Highly skilled labour migration: Consequences for labour exporting countries


Diploma Thesis, 2004

65 Pages, Grade: 1.3


Excerpt


Table of Contents

Abbreviations

Tables and Figures

0 Introduction

1 Trends in International Migration

2 General Theories of International Migration
2.1 Microeconomic Approaches
2.2 Macroeconomic Approaches

3 Theories of International Highly Skilled Labour Migration
3.1 Dynamics of Highly Skilled Labour Migration
3.1.1 The Case of Highly Skilled Migrants
3.1.2 Critical Mass Dynamics
3.2 Effects of the Brain Drain - The Traditional View
3.2.1 Static Effects
3.2.2 Dynamic Effects
3.2.2.1 Effects on Development
3.2.2.2 Effects on Growth
3.3 Effects of the Brain Drain - Recent Developments
3.3.1 The Optimal Brain Drain
3.3.2 The Feedback Effects
3.3.2.1 The Diaspora
3.3.2.2 Remittances
3.3.2.3 Return
3.3.2.4 Technology Transfer

4 How Big is the Brain Drain - Empirical Evidence

5 Effects of the Brain Drain: The Empirical Analysis
5.1 Critical Mass
5.2 Static Effects
5.3 The Optimal Brain Drain
5.4 The Feedback Effects
5.4.1 The Diaspora
5.4.2 Remittances
5.4.3 Return
5.4.4 Technology Transfer

6 Policy Responses to High Skilled Migration
6.1 Immigration Policies
6.2 Mobilising the Diaspora
6.3 Retention

7 Conclusion

8 References

Abbreviations

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Tables and Figures

Table 1.1 World Population - Non-Migrants and Migrants Stocks, 1965-2050 (in millions) ... 5

Table 1.2 Migrant Stocks and Net Migration by Regions, 2000 6

Table 4.1 Cumulative Percentage Loss of Tertiary and Secondary Educated (CL) and Tertiary Educational Selectivity of Emigrant Stock (ES) by Source Region, 1990, in percent 28 Table 4.2 Cumulative percent loss of tertiary and secondary educated and tertiary educational selectivity of emigrant stock for countries exceeding their regional average, 1990, in percent 29

Table 4.3 Estimated Extent of Brain Drain from Africa* - Percentage of Nationals with University Education Living Abroad 30

Table 4.4 Number of Tertiary Educated Emigrants in the OECD or USA, 1990 in thousands31

Table 5.1 Key indicators on world GDP, population and R&D 33

Table 5.2 Top 10 Receiving LDCs of Migrants Remittances, 2001, (in US$ billions) 39

Table 5.3 Remittances Received by LDCs by Region, 2002, (in US$ billions) 39

Figure 1 Critical mass dynamics…...13 Figure 2 Equalising dynamics...13

0 Introduction

The migration of people from one place to another has been a recurring process through out history. Periods of mass migration have characterised the period after the fall of the Roman Empire and had important socio-economic repercussions throughout the Middle Ages. However, the technological advancements in transport and communication of the last one and a half centuries brought about significant increases in opportunities to cross continents and a growing consciousness of global prospects, greatly affecting the size and patterns of migration. This is most obvious by the exodus of European emigrants to the Americas during the 19th century and early 20th century. Due to growing numbers of mostly poor migrants the dissolve of physical migration barriers was soon considered a threat to economic stability. Laying more importance on state territory and national interest, especially governments in receiving countries (RCs) have restricted migration through tight immigration policies, which play an important role up to the present day. Indeed, economic problems and growing security concerns connected to terrorism have brought debates on migration policy back to the top of the political agenda. Nevertheless, the transformation of industrialised countries into high technology economies created a labour demand for well-educated workers, which increased the inflow of highly skilled (HS) immigrants from all over the world. The migration pattern of an over-proportional number of HS migrants trying to benefit from better opportunities in more advanced economies has thus been intensified. Developed countries (DCs) have clearly profited from this inflowing human capital (HC). However, the consequences for the labour sending countries (SCs) have been less clear. The large income disparities between DCs and less developed countries (LDCs) cause people from poor countries to urge towards the richer countries - with education often serving as a valuable entrance ticket to prosperous labour markets. This phenomenon - known as the brain drain (BD) - will be the focus of this paper concentrating on the consequences and concerns of poor SCs.1

The BD has prompted a significant amount of literature, and suggestions about consequences of HS mobility for SCs are numerous but rather ambiguous. Historically, two major approaches to the issue can be distinguished. A negative view of the detrimental consequences for SCs due to the loss of HC, and hence an increasing inequality among LDCs and DCs (SCs and RCs) characterised the discussion in the 1960s and 1970s.2 This view was intensified by the end of the 1980s, as the new growth theory stressed the importance of HC as the main driver of economic growth. Accordingly, the loss of HC would deprive SCs of a major prerequisite for growth and permanently hamper development. Lately, however, this pessimistic vision of accentuating the disadvantages for growth in SCs has been challenged by a more positive point of view. Expatriates are not seen as a loss anymore but instead as a resource which can be employed in favour of the SC. Rather pragmatically, this transnational view admits that, as long as incentives such as differences in quality of life, educational opportunities for children, job security, and the desire to interact with a broader group of similarly skilled colleagues persist, HS migrants cannot be hindered from moving. Therefore, newer theories focus on the advantages that SCs can draw from linking to their diaspora. Indeed, following this theory, SCs can seize numerous opportunities to manage international migration to offset its inevitable disadvantages, thus effectively turning the brain drain into a brain gain.

It will be the aim of this paper to analyse whether the more recent view of international mobility of HS workers can really countervail the concerns typical of the more traditional view. Will the LDCs be able to benefit from their expatriate HC or will migration enlarge disparities between SCs and RCs and consequently increase emigration even further? In order to introduce the topic and provide a basis for answering this question, the following discussion will first give a broad overview of international labour flows. Then general theoretical approaches to international migration will be introduced establishing the basis for the assessment of theories on HS mobility in chapter three. In this part, major characteristics of HS migrants will be stressed and consequences in the light of the traditional and new theories will be presented. In the fourth chapter the real extent of the BD will be evaluated with regard to existing empirical data and subsequently, empirical evidence of the BD’s effects will be discussed. As will become apparent, the empirical evaluation is difficult as it often suffers from a great data lack since many countries have not yet introduced any effective data collection mechanisms regarding migrant flows. Nevertheless, the data suffices to outline general conclusions about the effects of the BD and to point the direction for future discussions. Before concluding the paper, chapter six presents possible policy responses to leverage migration to maximise the benefits to SCs.

1 Trends in International Migration

Globalisation has not only lead to a dramatic increase of the trade in goods and services but also factors of production have increasingly become more mobile. The recent rise in international migration, enhanced by faster and cheaper transportation and communication, is often compared to the “age of mass migration” of the second half of the 19th and early 20th century when about 26 million people moved to the US alone, ultimately contributing 7% of the US population.3 Contrary to predictions that expected this percentage to rise further and cause dramatic political and economic consequences, immigrants constituted merely 2.5% of the US population by the end of the 20th century (Solimano, 2001). Similarly, the share of migrants to the world population has constantly ranged between 2% and 3% for the last forty years (table 1.1). These numbers seem to oppose the recognition of a mass migration. However, absolute numbers are remarkable and show the full extend of present migration flows, counting about 175 million migrants world wide in 2000, not including the illegal migrants which are estimated to range between 0,7 and 2 million annually (IOM, 2003e and UN, 2003).4

Table 1.1 World Population - Non-Migrants and Migrants Stocks, 1965-2050 (in millions) 1965 1975 1985 2000 2050

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Source: IOM Migration Report 2003.

The distribution of migrants among the different regions reveals an important fact about international migration: migration clearly has a South-North pattern, as most migrants head to more developed countries.5 Table 1.2 unquestionably identifies Europe, North America and Oceania-Pacific as major migrant receiving countries.

Table 1.2 Migrant Stocks and Net Migration by Regions, 2000

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Source: IOM Migration Report 2003; United Nations, Population Division, 2002 and own calculations.

Absolute numbers of migrants from one country to another, however, do not say much about the effect this migration has on the SCs. Since SCs vary greatly in their population size, their economic status, and the skill composition of their people, consequences depend mainly on who leaves and who stays. Evidence shows that there is a rising number of HS workers moving in response to the expansion of global labour markets, shortage of HS workers in the information-age economies, the ageing of the workforce in DCs and just-in-time demand from industries eager to reach the top of technology curves. In addition, the movement of HS labour is further reinforced by rising enrolment rates in higher education, especially in LDCs, and globalisation compels further liberalisation and flexibility of HC flows in internal labour markets of MNCs as well as on the global market. Mahroun (2000) speaks of five channels for international mobility of HS personnel. The first channel consists of managers and executives floating to a large part between DCs.6 Sometimes, this type of staff is also sent abroad to LDCs to expand their firm’s activities. The second group are engineers and technicians who are mainly set into motion due to supply and demand mechanisms. For example in the US, the intense demand for this group had lead to a share of foreign engineers of 17% of the US engineer population in 1995. Most of them had come from Asia. Thirdly, academics and scientists move north, stimulated by the desire for further professional socialisation. The forth group are entrepreneurs bringing in capital and knowledge to set up businesses. Students are treated as the last group constituting a major source of workforce supply to labour markets and the global knowledge pool. Many students are interested in international experience in their education and often stay after finishing their degree. The proportion of foreign students enrolled in the major host countries rose from 2% in 1959 to 3.8% in 1990 (of 2,833,000 and 20,868,000 students enrolled in higher education).7

Overall, the demand for labour in DCs is estimated to be rising over the next years.

Consequently, according to a UN report in 2000 in the absence of any other change, the net number of immigrants needed to uphold the present population size in the EU over the next 50 years would account up to 1 million annually, 1.5 million would be needed to maintain the size of the work force. To retain the old-age dependency ratio (the ratio of working-age to over-65 population) the EU would even need about 13 million annually - about 15 times the current net migration rate (UN, 2000). This trend combined with the population growth in LDCs, whose population already represents 85% of the world total8, may indicate that labour mobility might replace capital mobility as the central driver for economic development and thus become the major challenge of the following decades. For LDCs this goes along with a tremendous outflow of people trying to reach for a better income. With their HS workers leaving first, labour composition in LDCs might become an obstacle in the process of lowering the divergence to DCs - the main cause for migration in the first place.9

2 General Theories of International Migration

Before analysing the specific case of the BD, it is important to understand the main approaches to the theoretical framework of international migration in general. Due to the quantity of theories and models treating the matter of international migration, or factor mobility in general, it would be far beyond the scope of this paper to detail out every single model. Therefore only the crucial mechanisms, which most models are based on, will be presented below starting with the microeconomic perspective.

2.1 Microeconomic Approaches

In order to understand the evolving international migration patterns, it is important to analyse the individual and personal reasons for people to migrate. There are several aspects and situations that can trigger international migration. Migration-drivers are often categorised in demand-pull, supply-push and network factors (Martin, 2003a). Migrants in our context usually search for better economic opportunities, which they expect to find in the host country. Differences between SCs and RCs are most evident in per capita incomes and GDP, the composition of industry-, service-, and traditional sectors, and the differences in security and human rights enforcement (Martin, 2003a). The opportunity-improvement that the foreign labour market offers can be seen as the demand-pull factor. On the other hand, unemployment, low wages, bad career prospects for HS people or significant country risk for national investors in the home country are all factors that can cause the supply-push migration, i.e. drive people to seek their fortune in a foreign country. As reason for many people not to move to a country in spite of better wages, the role of cultural differences across countries such as language, traditions and family relationships, could be emphasised (Solimano, 2001). Nonetheless, these obstacles are reduced by the so called network factors, which allow people to learn more about opportunities abroad and about potential host countries, through improved communication. Indeed, migrants can refer to well “established inter-country networks based on family, culture and history” and a variety of legal and illegal entities provide transport, labour contracting, housing, and legal and other services (IOM, 2003a; Shanton, 1995). Lower transportation costs and reduced risks are thus positive externalities of such networks.10

2.2 Macroeconomic Approaches

Macroeconomic theories of international migration have tried to put the reasons for migration into a broader perspective and settle the migrants, or factor flows, in the global framework of increasing trade liberalisation which characterised the world market after the Second World War. Therefore the analysis of labour movements has focused on the relation between trade and factor mobility. Does increasing free trade lead to more or less migration? This has been the basic issue of economists to explain why a growing number of people has crossed the borders. As the basic mechanisms of the respective macro models presented below show, theorists do not question the large influence of free trade on migration but their opinion is divided on whether this relation is of substitutional or complementary nature.

Originally, the standard Heckscher-Ohlin (HO) model was employed to find a substitutional relation between trade liberalisation and factor mobility. Accordingly, free trade reduces the incentives to migrate. HO models build upon a situation with two factors (capital and labour), two goods (capital- and labour intensive) and two differently endowed countries. Additionally, perfect competition and identical technologies, constant returns to scale and no distortions are assumed. In line with the Rybczynski theorem11, if labour emigrates from the labour-abundant country, the production in the export sector will decrease and the output of the import sector will relatively increase. In the labour scarce country the incoming labour will boost production of the labour-intensive good resulting in fewer imports and thus decreasing trade. Trade liberalisation results in factor price equalisation (FPE) and therefore reduces the incentive to migrate. Building on this model, Mundell (1957) was the first to point out that commodity trade and labour mobility therefore acted as substitutes. This initial model was however very soon challenged. Already Mundell himself mentioned that “like all theory, the above analysis is remote from reality. The problems of many factors, goods and countries, monopolistic competition and differences in production functions have not been considered. In addition the model is non-monetary and static” (Mundell, 1957: 335). The “relaxation of some assumptions of the Mundell model regarding economies to scale, factor endowments, costs of mobility distortions have shown that migration and trade can be complements rather than substitutes” (Solimano, 2001:10. Also see Schiff, 1996 and Faini, de Melo and Zimmermann, ch.1, 1999). In fact, such HO model modifications do not necessarily lead to FPE.

The second mechanism to explain migration gives rise to the so-called Ricardo-Viner models: The acting countries are equally endowed but have different technologies and the rich country’s labour-intensive sector has a higher productivity and thus a higher wage. Once free trade is allowed, labour starts migrating into the rich country’s labour intensive sector and the increased labour-capital ratio intensifies the specialisation into labour-intensive production, which may further increase the labour movement. (Faini et al., 1999). A labour-intensive sector in a rich country is most likely one of HS labour. In the light of a further BD discussion this gives special relevance to these kinds of models.

Similarly, the so-called specific factor models treat the case of intensified specialisation in one sector, but contrary to the previous models this arises due to the mobility of only one factor. The model of Venables (1999) serves as an example: “Trade liberalisation can cause an inflow of the inter-sectorally-mobile factor (if the liberalising sector is a relatively intensive user of the factor) and can cause factor flows that make economies more different (as it may reduce the return to an economy’s scarce and import-competing, factor)” (Venables, 1999: 34). If labour is the mobile factor and LDCs are able to export the labour- intensive goods under increasing free trade, specialisation into the labour-intensive sector will proceed and their import-competing sector, the (human) capital-intensive sector will shrink in response to the decreased return. Human capital will consequently search a higher return in DCs resulting in (HS) labour migration and even a BD.

The next kind of models focus on financial constraints of migration cost, as these can be substantial to prevent potential emigrants from financing their voyage.12 Along traditional HO lines, for the labour abundant country, trade liberalisation leads to higher wages and specialisation in the labour-intensive sector. The financial constraint is relaxed and would-be migrants are able to migrate. Schiff (1996) shows that financial constraints in a HO model can lead to a complementary relation between trade and migration, especially in the case of south- north migration.13 He concludes that “complementarity is more likely the higher the migration costs, the tighter the credit constraints, and the lower the skills and income of potential migrants” (Schiff, 1996: 44). Migration increases with decreasing cost of migration.

Finally, there are the models of the new trade theory that stress the attraction of migrants to a region of expanding trade. The reduction in trade cost will not generally lead to FPE if increasing returns and monopolistic competition are taken into account. The country will specialise in the sector of increasing returns to scale, the factor prices will diverge and an incentive to move is created. Krugman (1991) constructs such a model on agglomerative forces of integration. Due to reduced trade costs, exports to poorer regions increase, and so does the market size for the export region. The increasing returns to scale of the intensively used factor increase further and therefore migrant workers are attracted. The rising inflows and increasing real return to factors create a growing economy, thus creating the possibility of self-reinforcing factor flows.

It can be concluded that, whether the increasingly free trade goes along with growing migration flows is a complex question. Trade and migration may be complements in the short and medium term as income disparities in LDCs and DCs are still large. In the long term, with increasing development and thus convergence of the economies, trade may become a substitute to migration. However, one should bare in mind that the ‘long run’ can be very long indeed, given the large differences between DCs and LDCs. Martin (see e.g. 2004) identifies a migration hump which claims that migration first increases with development advancement and increased trade, and later decreases as migration pressures are reduced once LDCs reach a certain convergence towards the standards in DCs.

3 Theories of International Highly Skilled Labour Migration

After introducing the basic general theoretical frameworks of migration we turn to the specific case of this paper: the movement of HS workers from LDCs to DCs. For this purpose the often diverging definitions of HS persons need to be discussed. When speaking of HS workers most researchers refer to tertiary educated migrants, additionally taking into account their currently or previously held occupations or jobs. The OECD used to include “highly skilled specialists, independent executives and senior managers, specialised technicians or tradespersons, investors, business persons, “keyworkers” and sub-contract workers” (OECD SOPEMI, 1997: 21), and has now introduced the definition of HRST - Human Resources in Science and Technology. This includes people working in the physical and life sciences, engineering, the social sciences, health, education and business (including skilled (not highly skilled) persons such as nurses and teachers), in other words the new definition has become more knowledge and service orientated (Wickramasedara, 2003). A key feature of all definitions is that HS workers have invested in some education and training that takes time to acquire. Therefore the number of HS people is rather scarce and cannot simply be increased. The increasing scarcity of HS labour in LDCs due to their emigration has often been discussed under the aspect of the potential disadvantages for SC’s welfare. Why do especially HS people migrate? What are short- and long-term effects for the economies of the SCs? The analysis of possible answers to these questions reflecting the traditional view of the BD discussion is central to the first and second part of this chapter. The third part of the chapter will then present theories stressing how LDCs might actually benefit from the BD. We will see that the so-called optimal BD and the feedback effect are very promising theories, emphasising potential benefits of the BD.

3.1 Dynamics of Highly Skilled Labour Migration

3.1.1 The Case of Highly Skilled Migrants

Among the great mass of migrants, HS persons are usually the ones having the means and best information to move abroad, and are offered the best opportunities in the host country. In theory, the fact that HS workers are especially in favour of migrating from poorer to richer countries is in part triggered by various forms of market failure inherent in labour markets, i.e. asymmetric information, externalities from HC, unemployment and increasing returns to scale.

The problem of asymmetric information in labour markets is especially prominent concerning the quality of education. According to Stark (1996) this can lead to an adverse skill composition in the SC’s population. He claims that “return migration may take place because a regime of asymmetric information that gives rise to the pooling together at destination of low-skill workers with high-skill workers no longer reigns” (Stark, 1996: 3f). HS migration dynamics are explained by a change in the informational environment, dividing the work force into skilled and unskilled. Having a wage below the average in the pool of all workers, low-skill workers will return, while HS workers stay abroad. In the progressional course the skill level in RCs increases continuously while the SCs average skill level is lowered, leading to a lower average productivity.

Possible externalities from HC may also reinforce the emigration of HS people. Externalities form HC can arise due to its stock or share in the population. Under the basic assumption “that the productivity, and hence the wage of qualified work increase with the number of qualified persons within the country” the crucial effect can be seen in accelerated emigration through decreasing average income when HS leave (Wolburg, 2001: 35). Thus, the process of HS emigration can lead to a vicious cycle of emigration tendencies being reinforced by the growing wage difference between SC and RC - a reason for HS emigration in the first place. Unemployment of HS is a very serious problem in this context because incentives to emigrate increase with unemployment. Having better opportunities abroad, HS migrants will move towards the offered income. HS persons will furthermore take this decision rather soon as the value of qualifications decreases with the duration of being unemployed.

Moreover, increasing returns to scale in the input of qualified labour also increase incentives for HS workers to follow others who have left their home country (Wolburg, 2001). Emigration lowers returns to scale and therefore output and wages are reduced overproportionally, encouraging further BD.

Besides, it should be kept in mind that there are other than economic factors explaining emigration. Political stability, human rights enforcement and security matters are important components in the decision whether to stay or leave, in particular relevant to HS groups. Overall, the characteristics of market failure indicate that emigration of HS labour can result in a vicious circle. This is especially the case once the level of HS labour in a country has fallen short of a certain stock - a critical mass.

3.1.2 Critical Mass Dynamics

The idea that once a country reaches a certain critical mass of HS workers their emigration incentives are reduced has its roots in the initial BD debate of the 60s. This debate saw a confrontation between the internationalist model - HS migration resulting in global convergence of economies - and the nationalist model, emphasising the importance of a minimal critical mass of HC for the ability of a country to improve economically.14 Ellerman (2003) summarised this concept in a model of dynamic divergence represented in figure 1: The x-axis depicts the percentage of scientists who remain in the home country; the y-axis depicts the percentage of scientists who consider the respective x% of fellow scientists remaining incentive enough to also stay in the country. Accordingly, there is a positive correlation between x and y. A reaction function in which expectations about the percentage of scientists staying coincide with their actual number is thereby depicted by the upwardsloping 45° line.15

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Figure 1 Critical mass dynamics

Above the critical mass C, dynamics work towards a virtuous circle resulting in the high-level equilibrium B where a high percentage of HS labour staying in the country increases the incentives for other scientists not to leave the country. Below C, dynamics of disagglomeration will lead to a vicious circle resulting in the low-equilibrium A, with a steadily increasing number of emigrating scientists. However, another dynamic could plausibly create a different kind of equilibrium. A “room for more” dynamic could dominate the low levels and a “dynamic of congestion” could dominate at the higher levels so that there could be a single stable equilibrium in between, at C:

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Figure 2 Equalising dynamics

In practice one may argue that equalising dynamics can be observed in north-north migration, whereas critical mass dynamics are likely to dominate south-north migration - our present issue of discussion. Critical mass considerations can indeed explain a so-called desert region (low-equilibrium), where the share of HC within the population has dropped far below a certain value. If HS people do not see any reason to stay and invest into development, they leave the country directly after having finished their education (see Economist, 2002). As a result, the models discussed above deliver some of the most widely discussed explanations for the continuously proceeding flow of HS labour migration. We can now turn to the effects this migration has on the SCs.

3.2 Effects of the Brain Drain - The Traditional View

The effects of the BD on economic determinants are connected to the question on the welfare effects of the parities involved.16 Analysing this issue of the BD, two perspectives can be taken. The first is based on traditional theories of the BD, and distinguishes between static and dynamic effects. These theories stress predominantly alarming consequences of the BD for SCs. The second perspective, in contrary, takes a more positive view, raising possibilities to over-compensate some inevitable detrimental effects.

3.2.1 Static Effects

Static effects discuss the short-term impact, which the BD has on income and its distribution, unemployment, and the public sector in the SC.

First, regarding income, a factor endowment effect of the BD can be sketched. Through a Ricardo-Viner model with two sectors and three factors (HC, physical capital and unskilled labour) it can be demonstrated that if the return to human or physical capital is greater than that of labour, the drawback of HC leads to a decreased per capita income due to the decreased capital-labour ratio, which has occurred (Wolburg, 2001).

Secondly, the BD affects the terms of trade (TOT) of a country: The BD causes the production in the (human) capital-intensive sector in the SC to decrease over-proportionally, setting resources free to expand the labour intensive export sector. This increased supply at the world market decreases the price of their export products and thus leads to a TOT deterioration for the SCs, the LDCs in this case. This TOT deterioration leads to a negative income effect. However, this effect holds only for large countries with relatively labour intensive export sectors, which can actually influence the world market price. When one includes non-tradables into the consideration, however, also small countries experience a negative income effect (see Wolburg, 2001: 47ff for details).

Other models treating the income effect build on increasing returns to scale. Markusen (1988) e.g. suggests that migration of skilled persons is strongly influenced by the specialisation of the larger country into the HC intensive sector. The wages of skilled labour increasingly diverge which creates strong migration incentives for HS labour, the small country then has no choice but turn into traditional production. Consequently per capita income decreases. For the effect on income distribution, if BD induced specialisation is taking place, the “decrease of the capital labour ratio goes along with a decrease of the wage-rental ratio and thereby increases inequality” (Wolburg, 2001: 51). There will be an upward wage pressure for remaining skilled workers enforcing increased inequality (Lowell and Findlay, 2002). Mckenzie and Rapoport (2004) include remittances into this consideration. They state that in the presence of migration costs, richer families are more likely to be able to send a migrant abroad. As these already rich families subsequently receive remittances by the migrant, inequality in the SC increases further. On the other hand Mckenzie and Rapoport stress that equality can be enhanced by the reduction of the costs of migration induced by networks. “Large networks spread the benefits of migration to members at the lower end of the income and wealth distributions of the community, reducing inequality” (Mckenzie and Rapoport, 2004: 33).

Opinions on the effects on unemployment are more ambiguous. Bhagwati and Hamada (1974) argue that if only few HS workers emigrate and there are no effects on expected wages, unemployment of HS workers can be reduced. However, “when the high wage rate in foreign countries is taken account of in assessing the expected wage rate, it is quite probable that unemployment in educated sector increases” (Bhagwati and Hamada, 1974: 32). This is because the high wage expectations over-stimulate the supply of HS workers. Unemployment results if the increased supply of HS workers can neither be absorbed by the national labour market nor by emigrating into the foreign labour market.

Schiff (1996) proposes that “unemployed people are a drain on the South since their basic needs are satisfied by others. Thus, emigration generates a gain by removing the net claim emigrants had on the South's resources before they left” (Schiff, 1996: 28). In addition, remittances and the decline of negative social and political externalities from high unemployment will reinforce the gain. Bhagwati (1987) summarises two different schools of thought on employment effects of the BD. The ‘benign neglect’ looks for all parties to gain from an economic transaction. If migrants stayed in their countries not seeking their best opportunities, they could face unemployment, their skills would be misallocated and productivity decreased. The ‘malign neglect’ states that because DCs cannot absorb all possible HS migrants, there is an over stimulus of the SC’s supply of such workers actually increasing their rate of underemployment. No matter who is right, the BD lowers the average productivity in the SC, which in the long run can be unfavourable for employment. The IOM summarises that “migration, if properly managed can have a positive impact on labour surplus in developing countries by providing job opportunities abroad” (IOM, 2003c: 1).

Effects of migration on the public sector are of special importance when aiming at policy responses to the BD. There are negative fiscal externalities in the SCs if education is publicly financed. Apart from decreased returns to fiscal investments into higher education systems when graduates leave the country, “progressive income taxation combined with a positive correlation between education and income leads to a decline in the average tax rate if highly qualified labour emigrates” (Wolburg, 2001: 53). The government budget will subsequently be smaller and reduce public good and service provision. This can eventually result in further emigration.

Overall, apart from the rather ambiguous effect on employment, the traditional view of migration concludes significant negative short-term effects of the BD for SCs. The question now is whether this trend is intensified in the long-term.

3.2.2 Dynamic Effects

Dynamic effects identify the long-term effects of the BD in SCs and can be summed up under developmental effects, i.e. technological progress or structural change, and growth effects, which have created much reason for debate and a tremendous amount of literature. The two effects are of course highly inter-dependent and are therefore sometimes difficult to separate.

3.2.2.1 Effects on Development

The analysis of developmental effects can be based on the theory of development from Kuznets (1973) who stresses that “rapid changes in economic and social structure (…) may be described as a process of controlled revolution” (Kuznets, 1973: 252). This process entails an uprooting of the population through phases of internal migration and occupational mobility at a rate never witnessed before. A country’s economic development is defined as a “long-term rise in capacity to supply increasingly diverse economic goods to its population through advancing technology and institutional and ideological advancements” leading into a self- sustaining growth process, research activities, innovations and finally permanent growth (Wolburg, 2001: 58). There exists a wide consensus that HC plays an important role in development.

[...]


1 Though not treated here, a very good analysis of impacts of migration on the host countries (RCs) can be found in Borjas (1999). (see http://ksghome.harvard.edu/~GBorjas/publications_for_download.html)

2 In the following discussion SC and LDC as well as RC and DC will be treated as synonyms.

3 For graphic representation of global migration flows see Le Monde Diplomatique, 2003: 55f.

4 Women constitute 47.5% of the flows (IOM, 2003c).

5 See Martin (2003a) for a detailed overview with numbers on regional and country trends in migration.

6 81% of HS immigrants from the EU to the US were managers or executives in 1998 (Mahroun, 2000)).

7 Major countries are the US, Canada, the UK, Australia, Germany, and France. See Mahroun, 2000: 28).

8 85% include low- and middle-income countries with per capita GDP below US$ 9,366 (Martin, 2003a).

9 For a short and more general analysis of international migration see Boyle, Halfacree and Robinson (1998).

10 Involuntary migration, i.e. migration due to war and conflicts etc. is not part of this presentation since in these cases educational features are of marginal importance.

11 An increase (decrease) in the supply in labour leads to a over-proportional increase (decrease) in the production of the labour intensive good (also see Krugman and Obstfeld (2000) chap. 4)

12 Migration cost includes “travel costs, the cost of obtaining information on the cheapest and safest migration routes and on job and housing opportunities in the destination country, the cost of obtaining various documents (...), the cost of living in the destination country until a job is found, and for illegal migrants the cost of paying someone (...) for helping with clandestine entry into the destination country. There are also emotional costs and social and cultural barriers associated with migration” (Schiff, 1996: 7).

13 Note that in cases of complementarity (substitution) between migration and trade, one is likely to find complementarity (substitution) between migration and capital flows as well. The reason is that capital flows from North to South raise wages in the South, and thus are likely to lead to more (less) migration in the presence (absence) of migration costs and financing constraints (Schiff, 1996: 19f).

14 See Patinkin (1964) and Johnson (1964).

15 If given that 40% were staying, only 35% considered that sufficient for them to stay, then 40% would not be an "equilibrium" (where expectations matched reality).

16 The definition of whose welfare is to be considered in this respect is sometimes controversial. In our discussion, like in most of the literature, we look at the welfare effects upon the economies in the SCs. However, there are different ways of approaching this issue. See Wolburg (2001) or Schiff (1996) for a more extended elaboration on this issue.

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Details

Title
Highly skilled labour migration: Consequences for labour exporting countries
College
University of Applied Sciences Bingen  (Lehrstuhl für Internationale Wirtschaftspolitik)
Grade
1.3
Author
Year
2004
Pages
65
Catalog Number
V45163
ISBN (eBook)
9783638426114
ISBN (Book)
9783638707480
File size
761 KB
Language
English
Notes
Labour Economics, Brain Drain, Theories of Migration, Economic Development, Diaspora, Remittances
Keywords
Highly, Consequences
Quote paper
Johanna Avato (Author), 2004, Highly skilled labour migration: Consequences for labour exporting countries, Munich, GRIN Verlag, https://www.grin.com/document/45163

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