This essay is concerned with the economic impact of emigration on the population of the receiving country, the USA. The analysis considers the effect of emigration on the level and distribution of income of the population of the country under alternative assumptions as to the characteristics of the immigrants and public policy regarding both emigration and income transfers. Among potential economic migrants, those selected on the basis of their likely productivity in the destination will tend to have a more favorable impact than immigrants selected under rationing mechanisms based on kinship (the primary criteria) or a first-come, first served system.
During 20th century, emigration was on of the main problems for many developed countries around the world. There is a presumption that the immigrants themselves gain from the emigration, where “gain” is defined broadly to include not only money income but also country-specific consumption, personal safety, and freedom. Indeed, there would be no emigration if the immigrants themselves did not expect the benefits from moving, net of the costs and risks inherent in the migration, to exceed the benefits from remaining in the place of origin. Public policy, often useful as a guide to actual impacts, may not be useful in this instance. The impact of emigration on the economic well-being of the native population of the receiving country and the remaining population of the sending country is less obvious, thus it is more favorable that the impact on refugees coming to the USA each year.
At various times, the USA has promoted or discouraged either immigration or emigration. In addition, political factors often unrelated to, or contrary to, apparent economic self-interest have determined immigration and emigration policies (Friedman 38). The virtual prohibition for nearly a century of emigration into the United States of persons of Asian origin and Israel’s policy of encouraging the emigration of Jews, no matter how poor, aged, or unskilled, are but two examples of emigration policies motivated by noneconomic considerations. In recent years, the expulsion of persons of South Asian origin from several East African countries and the restriction on emigration from the Soviet Union are two examples of emigration policies dictated by political considerations. Critics admit that (Djajic 54) the emigration has raised the aggregate income in the receiving country, but it has also increased the number of workers. The emigration of unskilled workers widens the wage differentials between the two types of labor, increases the return to capital relative to the wages of the unskilled, raises the aggregate income of skilled workers and capital, and reduces the aggregate income of native unskilled workers. If the ownership of capital is concentrated, overall income inequality is increased. The emigration increases the return to investments in both physical and human capital (Friedman 38). Unskilled native workers have a greater economic incentive to invest in schooling and on-the-job training, although this may be mitigated by the greater difficulty of self-financing human capital investments because of their lower level of wealth. This lowers wage differentials between skill levels and lowers the aggregate income of the native-born skilled workers but raises the income of unskilled workers and capital (Jonas 6). The emigration of unskilled workers can increase the aggregate income transfers in two ways. First, the immigrants themselves may qualify for benefits. Second, as the emigration depresses the wages of unskilled workers, a larger proportion of native unskilled workers qualify for some benefits, and some of those already receiving benefits may receive a larger transfer (Djajic 101).
In general, if immigrants are not included in the income transfer system, the increase in the aggregate income of the native population means that appropriate income redistribution policies can be devised to transfer some income from the native groups that gain, to the native groups that lose, so that no native group loses from the emigration. The welfare and tax systems can be the mechanism for this transfer (Djajic 107). This cannot be accomplished, if the immigrants themselves are to be substantial recipients of income transfers, that is, if they receive an income substantially in excess of their productivity. Even if immigrants are not recipients of any net income transfers, unskilled immigrants decrease the earnings and employment of unskilled native workers, thereby increasing the aggregate resources that flow through the income transfer system. The increased administrative costs and the adverse labor supply and capital formation effects of an enlarged tax transfer system reduce the aggregate net output of the native population. Thus, the optimal level of emigration would be largest if the immigrants are skilled, smaller if they are unskilled but do not receive net income transfers, and smallest if they are unskilled and receive income transfers on the same basis as the native population (Ashby 677).
Refugees take longer to reach the earnings of the native born, if they ever catch up. Apparently this arises from the weaker transferability of their skills and the less intense favorable self-selection of refugees. This implies a less favorable net economic effect on the native population of refugees than of economic migrants with otherwise similar characteristics (Ashby 677). Refugees are admitted, however, primarily for noneconomic reasons, such as humanitarian considerations and promotion of U.S. foreign policy objectives. Under current U.S. law, less than 10 percent of the immigrant visas issued each year are allocated on the basis of the person’s skills or economic opportunities in this country. Nearly 90 percent of the visas are issued on the basis of kinship with a U.S. citizen, resident alien, or kinship with a new immigrant entering under the kinship, refugee, occupational, or nonpreference categories. Even the small number of immigrants who receive an occupational preference visa for their skills are not selected on the basis of their productivity in the United States. Indeed, it is difficult to rationalize the favorable treatment under current regulations of persons with advanced degrees in physical therapy and dietetics compared with others whose skills are more highly rewarded in U.S. labor markets. The economic success of a cohort of immigrants, and their favorable impact on the income of the native population, would be even greater if (nonrefugee) visas were issued primarily on the basis of the person’s likely productivity in the United States rather than nearly exclusively on the basis of kinship criteria (Jonas 6).
Although workers tend to raise the overall income of the native population, the incomes of native workers that are close substitutes in production for immigrant labor decline, while the incomes of other factors of production increase. If the emigrants are not substantial recipients of income transfers either owing to their high level of skill or to denial of access to these benefits, income redistribution programs can be designed to transfer resources from the native groups that gain to the native groups that lose, so that after the transfers no native group loses by the emigration (Friedman 92). This cannot occur, however, if the immigrants themselves are to be substantial recipients of these transfers, whether they are welfare benefits, social services, or social overhead capital financed prior to the emigration. Skilled immigrants tend to raise the level of income of the native population, reduce income inequality, and are not likely to be substantial recipients of income transfers (Djajic 66). It is perhaps for this reason that several countries have developed guest-worker programs under which unskilled foreign labor can work for limited periods of time, but the participants are not eligible for most income transfers and are not permitted to bring their dependent family members. The effect of immigrants on the native population changes with their duration of residence, as they acquire more skills specific to their country of destination. That is, as the average skill level of the immigrants relative to the native population rises the longer the duration of residence, the immigrants have a smaller adverse effect (or a larger favorable effect) on the wages of unskilled native workers, and they make smaller use of income transfers for the poor (Djajic 87).
In sum, emigration because of economic reasons are likely to have a more favorable impact on the native population than refugees of the same demographic characteristics and level of schooling, as the former tend to have higher earnings. This situation presumably arises from the greater international transferability of skills and the more favorable self-selection in terms of labor market ability and motivation for personal economic advancement among economic migrants. Refugee preferences and the emphasis on kinship are included in the emigration policies of many countries because of humanitarian and foreign policy objectives and domestic social and political considerations.
Works Cited
Ashby, N. J. Economic Freedom and Migration Flows between U.S. States. Southern Economic Journal, 73 (2007); 677.
Djajic, S. International Migration: Trends, Policies, and Economic Impact. Routledge, 2001.
Friedman, B. The Moral Consequences of Economic Growth Vintage Books: New York, USA, 2005.
Jonas, S. Reflections on the Great Immigration Battle of 2006 and the Future of the Americas. Social Justice, 33: 6.