Migration impact on economy

Migration and Its Economic Consequences

Migration is a significant economic and social force in many parts of the world. Nonetheless, the characteristics of migrant populations vary by area. Furthermore, migration has a wide variety of economic consequences in both the receiving and exporting countries. Transitory worker services help host countries cope with capacity shortages, but they can decrease local incomes and increase the domestic welfare burden (Artal-Tur, Peri, & Requena-Silvente, (Eds.). 2014). The sending country, on the other hand, will experience both losses and benefits in the short term, but they are more likely to prosper economically in the long run. More significantly, the economic effects of migration for both host and home countries depend on the type of person migrating with respect to the skills transferred. Migration can affect the economy in different areas, which include economic growth, the public purse and the labour market and well as technological advancement (Kerr & Kerr, 2011). For instance, it leads to economic growth since migrants help in technological innovations and human capital advancement. Immigration contributes to the improvement of the financial circumstances of a particular country because immigrants are able to pay taxes as opposed to consumption of government resources (Ottaviano & Peri, 2012). Nonetheless, countries or states with a huge number of immigrants who are less skilled may cause a huge fiscal burden because they pay fewer levies but utilize public resources.

Economic Productivity and Innovation

Research by Malhotra, Margalit & Mo, (2013) noted that migration facilitates productivity and innovations of a particular country. In most cases, immigrants generate a wave of ingenuity and talents contributed to a high level of innovation in particular fields. A study conducted in 2011 on the top fifty business capital financed firms established that nearly 50 per cent had at least one founder belonging to the immigrants’ groups. In addition, immigrants occupied about 67 per cent of the top managers or research positions (Malhotra, Margalit & Mo, 2013). Similarly, in the United States, a substantial proportion of advanced certifications or degrees conferred in engineering and science go to immigrant students with short-term visas learning in the universities. In this case, this is the basis for job growth and productivity. Reports by the National Science Board suggested that in 2009 students born in foreign countries acquired 27 per cent of engineering and science master’s degrees. More recently, the number of students from foreign countries learning undergraduate degrees in American universities has increased tremendously. In 2012 and 2011, the proportion of students studying in higher education reached 18 per cent (Ottaviano & Peri, 2012).

Furthermore, a study by Kerr & Kerr, (2011) noted that approximately 75 per cent of patents from the top ten patent-generating universities in the US had at least one immigrant author. In fact, foreign-born people create patents at twice the rate as natives, and the existence of these immigrants produces beneficial spill over or overflow on patenting by local populations (Kerr & Kerr, 2011). Economic theory recommends a direct association between innovation and skilled labor forces and quicker growth in GDP (Artal-Tur, Peri & Requena-Silvente, (Eds.). 2014). In addition, about 75 per cent of total growth and development in the US over the last century has been attributed to enhancement in education driven by research (Manacorda, Manning & Wadsworth, 2012).

The Impact of Migration on Economic Growth

Global migration causes both indirect and direct impacts on the growth of the economy. In case migration increases the labor force, the growth of aggregate GDP is expected. Additionally, migration causes demographic effects by raising the population sizes and by adjusting the age pyramid of host nations (Manacorda, Manning & Wadsworth, 2012). In most cases, migrants seem to be people in the economically and younger age groups relative to the natives. Therefore, they play a major part to minimize the rate of dependency (Jean & Jiménez 2011). On the other hand, immigrants use their abilities and skills to complement the available human capital of the receiving nation. More precisely, empirical details from the United States imply that skilled immigrants help to enhance innovation and research, which boost the technological progress of the country (Ottaviano & Peri, 2012).

The percentage of highly skilled immigrants working in OECD nations over the past few decades is increasing rapidly. The proportion of highly trained immigrants in these nations demonstrated an extraordinary rise of 70 per cent in the last decade. In 2010/11, the number of highly educated immigrants reached 30 million (Malhotra, Margalit & Mo, 2013). Of these, about 17 per cent or 5 million people immigrated in the last five years. The trend is normally catalyzed by the migration of Asians from their home countries to OECD nations in the last five decades. For instance, approximately 2 million highly skilled persons from Asian continent immigrated to these countries (Artal-Tur, Peri & Requena-Silvente, (Eds.). 2014).

Studies conducted in OECD countries to determine the effects of migration on the growth of the economy from 1986-2006. The results of these studies indicated that there was a positive impact on the economy but the magnitude was too small (Kerr & Kerr, 2011). The effect of migrants on the accumulation of human capital tends to neutralize the effect of mechanical dilution, but the net impact is equally small, comprising nations with discriminatory migration policies. According to Manacorda, Manning & Wadsworth, (2012), a 50 per cent increase in net immigration produces less than a 10 per cent percentage-point difference in the growth of productivity (Manacorda, Manning & Wadsworth, 2012).

Similarly, states and countries with a high number of immigrants have a substantial rate of productivity growth. Natives who have less skill normally react to a higher rate of competition from foreign-born workers by exiting manual work for jobs that focus on communication and language skills (Ottaviano & Peri, 2012). This unique specialization contributes to a more effective distribution of labor, increasing the productivity and incomes of both immigrants and natives.

Competition in the Labour Market

Immigration has a huge impact on the competition in the labor market. A study conducted by Jean & Jiménez (2011) noted that immigrants increase the labor force supply and utilize their money on TVs, food, homes, and other services and goods in the host country (Malhotra, Margalit & Mo, 2013). They also enlarge the local economic demand, which helps to increase the number of jobs. In turn, more homes are built as well as services such as transport and hospitality improve exceedingly. The majority of empirical evidence demonstrates the long-term advantages of immigration for wages and employment of natives (Jean & Jiménez 2011). Nonetheless, it also leads to short-term losses because immigration can lead to a higher rate of unemployment and lower wages. Standard economic theory suggests that although a higher supply of labor from immigration may lead to lower wages initially, companies over time may raise investment to re-establish the amount of capital per employee, which then restores earnings (Artal-Tur, Peri & Requena-Silvente, (Eds.). 2014). Stable growth in the labor-capital ratio inhibits the average productivity of workers and hence prevents their mean earning from reducing over the long run. Although capital stock growth maintains the mean wages from reducing, immigration may influence the relative earnings of various kinds of workers by altering their relative supplies (Malhotra, Margalit & Mo, 2013).

Immigration also creates bimodal effects in the receiving country across the education sector. The biggest effect has been on the supply of employees without adequate skills. For instance, some of the immigrants have postgraduate or college degrees while others lack high school certificates (Ottaviano & Peri, 2012). Immigrants who are less skilled as compared to the native population lead to dependency in the economy. In most cases, less skilled immigrants normally occupy manual jobs and occupations that require intensive labor such as construction and agriculture. However, these have ambiguous impacts on the less skilled local employees. In some instances, native workers may utilize the opportunity of their great communication skills and concentrate on jobs where language skills are more important such as sales and personal services (Kerr & Kerr, 2011). Similarly, highly skilled immigrants experience challenges in jobs that need language and communication competence and hence try to favor technical and scientific occupations. On the other hand, natives’ workers having high skills tend to occupy language- and culture-dependent as well as media and management occupations since they have less competition from highly competent immigrants (Manacorda, Manning & Wadsworth, 2012). Therefore, the supply of foreign labor is focused on a subset of jobs that seems to employ most of the immigrants. Subsequently, immigrants experience a high level of competitive pressure.

Financial Impact

Immigration causes a wide range of financial effects on the economy, but the magnitude of these impacts varies at the local and state levels. Moreover, the financial effects depend on the different aspects of the immigrant population such as skills level, education, and age living in a certain state (Manacorda, Manning & Wadsworth, 2012). Immigrants belonging to the working age have relatively small effects on the Social Security and Medicare costs, which is the biggest federal expenditure in non-defence work (Malhotra, Margalit & Mo, 2013). The tax remitted from the immigrants assists in funding the defense budget but they do not create any more substantial military costs. Consequently, it facilitates a reduction in the tax burden on the common native by the federal government.

Reports indicated that in the United States, most of the immigrants at all ages receive less amount of income than the natives. Consequently, the payments of local, state, and federal taxes from immigrants are lower but utilize programs such as SNAP, and Medicaid at a higher rate as compared to natives (Jean & Jiménez 2011). Additionally, when they do not utilize public programs, the mean benefit value acquired is below average, inferring a lesser net cost to the government as compared to the similarly low wages of the natives. Nonetheless, immigrants normally execute a higher tax liability on natives at various local and state levels (Kerr & Kerr, 2011). Immigrants, especially those at low income and academic status, normally have bigger families, hence most of their children utilize public education facilities. Moreover, in case these children are not fluent in languages, the cost of learning per student will be significantly higher as compared to children born from native families (Artal-Tur, Peri & Requena-Silvente, (Eds.). 2014). Due to these problems, many states experience a wide range of cost burdens on a short-term basis. Nonetheless, in the long-term, immigrants are able to participate in higher economic growth as they lessen the financial burden (Ottaviano & Peri, 2012).

The sending countries also experience economic effects due to emigration. In most cases, these nations benefit from the short-term impacts of emigration because people in foreign countries send remittances to their home countries. Remittances refer to the funds that people living abroad send to their families at home (Malhotra, Margalit & Mo, 2013). Reports from the World Bank suggested that in 2012, emigrants across the globe sent more than $529 billion. Interestingly, nearly $400 billion were sent from the developed to developing countries. Precisely, these records only captured the finances sent via official channels, hence the value of remittances was probably higher than the documented amount. According to the World Bank, remittances transferred via informal methods could reach 50 per cent of the documented funds (Kerr & Kerr, 2011).

Remittances are predictable and stable as opposed to other fiscal flows. Significantly, they are counter-recurrent, offering a cushion in cases of economic shocks. In periods of post-conflict or conflicts in developing countries, remittances can be beneficial because they help in reconstruction, rehabilitation, sustenance, and survival (Manacorda, Manning & Wadsworth, 2012). Moreover, they offer fundamental benefits for household livelihoods. Similarly, they are used in common consumption goods in domestic societies that facilitate the growth of the economy in local communities by helping small and medium businesses. A higher proportion of this amount is used in financing health care, homes, and education (Ottaviano & Peri, 2012). They are also used as savings in financial organizations, thereby creating job opportunities in these crucial service industries. Furthermore, remittances facilitate earnings from foreign exchange, which play a major part in economic growth (Kerr & Kerr, 2011). In so doing, they enhance the creditworthiness of countries and enlarge their access to global capital markets.

Positive effects of emigration have been witnessed in countries such as Tajikistan. Citizens of this country working abroad in nations such as Uzbekistan, Kazakhstan, and Russia transfer remittances to their home nation (Malhotra, Margalit & Mo, 2013). Significantly, the remittances have assisted the nation in recovering from the financial crisis caused by government instability and a poor economy. In recent years, remittances contributed to more than 50 per cent of GDP in Tajikistan. The World Bank has suggested that an increase of one per cent in remittance shares causes about a 0.4 per cent drop in the poverty levels in developing countries (Jean & Jiménez 2011).

On the other hand, developing countries experience some negative effects due to emigration. Due to the movement of highly skilled labor force, it can lead to brain drain, which refers to the loss of educated and trained personnel to other economies (Manacorda, Manning & Wadsworth, 2012). Reports by the International Organization for Migration (IOM) have reported that there are large numbers of African engineers and scientists operating in the United States as compared to the total number of scientists in Africa. In most African countries, significant numbers of skilled personnel have migrated to developed nations in search of better income, leading to devastating economic countries in these countries (Artal-Tur, Peri & Requena-Silvente, (Eds.). 2014). For instance, Zambia has lost most of its practicing physicians from 1500 a few periods ago to less than 400 in 2015. According to IOM reports, the brain drain in Africa cost more than $9 billion in human capital loss and development potential since 1996. Moreover, the United Nations Population Fund estimates that Africa only maintains less than 1.3 per cent of the total number of health care practitioners in the world (Kerr & Kerr, 2011). Therefore, despite having the highest number of people living with HIV/AIDS (PLWHA), there is only one nurse per 1000 patients in Africa (Malhotra, Margalit & Mo, 2013).

Conclusion

Migration has a wide range of economic effects, which affect both the host and home countries. Migration contributes to the growth of the host nation because most of the immigrants belong to the working age. In addition, they play a part in the advancement of technology through innovation and research (Manacorda, Manning & Wadsworth, 2012). Similarly, they facilitate the development of human capital. On the contrary, they utilize public services in education and healthcare, which have negative effects on growth (Ottaviano & Peri, 2012). For the home countries, they facilitate economic growth because they send remittances to their families. However, it can lead to brain drain, which refers to the transfer of expertise and knowledge from developing countries to developed countries (Malhotra, Margalit & Mo, 2013).

References

Artal-Tur, A., Peri, G., & Requena-Silvente, F. (Eds.). (2014). The socio-economic impact of migration flows: effects on trade, remittances, output, and the labour market. Springer.

Jean, S., & Jiménez, M. (2011). The unemployment impact of immigration in OECD countries. European Journal of Political Economy, 27(2), 241-256.

Kerr, S. P., & Kerr, W. R. (2011). Economic impacts of immigration: A survey (No. w16736). National Bureau of Economic Research.

Malhotra, N., Margalit, Y., & Mo, C. H. (2013). Economic explanations for opposition to immigration: Distinguishing between prevalence and conditional impact. American Journal of Political Science, 57(2), 391-410.

Manacorda, M., Manning, A., & Wadsworth, J. (2012). The impact of immigration on the structure of wages: theory and evidence from Britain. Journal of the European Economic Association, 10(1), 120-151.

Ottaviano, G. I., & Peri, G. (2012). Rethinking the effect of immigration on wages. Journal of the European economic association, 10(1), 152-197.