The Economics of Immigration

Transcription

1 The Economics of Immigration

2 Örn B. Bodvarsson l Hendrik Van den Berg The Economics of Immigration Theory and Policy

3 Professor Dr. Örn B. Bodvarsson Department of Economics St. Cloud State University 720 Fourth Avenue South St. Cloud MN USA Professor Dr. Hendrik Van den Berg Department of Economics University of Nebraska P.O.Box Lincoln NE USA ISBN e-isbn DOI: / Springer Dordrecht Heidelberg London New York Library of Congress Control Number: # Springer-Verlag Berlin Heidelberg 2009 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publica-tion or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Viola-tions are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (

4 Preface The inspiration for this book came from a collaborative research project on immigration, begun in 2001, when we were colleagues at University of Nebraska- Lincoln (Bodvarsson was a Visiting Professor there in ). Our project dealt with the application of Say s Law to the supply of immigrant labor, meaning that when the supply of immigrant labor grows in an area, the new immigrants, being consumers, bolster labor demand and help to offset the lower wages they may bring about. Our test case was the seemingly obscure Dawson County, Nebraska, where the meatpacking industry experienced a relatively huge increase in Hispanic-born labor supply around We found for Dawson County this demand effect to be significant and our results for this test case generalizable to other, more prominent, test cases. This inspired us to study the famous Mariel Boatlift, where Miami s labor force grew suddenly by 7% due to the arrival of nearly 125,000 Cuban refugees in the spring of In that study, we showed that the Marielitos exerted a significant demand effect, which we argue helps to account for the stylized fact that the Mariel influx had a relatively benign effect on the Miami labor market. We had the privilege of presenting both studies at various conferences in the USA, Norway, Taiwan and Israel, and these studies have been published in Labour Economics and the Research in Labor Economics series (both studies are discussed in detail in this book). As we delved further into the literature on the distributional effects of immigration while doing our collaborative research, we kept looking for resources where someone pulled all the literature together and provided a synthesis of past research. We found not only that that part of the immigration literature lacked a synthesis, but so did the entire field of immigration economics. Graduate and advanced undergraduate students taking migration and labor courses need a reference that ties all the academic literature on migration together and fellow researchers inside and outside of Economics need a reference to satisfy their particular interests in migration. We thus chose to fill this void by writing a book ourselves! This book project began in 2005 and we have since journeyed through the many fascinating veins of literature on the determinants of migration, the characteristics of immigrants, the distributional effects of immigration, immigration policy, and other issues. It has truly been a labor of love for both of us. The aim of this book is twofold. First, more colleges and universities are now offering courses for graduate students and advanced undergraduate students on v

5 vi Preface migration. These courses are usually populated in Economics departments, but also attract interest from students in fields such as sociology, political science and geography. We have spoken with colleagues who have taught courses on migration and they tell us that, rather than just teaching articles, they very much prefer a reference that provides an expository survey and assessment of the literature. We aim to fill this need with our book. Second, economists, sociologists, political scientists and practitioners in other fields interested in immigration need the same type of reference and we hope that this book fills their particular needs. In the book, we cut a wide swath through the literature, sometimes highlighting and detailing particularly prominent studies. We hope that by using the book, the reader gets enough detail to gain a sufficiently strong understanding of the issues without having to read further, or that the reader gets enough detail to get a solid roadmap for taking a major plunge into the literature. To use a catchy phrase from the retailing arena, we view this book as being either a one-stop shopping resource for those who want a quick, but detailed exposure to the field, or a reliable resource for those who wish to navigate through what is a shopping mall of literature. After having completed the manuscript, we have also come to see this book as a source of research topics for economists and other social scientists. As in the case of many real shopping malls here in the U.S., there is not nearly as much variety or broad coverage of our needs as the sheer size of the mall suggests. The economics literature leaves many immigration questions unanswered. The reader of this book will thus find many exciting research opportunities. We have benefitted greatly from the advice, comments, insights and encouragement from many of our colleagues. We thank in particular our coauthor Joshua Lewer, who contributed substantially to our Mariel Boatlift reexamination study. We thank the many discussants of our papers at meetings of the Society of Labor Economists, European Association of Labor Economists, European Society of Population Economics, Western Economic Association International, Allied Social Science Association, Western Social Science Association, the Great Plains Center at University of Nebraska-Lincoln, and a special conference titled the The Economics of Immigration and Social Diversity, held at Bar Ilan University in Tel Aviv in We also thank participants at various seminars for their very useful comments. We, of course, thank our respective academic institutions, St. Cloud State University and the University of Nebraska-Lincoln, for funding our travel to the conferences. We also thank the Institute for the Study of Labor (IZA), where we are both research fellows, for helping to promote our work. And we thank Barbara van den Berg for her enthusiastic proofreading and corrections of various drafts of the manuscript. We reserve our most heartfelt thanks for the last, which is to our families, especially our wives Mary Bodvarsson and Barbara van den Berg, for their support, understanding, encouragement, love, and patience, as we put in the many hours preparing multiple drafts of this book. We dedicate this book to them. April, 2009 O rn B. Bodvarsson Hendrik Van den Berg

6 Contents 1 Introduction to Immigration Economics The Late Twentieth Century Immigration Explosion The Complexity of Immigration Not Everyone Likes Immigrants Economists Perspective The Determinants of Immigration Many Factors Discourage Immigration Considering the Full Set of Push, Pull, Stay, and Stay Away Factors Recent Shifts in the Economic Forces that Influence Immigration Immigration is a Complex Phenomenon A Brief History of Immigration Early Migrations Recent Immigration There are Many Types of Immigrants Not All Immigrants are Permanent Settlers Forced Immigration Some Immigrants are Difficult to Classify The Purpose and Organization of this Book References Part I Immigration Theory and Evidence 2 The Determinants of International Migration: Theory Chapter Overview The Theory of Internal Migration Pre-1960 Theory Ravenstein and Zipf The Modern Theory of Internal Migration Further Influences on Internal Migration The Economic Theory of Immigration The First Borjas Model Borjas 1991 Model vii

7 viii Contents Recent Extensions of the Borjas Model The Family or Household as the Decision-Making Unit Conflicting Interests and the Family Migration Decision Mincer s Model Family Migration as a Portfolio Decision Summary and Conclusions References Why People Immigrate: The Evidence Chapter Overview Regression Models of Immigration Empirical Models of Regional Migration The Gravity Model of International Migration Some Econometric Problems Related to the Gravity Model The Choice of Variables in Statistical Models of Immigration Three Examples Representing Income Differences Representing Migration Costs Representing Source Country Development Representing Immigration Restrictions The Empirical Evidence on the Determinants of Migration Evidence on Worldwide Migration Evidence on Migration to Groups of OECD Countries Evidence on U.S. Immigration Immigration to Other Countries Summarizing the Results Summary and Concluding Remarks The Power of Statistical Models The Way Forward References Who Immigrates? Theory and Evidence Chapter Overview Immigrant Selection: The Chiswick Vs. Borjas Debate Some Unfortunate Terminology The Chiswick View The Borjas Model A More Detailed Look at the Borjas Model Selection by Observed Characteristics Extensions of the Borjas Model Variable Migration Costs and Migrant Selection Credit Constraints and Immigrant Selection Family Migration and Selection Bias The Empirical Evidence on Immigrant Selectivity... 93

8 Contents ix Borjas Empirical Results Further Tests of Borjas Model Tests Based on Counterfactual Density Functions The Asymmetric Information Model Kwok and Leland s Model Restoring Symmetric Information The Theory of Immigrant Assimilation The Chiswick Study of Assimilation Potential Bias in Chiswick s Results Borjas Empirical Results Addressing Borjas Critique Conclusions References The Effects of Immigration on the Destination Economy: The Theory Chapter Overview The Macro Effects of Immigration Homogeneous Labor with Fixed Capital Homogeneous Labor with Variable Capital Heterogeneous Labor Heterogeneous Labor with Constant Capital Heterogeneous Labor and Perfectly Elastic Capital Supply How Big is the U.S. Immigrant Surplus? Detailing the Distributional Effects of Immigration The Johnson Model (1980) The Altonji and Card Model (1991) The Ottaviano and Peri Model Long-Run Adjustment Processes Internal Migration Responses Multiple Goods Choice of Technology The Demand Effect of Immigration The Demand Effect of Immigration Say s Law of Immigration Regional Migration and Local Demand A Few Models of Immigrant Demand Effects Bodvarsson and Van den Berg s Lexington Model The More General Case Further Models of Immigrant Demand Effects Concluding Remarks References

9 x Contents 6 How Immigration Impacts the Destination Economy: The Evidence Introduction The Spatial Correlation Method Cross Section Applications Dealing with Simultaneity and Spurious Correlation Recent Applications of the Spatial Correlation Method Applications of the Unexpected Exogenous Supply Shock Method The Mariel Boatlift Russian Immigrants in Israel Assessing the Spatial Correlation Method The Production Function Method Grossman s Pioneering Production Study Gang and Rivera-Batiz Assessing the Production Function Method The Skill Cell Approach Borjas Use of National Data versus Regional Data Ottaviano and Peri s Extension of Borjas Skill Cell Model Other Types of Labor Market Cells Concluding Remarks References Estimating Immigration s Impact: Accounting for all Adjustments 159 Chapter Introduction Does Immigration Trigger Internal Migration? Evidence That Immigrants Drive out Natives Evidence that Immigration has Little Effect on Native Migration Migration Biases Estimates of Immigration s Wage Effect Does Immigration Change Industry Structure? Measuring the Demand Effects of Immigration Hercowitz and Yashiv s Estimates Bodvarsson and Van den Berg s Lexington, Nebraska, Study Estimating the Demand Effect of the Mariel Boatlift Additional Estimates of the Demand Effects of Immigration The Costs of Government Services for Immigrants Recent Studies for the United States Are U.S. Immigrants More Costly Today than in the Past? Immigration s External Effects Economies of Scale

10 Contents xi Are There Negative Externalities Associated with Immigration? Concluding Remarks References Immigration and the Source Country Remittances and Demand Effects in the Source Country Demand Effects Immigrants and Remittances A Two-Country View of Remittances What We Know About Immigrant Remittances The Growth of Immigrant Remittances Remittances as a Percentage of Source Country GDP The Reliability of Remittance Data The Recent Data on the Growth of Immigrant Remittances Policies to Encourage Remittances How Remittances are used in the Source Countries Remittances: Tentative Conclusions Negative Externalities from Agglomeration Economies of Scale, Agglomeration, and Source Countries Agglomeration Causes the Source Countries to Shrink Immigration and Technology Transfers, Investment, and Trade Immigration and International Investment Immigration and International Trade Immigration and Services Trade The Brain Drain Human Capital of Immigrants The Brain Drain as a Development Issue How Big is the Brain Drain? Why Human Capital Flees Capital-Scarce Countries Brain Drain and Brain Waste A Reassessment of the Brain Drain Remittances Again The Brain Drain as an Incentive to Seek Education Conclusions References Economic Growth and Immigration The Early Models of Economic Growth Adam Smith s Broad View of Growth The Classicals and Diminishing Returns The Role of Immigration in the Classical Model The Simplistic Harrod Domar Growth Model

11 xii Contents 9.2 The Solow Growth Model A Graphic Representation of the Solow Model Immigration Similarly has no Long-Run Effects How an Economy Achieves Permanent Growth Immigration and Technological Progress Immigration and Technological Progress Joseph Schumpeter s Theory of Creative Destruction A Graphic Schumpeterian Model The Opportunity Costs of Innovation The Gains from Innovation The Equilibrium Level of R&D Activity Immigration in the Schumpeterian Model Immigrants as an Innovative Resource Immigrants Increase the Returns to Innovation Immigrants and Technology Transfers Protectionism, Creative Destruction, and Immigration Creation Requires Destruction The Holmes and Schmitz Model Growth Effects of Immigration in the Source Country The Overall Growth Effect of Out-Migration How Remittances are used in Source Countries The Brain Drain Again Summary and Conclusions Appendix: An Alternative Mathematical Schumpeterian Model A.1 Innovation and Profit A.2 The Equilibrium Level of Entrepreneurial Activity A.3 The Equilibrium Rate of Technological Progress References Part II Immigration Issues and Cases 10 Temporary Immigration, Involuntary Immigration, and Other Variations on the Standard Model Chapter Overview Return Immigration Return Immigration as a Response to Changing Circumstances Correcting Mistakes in Judgement Source Country Policies to Encourage Immigrants to Return Temporary Immigration The Multinational Corporation and Temporary Immigration

12 Contents xiii Temporary Immigration as a Destination Country Policy The Diversity of Temporary Immigration Analyzing Temporary Migration A Simple Model: Culture Clash versus Higher Income Other Determinants of Temporary Immigration The Role of International Trade Further Issues Related to Temporary Immigration Growth Implications of Temporary Immigration Temporary Immigration and the Ageing Problem Asylum Seekers and Refugees Refugees The UNHCR Asylum Seekers Involuntary Immigration A Model of International Slavery Other Oppressive Forms of Immigration Summary and Conclusions References Unauthorized Immigration Introduction Estimating Unauthorized Immigration The Residual Method Other Methods for Estimating Unauthorized Immigration How Many Unauthorized Immigrants are There? Some Characteristics of Unauthorized Immigrants The Economic Analysis of Unauthorized Immigration The Supply and Demand for Unauthorized Workers Unauthorized Immigration as a Form of Labor Market Discrimination Oppression of Unauthorized Workers Discussion of the Labor Segmentation Hypothesis Close Variations on Illegality Unauthorized Immigration can be Deadly The Fiscal Costs and Benefits of Unauthorized Immigration Unauthorized Immigration: Policy Options Border Controls Employer Sanctions Conclusions References

13 xiv Contents 12 Hispanic Immigration to the United States The Characteristics of Hispanic Immigration Assimilation Hispanics Slow Assimilation Further Reasons Why Hispanic Assimilation is Slow Perhaps It Is All a Data Problem Political Attitudes of Hispanic Immigrants Geographic Diffusion Networks and Herding Towards the South and the Midwest The Dispersal of Manufacturing Jobs and Immigrant Dispersal Explaining Hispanic Immigration The Welfare Effects on the Source Hispanic Countries The Demand Effects of Hispanic Immigration Future Hispanic Immigration Will Hispanic Immigration Continue? Temporary Immigration Programs Conclusions References Part III Immigration Policy: Introduction 13 Immigration Policy in the United States Chapter Overview Early Immigration Policy The Borders were not Entirely Open Assessing the Early Policies The Latter Half of the Nineteenth Century Religion and Immigration Growing Opposition to Immigration Spurs New Legislation The Chinese Exclusion Act Controlling the Border Immigration Remained Mostly Open Assessing the Early Policies The Shift in Policy in the Early Twentieth Century The First General Restrictions of Immigration The Post-World War I Shift in Policy Immigration During the Great Depression Immigration Policy During the War Post World War II Immigration Policy Policy Immediately After the War

14 Contents xv A New Immigration Law in The Economic Effects of the 1965 Act The Growth of Unauthorized Immigration Recent United States Immigration Policy IRCA After IRCA Summarizing Recent U.S. Policy Post 9/11 Immigration Policy Reform of the Immigration Bureaucracy and Enforcement Employment-Based Permanent Residency Temporary Work Visas Immigration Reform Stalls in 2006 and Summary and Conclusions References Immigration Policy in Canada Chapter Overview Overview of Immigration Policy in Canada Overview of Immigration and Population Growth in Canada The Early Years Late Nineteenth Century Immigration Summary of Nineteenth Century Canadian Immigration Policy Canadian Immigration Policy in the Twentieth Century The First Half of the Twentieth Century After World War II Comparing Immigration Legislation Canada s Immigration Policy Today The Canadian Point System Should Policy Discriminate in Favor of Highly Educated Immigrants? The Seven Questions in the Early Twenty First Century Some Final Observations References Immigration Policy in Europe Chapter Overview European Migration During the Colonial Era Colonial Regimes and Immigration The Nineteenth Century The Emigration Life Cycle European Emigration After World War I

15 xvi Contents 15.2 The Post-World War II Period Guest Workers The Post-Soviet Era Recent EU Immigration Policy The Interesting Case of Ireland Recent Immigration Policy in Spain Can Immigration Solve the Demographic Burden? Conclusions References Conclusions and Final Observations Chapter Overview Immigration: A Fundamental Economic Phenomenon We Must Think Outside our Little Boxes An Appeal to Holism Defining Holism The Economics of Immigration Must Embrace Holism The Holistic Approach to the Study of Immigration: An Example Developing International Institutions for an International Phenomenon The Global Commission on International Migration What is the Optimal Flow of Immigrants? Small Steps Towards Global Governance Final Comment References