CEPR/RIIA
International Labour Migration

Labour migration has had important effects upon the post-war development of Western Europe. Esperanza Duran (RIIA) and Cormac O Grada (University College Dublin and CEPR) organized a one-day workshop on March 8 to discuss the economic, political and social impacts of international labour migration. Participants included economists, social historians and civil servants. The object of the workshop was to identify research priorities and coordinate further research initiatives. The European Cultural Foundation, the German Marshall Fund and the Home Office provided financial support for the workshop, which was held under the joint auspices of the Royal Institute of International Affairs (RIIA) and the Centre.

The first of the four sessions, "Theory and Methods', was chaired by Richard Portes (CEPR and Birkbeck). The first paper, "Methodological Issues in the Analysis of Immigrant Adjustment and Impact', was presented by Barry Chiswick (Illinois). He focussed attention on the distinction between the initial "impact' and the subsequent "adjustment' of the immigrants to the host country and its economy. Impact effects depend primarily upon the characteristics of the immigrants. The immigration of workers with low skills increases the supply of such workers in the host country, reducing the low-skill wage and increasing employment of low-skill workers. What effect does this have on other factors of production, such as highly skilled workers and owners of capital equipment? They may benefit if they are "complementary' to low-skill workers. Such complementary factors are used more heavily as the wage of low skilled workers falls. For native-born low-skill workers the impact is less favourable, since immigration reduces their wage and employment opportunities. Chiswick challenged, however, the widespread view that increased employment for immigrant workers meant an equal decrease in jobs for native-born workers. He argued that this view of employment as a zero-sum game was fallacious. Immigration could increase employment of inputs "complementary' to labour. It might also stimulate aggregate demand and increase total employment.

Chiswick drew attention to two important influences on the subsequent labour market experiences or "adjustment' of immigrants to the receiving nation's economy. First, the degree to which the skills of immigrant workers are transferable appreciably affects their subsequent market success, as measured by their earnings, occupational attainment and employment. Second, the relative importance of economic and non-economic motives in the decision to migrate influences the speed and probable success of the immigrant's adjustment. These two factors may help predict the receiving country's capacity to absorb immigrants of different origins.

Chiswick noted that this methodological framework, which distinguished between impact and adjustment effects, can be applied to other features of migration. The number of legal immigrants to be allowed entry is typically defined in terms of the economy's "absorptive capacity', reflecting the effects of migration on the level or distribution of real income. Clearly this may vary between short and long runs. The framework is also relevant to the investigation of illegal immigration. The long- run adjustment of such workers is complicated by the risk of deportation; they are less likely to invest in skills primarily useful in or "specific' to the host country. Such workers therefore tend to be confined to low-skilled, disadvantageous employment.

Is illegal immigration a significant concern in the UK? Hayden Phillips (Home Office) replied that the UK's principal preoccupation was not (as in some other EC countries) with large numbers of illegal migrants, but with immigration within the rules and its effect on the labour market. John Vigors (EEC) remarked that if the UK frontier were to be defined by the European Community, then illegal immigration to the UK was potentially significant. Several participants commented on the short- and long-run dichotomy. Louka Katseli (Centre of Planning and Economic Research, Athens, and CEPR) observed that the long- run implications of immigration differ from case to case; immigration into the USA originating from Mexico is more temporary than that from the rest of Latin America. Each case must be examined individually, since generalization could be very misleading.

International trade theory has devoted much attention to the theory of international capital movements; less attention has been paid to the corresponding flows of labour through migration. Some of the conventional theory of capital movements can be applied directly to the analysis of migration, yet there are some aspects of migration which merit separate treatment. One of these is the phenomenon of illegal immigration, which was analyzed by Wilfred Ethier in the second paper of the opening session, entitled "Illegal Immigration: The Host Country Perspective'. Ethier focussed on the effect of illegal immigration of unskilled workers on the host country's labour markets. His framework distinguished between the market for skilled workers, who were all native born, and a separate market for unskilled labour, composed of native workers, legal and illegal immigrants. The flow of illegal immigration responded to the difference between the expected wages in the host and sending countries, while the number of illegal immigrants caught depends on the resources devoted to border enforcement, financed by a tax on skilled workers. The wages of skilled workers are assumed flexible, so this market clears in textbook fashion. The wage in the unskilled labour market by contrast is assumed to be rigid; firms hire such workers until the value of the marginal worker's output equals the rigid wage. There is unemployment in this market and jobs are rationed. Resources devoted to border enforcement therefore affect job prospects in the unskilled labour market. Ethier also considered cases where unskilled wages are flexible. The effects of enforcement then operate through the wage rate instead of unemployment, but the general conclusions remain the same.

Ethier considered several possible objectives of government policy in his analysis. The government might be concerned to maximise national income, to alter the distribution of income between skilled and unskilled workers, or to control the number of illegal immigrants. The only policy instrument available to the government in Ethier's simplest model is the level of resources devoted to border enforcement, an increase in which will reduce the number of illegal immigrants. It will also benefit native-born workers and legal immigrants in the unskilled labour market, who face less competition from illegal immigrants. Skilled workers will be worse off, since they must pay the extra taxes to finance more enforcement. Ethier also finds that an increase of the level of border enforcement will probably reduce national income.

The government faces a further difficulty in Ethier's model. Border enforcement policy directly affects one policy objective, the number of illegal immigrants. It must inevitably affect as well the unemployment rate (or the wage rate, if this is flexible) in the unskilled labour market, and this may conflict with attempts to redistribute income between skilled and unskilled workers.

Ethier also considered other policy instruments the government might employ, such as internal enforcement of the immigration rules, through workplace inspections. This policy will disadvantage illegal immigrants relative to legal workers, if firms can distinguish between the two when hiring. If firms cannot distinguish the two groups, then domestic enforcement will harm all unskilled workers relative to skilled workers. Although the use of domestic enforcement can reduce the resource cost of immigration policy, it will not enable the government to separate its distributional and immigration objectives as long as firms can distinguish between legal and illegal workers.

In the discussion, Sam Korman (Home Office) remarked that the effectiveness of border control could be enhanced if increases in border enforcement activity were signalled, perhaps through advertisements, to potential illegal entrants. It was noted by William Wallace (RIIA) that the restrictiveness of UK legal immigration policy is often signalled by the time taken to process immigration applications. Robin Cohen (Warwick) suggested that since illegal immigration typically favours employers, restrictions on the flow of illegal immigrants might encourage the export of capital. The effectiveness of border enforcement was challenged by Barry Chiswick, noting the experience of American controls: those caught simply endeavoured to re-enter. Chiswick suggested that penalties on detection might supplement enforcement as a policy variable. Finally, Jorge de Macedo (Princeton) noted the parallels between the analysis of illegal immigration and the literature on smuggling and black markets. He remarked that a principal policy used against smugglers is to appropriate the benefits of their unlawful activity; similar policies might be designed to control illegal immigration.
The second session, "Empirical Work', was chaired by Joan Pearce (RIIA). Louka Katseli began by presenting her paper, "Migration, Repatriation and Economic Policy: General Issues and Policy Options from a Greek Perspective'. This study focussed upon Greek migration to and from West Germany during the post-war period. The empirical evidence was drawn both from aggregate time-series analysis and a small survey of migrants who had recently returned from West Germany. In her analysis migration and repatriation were divided into a sequence of decisions taken by the individual migrant. These decisions included the timing of emigration, the level of emigrant remittances, and the length of stay abroad and decision to return. Each of these decisions could be modelled empirically. The macroeconomic implications of these individual decisions could also examined through their effects on the level and sectoral distribution of output, trade patterns, terms of trade, real exchange rates and trade balances.

Katseli's empirical analysis of Greek migration and repatriation highlighted the need to take migratory trends into account in forming trade and industrial policy. To illustrate, she noted that an investment policy designed to shift production towards products with a higher technological content may be jeopardized by the repatriation of unskilled workers for whom employment is needed. Furthermore, restrictions on capital flows from sending nations may prove ineffective when most citizens have relatives living abroad.

Tom Kavanagh (Home Office) asked whether Katseli had analyzed the motives for emigration. She replied that Greek immigration into America was concentrated in the service sector and was influenced by relative wages, while Greek immigration into Germany was concentrated in industry and chiefly determined by relative employment opportunities. Cormac O Grada suggested a possible selection bias in Katseli's survey, since those sampled may have returned to Greece more rapidly than anticipated due to their unexpected success in attaining income targets. Brendan Walsh (University College Dublin) questioned whether the male/female mix of migrants affected the analysis. Katseli drew attention to a separate analysis of the migration of Greek women which was currently underway. Finally, Stephanos Grammenos (European Centre for the Study of Work and Society) noted that emigrant remittances may help stabilize the source country's exchange rate. Emigrants may tend to remit more when the home currency falls in value. He also argued that the levels of skills that repatriates bring back to the source economy are often minimal. Returning migrants may therefore be unable to participate in technologically advanced domestic industry.

The second paper of the session, on "Historical Migration Flows: Empirical Evidence', was by Patrick Geary (Maynooth) and Cormac O Grada. Their study focussed upon the causes and consequences of international migration in the nineteenth and twentieth centuries. Previous investigators had analyzed the determinants of migration in a partial equilibrium framework. Geary and O Grada, following the lead of J.G. Williamson, sought instead to estimate a simple general equilibrium model. Williamson had estimated a single equation explaining migration, derived from the full general equilibrium model. This procedure yielded plausible results for European migration to the US before 1914. But when Geary and O Grada estimated the full structure of the same model, for migration from the UK to the US from 1855 to 1929 and migration from Ireland to the UK from 1949 to 1983, the results were not as satisfactory. The theory suggested that the wage differential between the host and sending country should have a positive effect on the flow of migrants, but Geary and O Grada found the opposite effect throughout their estimation. An extension of the model yielded the expected sign for the wage differential, but the results were puzzling and unsatisfactory in other respects.

Geary and O Grada then analyzed the relationship between wages and migration using a different technique. Economic theory suggests that migration and wages can be interdependent, with causality running in both directions. Migration could respond to low wages in the source country. The flow of migrants could alter that wage in turn, for a variety of reasons.

This interdependence was assessed empirically using Granger causality tests on US immigration and real wages from 1821-1957. Geary and O Grada found that when other possible influences were excluded from the model the causality ran from migration to real wages but not in the opposite direction. Conditioning the migration-wage relationship on a third variable, GNP, did not change this result.

The evidence that decreasing wage differentials encouraged migration was not surprising, claimed Ravi Kanbur (Essex and CEPR). Since most potential migrants would have been middle- income earners, increases in source country wages, while narrowing the wage differential, would have created more potential migrants. O Grada responded that this particular effect was probably not relevant to UK-US migratory flows. It was observed by Louka Katseli that the wage-migration relationship was sensitive to the aggregation procedures used. She noted that Mexican immigration into the US is unlikely to affect aggregate US wages but may affect wages in more local markets; in contrast, aggregate UK wages might prove sensitive to such migration. Barry Chiswick commented that if immigrants are predominantly unskilled, then migration should lead to lower wages for unskilled but higher wages for skilled workers. The effect on aggregate wages is thus uncertain, which could explain the unexpected relationship between wages and migration flows found by Geary and O Grada.

The session on "Policy' was chaired by Joan Pearce. Hayden Phillips discussed previous and current policies in the United Kingdom. He focussed on past and present immigration policies and the instruments employed to enforce them. During the late 1940s and early 1950s, some immigration was encouraged by UK authorities, partly to ease labour shortages. But policies forged in a context of alleviating short-run constraints have had longer-term effects. The current policy concerning legal immigration is to restrict entry from new household heads and those seeking employment but allow entry to families of those already resident. Phillips noted that immigration control operated at three points: abroad, at the border and internally. Most effort is concentrated on border enforcement. Given the circumstances of the UK, such an approach proves to be cost- effective. Internal control is pursued on a smaller scale and the issuing of identity cards has been resisted. The effectiveness of immigration control could be enhanced, suggested Phillips, if potential "pressures' to migrate could be identified. These differed among countries and over time, and might be economic or non-economic (e.g. refugees), family ties, etc. If such pressures were identified they could be compared with data on visa refusals, illegal immigrants and deportations. At present the available data indicated that the strongest pressures for immigration into the UK came from countries such as Pakistan, Ghana, Turkey, Bangladesh, India and Nigeria.

Phillips stressed the need to examine areas where immigration policy pressed against the limits of economic analysis. First, the social issues could not be ignored. They included pressure on the housing provisions of particular local authorities. Second, the legal aspects had to be taken into account. There were, for example, potential conflicts between the immigration controls used to protect internal labour markets and European conventions to prevent discrimination. As a broad generalization it could be said that international legal instruments have tended to reflect the desire of the middle classes to live where they like in the world, but governments had had to restrict the international mobility of unskilled workers. Third, a goal of policy was to treat people fairly, and at the same time reflect public opinion. The balance between the effectiveness of immigration control and the degree to which a government was seen to treat citizens equally was politically controversial.

In the discussion that followed, David North (German Marshall Fund) applauded Home Office participation in the workshop, noting that US government representatives would not participate in such meetings. In response to Louka Katseli's enquiry about the sexual asymmetries of immigration policies, Phillips noted that this asymmetry was not complete. Robin Cohen challenged the assertion that internal immigration control was insignificant; he claimed that internal monitoring is becoming more prevalent, fuelled by local police eager to enforce such control. Phillips replied that there is a policy to reduce the level of involvement by local police in matters relating to immigration; such involvement could damage relationships between the police and minority communities.

The interaction of different governments' immigration policies through "knock-on effects' was raised by Michael Teitelbaum (Sloan Foundation and CEPR). Was the recent increase in the flow of immigrants into the US from the Indian sub-continent in part a consequence of UK restrictions? Phillips responded that the policies of other countries do impinge upon UK controls, but he was not fully aware of the precise sources of Indian immigration into America, which could be from regions which have not traditionally provided the UK with immigrants. The recent flows into America may be independent of UK restrictions. Finally, Richard Portes enquired about the availability of data. Although data on outflows and stocks are inadequate, information on inflows is well documented, he was told. Many participants regretted that the UK Census did not include a question on ethnic origin; such information, it was argued, would allow the difficulties faced by minority communities to be better understood.

The second paper of this session, on "Current Research and Future Needs', was presented by Esperanza Duran. She remarked that the economic implications of migration have been studied extensively, especially its impact upon levels of employment, inflation, wages, income distribution and growth. This emphasis stems from the belief that immigration policies are primarily regulated by economic forces. These have been examined historically in terms of the advantages and disadvantages of migration for sending and receiving countries. Nevertheless, she argued, many economic questions remain unexplored. When immigration is restricted, the most obvious means of combining host country capital with source country labour is through the export of capital. The extent to which this process has occurred is an important topic for research. Migratory flows may be affected by the converging economic performance of traditional host and source countries. Duran argued that the impact of migration upon international relationships deserved more study. Not only should the effects of a coordinated EEC immigration policy be examined, but also a comparative study of diverse international migration policies is required.

The EEC's inability to adopt a common policy for migration was noted by John Vigors. He also remarked that most aid from Germany, for example, is not directed to the country from which it receives the majority of its immigrants, Turkey. The reduction in travel costs and time has undermined the traditional distinction between temporary and permanent migration, stated William Wallace. With respect to comparative policy studies, Louka Katseli suggested national policies may be inconsistent with one another, which enforces the need for comparative analysis. Finally, Michael Teitelbaum observed that even if economic development in source countries did discourage emigration, it is not clear where aid should be best directed to effect this.

The final session of the workshop was devoted to a round-table discussion of research priorities, chaired by Richard Portes. The aim was to develop an agenda for future research and to facilitate joint research initiatives.

A better understanding of migration flows and the "stocks' of immigrants is required. Indicators of pressures to migrate from sending countries would clearly be useful. It would help to know more, for example, about the effects of economic development on emigration, the effects of receiving countries' policies on immigration, and how the direction of flows is influenced by controls, welfare provision, and technological innovation. More work on migration between developing countries was also needed.

We also need a better understanding of the different experiences of particular minority groups. Such studies should enable better prediction and understanding of the potential economic, political and social success of different immigrant groups.

Policy-makers should pay more attention to the future consequences of contemporary immigration. It was argued that the West German government, for example, could and should have realized that "guest worker' programmes, designed to meet short- run labour shortages, would lead to a permanent community of immigrants. Similarly, there should be more analysis of the long-run effects of emigration on the labour markets of source countries.

New instruments for immigration control enforcement should be considered. It might be possible to substitute "price' mechanisms or their analogues for traditional "quantity' controls.

Migration has important implications for trade policy and industrial policy, which require careful study, as do the interactions between macroeconomic, trade and foreign policies and migration. Better understanding is needed of the relationship between migratory flows, development aid and the trade patterns which result from combining the labour of the "South' with the capital of the "North'.

Technological change has important effects on migration through transport and communication costs as well as employment prospects. As industry becomes increasingly automated and technical qualifications become more important, migrant workers may find themselves confined to low-grade jobs in the service sector.

Participants agreed on the need for more comparative studies of migration policies, including comparisons of the economic and migration policies pursued by the developed countries, and how different countries' enforcement mechanisms respond to similar migratory flows.

It was also agreed that the interaction of national migration policies is a key element for further research. These policy interactions cause "spill-over effects', such as changes in migration patterns, as traditional receiving countries restrict inflows. International coordination of migration policy might offer benefits and deserves study on the same basis as the international coordination of macroeconomic policy.