Migration trends and economic development

Continued slowdown and the re-orientation of international investment and trade flows across the global economy are having a direct impact on international migration.

The key trends underpinning this are manifold, but they share a common thread: as demand for higher quality human capital accelerates worldwide, benefits of more open and less costly immigration are rising as well.

Drivers of change

The first pathway through which migration flows are changing is the global economy’s gradual shift away from reliance on physical capital as the source of value-added and productivity growth and toward growth dependent on total factor productivity and human capital. This trend started in the late 1990s and the early 2000s and has been persistent ever since.

The evidence for this trend comes from greater demand for skills and entrepreneurship around the world, not only in the traditional migrant destinations of the advanced economies of Europe, North America and Australia-New Zealand, but also in the emerging markets. It is also evident in the growing share of labor and total factor productivity in driving GDP and GDP per capita expansions.

Another channel opened up with the structural growth slowdown across many advanced economies since the beginning of the century.

The overall decline in economic growth rates, higher levels of youth unemployment, and longer on-the-job tenures for older employees in a number of advanced economies incentivize younger and higher skilled workers to move to new markets where their skills, talents, creativity and ability and willingness to take risks as employees and entrepreneurs are better rewarded in terms of pay and career growth opportunities.
Percentage-of-total-migrants_Chart.jpg
Chart 1

Chart 1 shows that this channel operated within European states even prior to the onset of the global financial crisis. Even in 2008, migration of younger workers in Europe was clearly more closely linked to education and job markets opportunities secured prior to leaving their country of origin. Older cohorts showed a higher propensity to move opportunistically or for reasons other than employment or education opportunities. See Chart 1

Other data highlights the fact that the secular economic slowdown across the EU, is also forcing increasing numbers of skilled workers to enter less traditional destinations outside Europe, including the emerging and middle-income economies. Based on Eurostat data, since 2010, we are witnessing net outflows of highly educated younger employees from Spain, Portugal and Ireland, as well as continued outflows of higher-skilled workers from Italy to Africa, Latin America and Asia Pacific.

This is coincident with, for now emerging, global trends.

Prior to the mid-1990s, only 2 percent of global migration flows took place from the developed ‘Northern’ to the emerging ‘Southern’ economies. Today this share is closer to 5 percent and for some countries and sub-regions in excess of 10 percent.1  Some 48 percent of global migration today involves flows of people either into or between the ‘Southern’ economies. In contrast, flows of migrants from the emerging economies to developed economies accounts for just 40 percent.

In 2012, the number of work permits granted to foreign nationals in Brazil stood at 73,022 – up 70 percent on 2009 levels. Most migrants came from the U.S., the Philippines, Haiti and the U.K. In China, the number of foreign residents rose 35 percent over 2000s, with migrants coming predominantly from South Korea, the U.S. and Japan. In 2008 and 2009, 107,000 EU residents moved to Latin America, dominated by outflows from Spain, Germany, the Netherlands and Italy. Migration to Africa more than doubled for residents of Spain and Ireland.2

The above data is supported by evidence from the broader European continent. As chart 2 indicates, inward migration has slowed down in recent years in the Euro area and remained high in the advanced economies outside the EU. At the same time, Eastern and Central Europe continued to suffer from high rates of net emigration – a trend that is contrasted by rising inward migration into Turkey and Russia. See Chart 2

Average-Rates-of-Net-Migration_Chart.jpg

War for talent

Based on research from McKinsey Global Institute (2015), during the period from 1964 to 2012 productivity growth was associated with employment growth in roughly nine out of 10 years across the advanced economies and in eight out of 10 years in the developing economies.3

Over the next 50 years, according to the same research, employment level contribution to growth in per capita GDP is set to turn negative across all developed economies.

In contrast, only two of 11 major emerging economies (China and Russia) will experience the same. The only G20 economies that are expected to increase their GDP per capita growth rates over the next 50 years – India, Turkey, Nigeria, South Africa and Argentina – all will require simultaneously positive contributions to growth from both employment level expansion and productivity growth acceleration compared to the previous 50 years.

In simple terms, the world is facing a twin productivity and demographic challenge that is accelerating global competition for talent. As a result, migration flows are already experiencing radical changes.
Prior to the onset of the global crises in 2008, migration largely followed established patterns: ‘brains’, or more correctly high quality human capital, from the developing ‘South’ moved to the developed ‘North’ in search of better quality of life and greater prospects for career development.
 

Countries with high growth and more meritocratic institutions – such as the U.S., Canada, Australia, New Zealand, the U.K. and Ireland, but also Germany and France, the Netherlands, Belgium and Sweden – all have experienced massive inflows of talent and skills.

Growth sectors, primarily construction, services, ICT and other modern sectors, such as pharma, technology-intensive manufacturing, broader science, technology, engineering (STEM) areas and financial services all rely on growing ranks of foreign employees.
 

And this is true of both emerging and advanced economies. Government’s focus on targeting inflows of skilled workers in the above sectors signifies the intensity of this competition. If in the 1990s such policies were formulated primarily in the advanced economies, today countries like Poland, Chile, China, Brazil, Russia, Indonesia, and even Azerbaijan and Kazakhstan are putting in place structured policies to attract skilled migrants.

For example, in Ireland, share of migrants in total workforce rose from 13.7 percent in 2006 to over 14.7 percent in 2014, despite a large jump in overall unemployment in the economy. At the same time, shares of migrants working in skills-intensive sectors, such as ICT, financial services, professional, technical, scientific and healthcare occupations rose from 8.7 percent to 11.6 percent in 2014, as shown in Chart 3.

Chart-3.jpg
See Chart 3 

Win or lose: The benefits game

The key benefits of immigration arise from four sources: human capital imported by foreign migrants into host countries, improved labor productivity (including in part from reduced unit labor costs) in the host countries, better access to new markets due to availability of native talent in the exporting economies, and foreign entrepreneurship.

Benefits for the countries that are net exporters of migrants accrue from capital and income remittances from abroad, from resulting capital deepening of economic development, and from return migration of more skilled and better experienced workers.

Take, for example the issue of remittances. In 2012, remittance payments into Spain amounted to €5.9 billion, into Portugal €2.45 billion and to Ireland €570 million. In Ireland’s case alone, remittances are equivalent to offsetting close to 20 percent of economic losses arising from the government policy of austerity in that year.

But measuring the less tangible benefits of migration, such as the effects on total stock of human capital in both receiving and sending countries, is much harder.

Data from the U.K. statistics office revealed that during the 12 months through September 2014, net long-term migration – the difference between immigration and emigration – to the U.K. was around 298,000, marking a statistically significant increase of 70,000 year on year. In total, 624,000 people immigrated to the U.K. over the same period of time. Amongst them, migrants from outside the EU and inside the EU both showed significant increases of 49,000 and 43,000, respectively.4

At the same time, a new study from the University College London found that today, some 10 percent of highly skilled (as measured by their numeracy skills alone) residents of Britain are emigrating.5

This outflow is being more than replaced by the inflows of lower skilled migrants. But, for every highly skilled incoming migrant, the U.K. now attracts six low skilled ones.
 

The UCL study showed that the new wave immigrants were six times more likely to have never held a job than the average native-born. Based on the UCL analysis, some 4.7 million U.K. nationals reside abroad, and each year on average 300,000 more move overseas from the U.K.

In other words, the U.K. may be at risk of exporting higher quality human capital than it imports.

Such an imbalance, if confirmed, would be more reflective of the select few Eastern European countries rather than the traditional paradigm that saw higher skills inflows into the developed economies in the past. Based on OECD data, traditionally, advanced economies were the attractors of migrants with higher than native average education attainment in the past.6

Growth is not enough

If in the past flows of skilled migrants between countries was driven by simple economic growth factors, today it is increasingly determined by more complex forces.

To see this, consider Poland. On the surface, Poland offers tremendous opportunities for career advancement and skills development that should make it, if not attractive to foreign immigrants, at least able to hold on to its own skilled workers. In reality, it does not.

Poland’s GDP has doubled over the last 10 years and the country has managed to escape both the global financial crisis and the great recession. However, Poland is now experiencing a decline in its working age population. Hundreds of thousands of younger Polish workers, with above average education and an aptitude for entrepreneurship and professional careers, have resettled abroad.

Of these, 60 percent were living in the U.K., Ireland and Germany. Based on Eurostat data, only 0.2 percent of Polish residents (20 times less than the EU average) are non-citizens. Today, Poland ranks third from the bottom, after Romania and Bulgaria, in the share of residents with foreign background across all European Economic Community states.

The reported educational background of Polish migrants suggests that their diaspora in the U.K. is comprised predominantly of highly educated younger workers, while migrants to Germany were dominated by less educated manual workers. Immigration of Polish nationals to Ireland was at first dominated by those entering lower-skilled construction jobs, with later waves of movers including higher proportion of better educated workers.

Incidentally, this evidence is also collaborated by the studies that show that the U.K. has traditionally attracted higher quality immigrants than Germany and that the differences in quality of migrants attracted helps explain significant differences between estimated net cost of immigration in Germany and net benefits to immigration in the UK.7

The problem of knowing

The above observations say several things about important issues of measuring the trends in migration and the benefits and costs of migration. These are rarely discussed comprehensively in the media and political debates.

Migration flows are co-integrated: both flows of skilled and unskilled workers share common drivers, such as economic growth opportunities, and institutional designs, but also respective cultures in both origin and host countries. This means that benefits and costs of two migration flows are hard to separate and identify in the aggregate data.

And the quality of human capital is a much broader concept than measures of educational attainment of migrants and their past work tenures allow for. For example, a migrant with a degree from a top-ranked Western university has a different productivity potential than a migrant with a higher level degree from the low-ranked emerging market’s university.

Furthermore, a migrant with no degree and prior experience can still have higher quality of aptitude, risk-taking abilities, creativity and plain hunger to succeed than a migrant or a native-born resident with all the ‘correct’ measurable attributes, such as job tenure or formal education. The U.S.-based Ewing Marion Kauffman Foundation documents scores of studies showing the importance of immigration in creating and supporting entrepreneurship, including the role of less educated migrants in creating new enterprises. Similar evidence can be found in Ireland.8

Beyond the measurement of human capital quality, both push and pull factors determine migration flows in volumes and direction around the world. And they do so simultaneously. Push factors include the sending country’s quality of economic institutions, which underpins the ability of younger, more ambitious workers to excel in their careers, engage in entrepreneurship or attain a higher quality of life in return for their talents. The recipient country’s migration system is another push factor depending on the acceptance and rejection rates of migrants and selection biases.

Pull factors include differences in quality of life and opportunities for self-advancement between the host and home countries, historical and cultural proximities and more.

With all of these factors simultaneously interacting in driving the patterns of migration, it is virtually impossible to tell precisely, in the short run, the types of long term changes that are occurring in the global flows of people.

Still, rapid acceleration in international competition for higher quality human capital, as well as some emerging new evidence suggests that the migration flows of the past that saw ever -rising inflows of skilled and highly educated migrants into advanced economies are now being challenged by the growing attraction of the emerging economies.

As younger Western workers seek more rewarding opportunities for careers and personal advancement, the demographically impaired Western economies, and most acutely Japan and Europe, will have to rethink their decades-long model of economic development.

Higher taxes, glass ceilings on promotions for foreign workers, often non-meritocratic migration systems and hiring, as well as cultural parochialism in business development and access to financing are now increasingly presenting a barrier for attracting, retaining and enabling the high quality human capital base in a number of Western societies.

Whether the social democracies of Europe want this or not, these barriers will have to be lowered one day.
 

ENDNOTES:

  1. 1 See http://emn.ie/media/2.EMNDublin14June2013LACZKO_IOM1.pdf. Note: some studies identify the range of North-South migration to be between 3 and 6 percent: see http://www.iom.int/cms/en/sites/iom/home/what-we-do/migration-policy-and-research/migration-policy-1/migration-policy-practice/issues/june-july-2013/northsouth-migration-a-different.html . UN report from 2013 also confirms the figure of 6 percent for North-South migration here: http://www.un.org/en/ga/68/meetings/migration/pdf/International%20Migration%202013_Migrants%20by%20origin%20and%20destination.pdf   
  2. ibid
  3. McKinsey Global Institute (2015): “Global growth: Can productivity save the day in an aging world?” January 2015, http://www.mckinsey.com/~/media/McKinsey/dotcom/Insights/Growth/Can%20long-term%20global%20growth%20be%20saved/MGI%20Global%20growth_Executive%20summary_January%202015.ashx 
  4. See study report here: http://www.ioe.ac.uk/newsEvents/111748.html 
  5. See study report here: http://www.ucl.ac.uk/news/news-articles/1113/051113-migration-report. Note: UCL study results also cast doubt over the official statistics as to whether measured characteristics really reflect the skills that are being assessed. For more on this, see http://www.pieria.co.uk/articles/immigration_and_the_uk_labour_market 
  6. See http://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/ozden.pdf  
  7. See CESIfo “The EEAG Report on the European Economy”, 2015, number 14 Chapter 4. http://www.cesifo-group.de/ifoHome/policy/EEAG-Report/EEAG-Report-on-the-European-Economy.html  
  8. See http://www.atlanticphilanthropies.org/sites/default/files/uploads/report-migrants-irish-economy.pdf 
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