from South Korea and Japan, but exports low-skilled labor.

But, China’s GDPPC (GDP per capita) is just about at the threshold in the data. According to the World Bank, China’s 2012 GDPPC, in current U.S. dollars, was about $6,000. Net emigration has fallen since the early 2000s, and real wages in China continue to grow. Is China poised to become an important receiving state in the future? This will bring with it interesting problems. An immigration shock provokes hostility amongst a homogenous local population, leading to civil rights issues — issues the Chinese government will have to deal with. It will also have a significant effect on the global economy. The U.S. became a major industrial power in large part thanks to immigration. But, the U.S. started out with a relatively small population. China is already the largest country on Earth and there is still a growing demand for labor, despite the already large labor force. How will the Chinese government approach the “immigration problem?” How will this affect the United States and Western Europe? By 2070, or sooner, we might see large communities of American workers in Beijing!

Illegal Immigration and the Minimum Wage

Browsing this website campaigning for a higher minimum wage, I came across this Bruce Bartlett blog post discussing one of Ron Unz’ rationales that supposedly favors increasing it. Unz suggests that setting wages at $12 will price illegal immigrants out of the market, helping to mitigate the “problem” of illegal immigration. I’m surprised that Bartlett didn’t include any criticisms of the idea.

In 2003, 20 percent of the low-wage labor force was composed of immigrants. About one fourth of those earned less than the minimum wage. I don’t know what the cut-off for “low wage” is, but it’s probably a few dollars over 12. Nevertheless, there are a substantial amount of non-immigrants who work in low-wage industries that would also see themselves priced out of the market. The firm then has a choice between employing less natives at a higher price, or try to hire more illegal immigrants at lower wages. There is a unique cost to hiring illegal labor, which is a probabilistic legal cost, but if a quarter of low-wage immigrants were earning below the minimum wage, I think it’s safe to say that this cost is relatively low.

Raising the minimum wage to $12 an hour would not only put many natives out of work, but it would also make hiring illegally a much more attractive option. The Federal minimum wage is $7.25 ($8 in California) and a ~quarter of the low-wage immigrant labor force is making less than that. Now, imagine a minimum wage of $12. Illegal immigrants, or legal immigrants working under the table, will become relatively attractive. The implication is that a higher minimum wage will raise the demand for illegal labor — labor willing and able to work for less than $12, without the legal recourse to complain that the firm isn’t paying the legal minimum.

Unz argues that a higher minimum wage will be a disincentive to immigrants. The logic is that few people will be willing to migrate to a country where there’s no work for them. But, it’s very possible that raising the minimum wage will have the exact opposite effect! Instead of pricing immigrants out of the market, it would make them relatively cheaper.

Diversifying Growth

Two weeks ago, I reflected on some of the evidence I had reviewed on Catalán nationalism. I used it to support the argument that freer societies have a higher probability of cosmopolitanism, because their populations are likely to be more diverse. I also noted, although only in passing, that Cataluña has, historically, been one of modern Spain’s wealthier regions.

Alberto Alesina, Johann Harnoss, and Hillel Rapoport have published a paper on a related topic, immigrant diversity and economic growth. They review their findings in a recent Vox article, “Immigration, Diversity, and Economic Prosperity.” The main take away is that there is an empirical relationship between greater diversity and positive economic growth (although, they clarify later that optimal diversity is not what me might call perfect diversity — there are costs, too). But, do prosperous countries attract a more diverse population of immigrants, or does greater diversity amongst immigrants promote greater economic growth? In what way does causality run? They suggest causality probably goes both ways, but they do find,

…substantial evidence of causality going from diversity of skilled immigration to productivity of the receiving country.

One theory the authors offer is that immigrants from different countries will tend to bring in different perspectives and ideas, given variations in culture, education, experiences, et cetera. This greater heterogeneity in intellectual capital, which can be exploited through a division of labor, will tend to increase productivity. They also briefly review some of the empirical literature (pp. 4–6 of the NBER paper).

They mention that some costs of greater diversity include increased difficulty of communication (because diverse people speak different languages), social conflict, et cetera. These are all relevant costs, but I wonder if there’s an economies of scale type relationship. That is, over time, costs should fall as people integrate and begin to socially accept the diversity. For example, the U.S. has seen a lot of racial tension throughout the 20th century, but ,while there is still plenty of racism, I’d like to think that most of us who live amongst diverse populations have a culture of acceptance. In Spain, there’s tension because large scale immigration from abroad is a relatively recent phenomenon, but hopefully much of it should subside over the long-run as this new diversity becomes reflected in the country’s culture. That’s how I envision it, at least.

The Other Other Side of Immigration

Most of the time, the immigration policy debate is set up as being between nativists and advocates of unrestricted migration. I use the two extremes to characterize each side, but I mean to include all those in the middle that more-or-less can be ascribed to one camp or the other. I believe that migration should be unrestricted, although my opinion does not heavily weight short-run frictions that unrestricted migration inevitable produce. But, there is another side that isn’t as represented in the media, which is strange since it offers an opportunity to nativists to further bolster their case against free immigration. The argument is that migration may cause negative externalities in sending states.

The example I know, which I was exposed to in a comparative public policy course, has to do with what is referred to as the “reproductive division of labor.” These are jobs related to the caring for children. In developed economies, female migrants are a large chunk of this sector’s workforce. Indeed, the availability of migrant labor allows receiving state women to join other sectors of the workforce. From the perspective of the receiving state, this is great since it increases the overall productivity of the economy. Less productive labor takes over labor intensive stay-at-home jobs, and more productive labor can be allocated elsewhere. For sending states, however, this kind of migration can be particularly damaging.

A mother is an important facet of a child’s upbringing. In countries where the father usually has to work long hours, or where there may be no father at all, being raised motherless can lead to psychological issues that will impair the productivity of the future adult. Women looking to earn a living abroad usually, out of necessity, leave their families behind. This produces a negative externality, in that the costs to the child are, unintentionally or purely out of necessity, overlooked by the mother. This brings into question the aggregate gain of labor mobility.

I don’t think this is an argument against immigration, but it could be used as one. Maybe this is evidence of the fact that many of those who advocate migration restrictions are not basing their case on sophisticated theory. Rather, their opinions are nearsighted and non-academic. This doesn’t mean that the case against free immigration ought to be ignored. Most of the time those who oppose free entry of foreigners have a lot to lose. These are the short run frictions that I, as a neoclassical economist, tend to hold in less regard than the overall benefits of an increased labor supply. But, it is interesting just how little theory actually matters in this policy debate.

A second point, related to the first, stems from a response to these externality concerns that I wrote for the class. One of the papers I was responding to was actually written by my professor, and I wanted to bring an economist’s perspective to the topic. I think my objection is relevant to the immigration debate as a whole. I argued that there are costs and benefits to everything, but we can’t judge a policy on its costs or the costs of not implementing it. We also have to judge it on its benefits. It may be that sending states suffer a negative externality, but at the same time they benefit through remittances. They also benefit from improving terms of trade, as the markets they import from become more productive. In the case of psychological problems that motherless children may suffer from, it could be that a more productive global order will allow the sending state to develop institutions and firms to solve these issues in different, more efficient, ways.

The same holds true for nativist concerns. A good opinion on immigration will always consider the “big picture.” We don’t always have to agree on the implication of a broad cost benefit analysis, even if I think theory unequivocally supports the advocates of free migration.

One Paragraph Summation: the Case for Immigration

The Machinery of Freedom (Friedman)As long as the immigrants pay for what they use, they do not make the rest of the society poorer. If increased population makes the country more crowded, it does so only because the immigrants produce wealth which is worth more to the owners of land than the land is worth, and the immigrants are able to use that wealth to buy the land. The same applies to whatever the immigrants get on the free market; in order to appropriate existing resources for their own uses, the immigrants must buy them with new goods of at least equal value.

— David Friedman, The Machinery of Freedom (New Rochelle: Arlington House, 1973), pp. 95–96.

It’s hard to put it any better. Many people, although probably less than in 1973, are concerned that a large immigrant population will require the pie to be cut into smaller pieces. The fact is, however, that in order to have a piece of the pie the migrant first has to produce a piece of his own that he can use to exchange. As such, if migrants are to find living in a foreign land successful they’ll have to add to national income, otherwise they can’t join in on the network of exchanges that makes up our economy.

Crisis Migration

Alvaro Vargas Llosa, at the Beacon, blogs on falling immigration rates during crisis years and border enforcement.  His main point is to deny border enforcement policy any credit for this phenomenon, instead allocating it to “supply and demand.”  I am not sure if Llosa is responding to some type of increase in frequency of commentary dealing with this topic, but academically I think few scholars attribute much success to border enforcement — in fact, U.S. immigration policy is known to be notoriously bad.  The crisis years evidence, for me, shows something different, although a bit more academic (and, I use “academic” loosely, since my experience with immigration theory is relatively short compared to the experts that have supplied me with any knowledge I might have): the “Neoclassical” model of immigration holds more weight than some people like to admit.

The “economistic”, or “Neoclassical,” model of immigration is basically a supply and demand one: immigrants are essentially arbitrageurs, taking advantage of wage discrepancies between countries.  This model has been lambasted for being simplistic and unable to explain the actual causes of migration.  It has been supplemented by a wide variety of alternatives: structural, linkages, networking , market segmentation and bifurcation, et cetera.  All these are more complicated, more in-depth theories that provide more specific causality to migration.  For instance, a Mexican might decide to immigrate because he has been displace from his agricultural employment by increased mechanization (structural) and he has family in the United States (linkages).  To show the advantages of these models imagine an obvious point of contention for the Neoclassical model: why do Mexicans immigrate to the United States in high volumes, but not Kenyans?  Or, why did the rate of immigration from Southeast Asian into the states suddenly rise after the 1950s?

The proponents of these theories, though, tend to be highly protective of their academic fiefdoms.  What occurs is outright rejection of rival models and theories, and the adoption of uni-causal reasoning that is insufficient to explain the wide-range of possible reasons that an individual might choose to migrate from one place to another.  For instance, most of the literature that I have been exposed to has rejected the Neoclassical model.

What the recent crisis shows is that while a single explanation might be inadequate, this inadequacy does not suggest irrelevance.  The Neoclassical model is quite applicable: a fall in incomes has led to a fall in the availability of jobs for Mexican immigrants, in turn causing immigration rates to fall.  Of course, the labor market is not one homogenous blob of employment opportunities, and so the Neoclassical theory has to be complimented with more advanced ideas: labor market bifurcation, segmentation, et cetera.  In fact, while it may be that in general Mexican labor has much lesser demand, certain industries (or sectors) have maintained their demand or even increased it.  Also, the Neoclassical theory does not explain why Mexicans emigrate back to their home countries, but many Asians do not.  What does explain it is something akin to the linkages or networking theories, or even a model that incorporates the costs of migration (related to distance, for example).  Nevertheless, wage discrepancies and the availability of employment is still an important causal factor behind migration movements.

More than the failure of border enforcement and immigration policy, what the recent crisis suggests to me is a failure of the academic community to put forward a synthesize and comprehensive theory of theories of migration.  Another manifestation of this is the the relative ignorance that most of the population suffers from regarding this topic: Neoclassical models are known more than the alternatives, even though academically it is the Neoclassical one which has been mostly abandoned.

Immigration Policy

Daniel Kuehn, Noah Smith, and others, are discussing immigration policy.  I have not read all the relevant posts, but from what I understand Smith is looking for immigration reform in favor of higher skill migrants and Daniel is not in favor of “subsidizing” one for the other.  For Daniel, low skill labor is just as useful and needed.  I think I agree more with Daniel.

Moreover, what does the data about high skill immigration really say?  There are foreigners who receive high levels of education in the United States and return to their home countries.  Current immigration policy also makes it much easier for high skill immigrants to gain permanent legal residency (maybe not as prioritized as family reunification, but far easier than other low-skill immigration — they have essentially no recourse for legal permanent residency and existing work permits are horribly designed).  But, some highly skilled foreigners make enough in their home countries to induce them to stay.  It is not all about income; there are other considerations people make before deciding to migrate (or before even deciding to think about migration).

I am sure that there are many highly skilled immigrants who cannot gain permanent legal residency (mostly because they cannot find sponsors).  But, is it bad enough to prioritize reforming immigration policy that affects only these types of migrants?  I am not so sure.