Central and East European Migrants' Contributions to Social Protection

S. Maatsch

• Publisher: Palgrave Macmillan
• Year: 2012
• ISBN:
  9781137295811
• Topic: Negocios y empresa
• Subtopic: Negocios en general

In 2001 Germany and Austria became the last EU states to lift transnational controls restricting access to their labour markets for citizens of ex-communist countries. This book challenges anti-immigration discourses to show that given the high percentage of skilled immigrants, it is the sending rather than the receiving countries who lose out.

1

Who Migrates? Theory, Lessons from the Past, and Latest Data

Throughout the history of humanity, migration has always existed. People have been leaving their homelands for many different reasons: push factors such as famine, war, and persecution, but also pull factors like the gold rush or – more generally – the idea of ‘lands of opportunities’ (Salt, 1976, p. 80). Accordingly, there is not one, but many theories of migration spread across several academic disciplines (Bretell and Hollifield, 2008; Han, 2006; Gupta and Omoniyi, 2007). Economists tend to focus on mechanisms that are seemingly universal, that are detached from historical or regional context. The microeconomic theory of migration postulates that the decision to migrate simply depends on a comparison of discounted earnings at home and abroad and on possible costs associated with migration. At the same time, historians point to the distinctive features of each migration wave and are sceptical with regard to universal explanations (Bretell and Hollifield, 2008, p. 7). Geographers and sociologists point to the importance of established channels of migration and migrant networks in shaping the flows. Political scientists and legal scholars point to the importance of immigration policy and law. This is not limited to the necessary conditions for living and working in a particular country, but also the rights and duties of immigrants in different countries. Interestingly, despite the lack of a unifying theoretical framework, empirical models often use variables from different theoretical frameworks that have proven significant in the past.

The aim of this chapter is to determine the explanatory power of the microeconomic theory of migration with regard to post-war waves of migration in Europe. As we will see, macroeconomic and historical context as well as policy and legal aspects are essential to fully understand migration decisions. They explain why labour migration in Europe is not what it used to be some fifty years ago.

In order to explain the characteristics of a particular wave of migration, we need an idea of the applicable theories. In this book, we focus on the recent migration from Central and Eastern Europe to Western and Southern Europe that started in the late 1980s and lasts until today, and hence on the theories that help explain the movement of several million inhabitants in a relatively short period of time. While the civil war in Yugoslavia and the massive discrimination against the gypsy population in South-East Europe were crucial push factors in the early years (Koser and Lutz, 1998), since then most people have moved to find better employment opportunities and higher wages. Therefore, the economic theory on migration with its focus on monetary gains or purchasing power will be central to explaining and projecting post-1989 migration within Europe.

The microeconomic theory of migration

The economic theory of migration can be approached from two different angles. The perspective of the individual is addressed by microeconomic theory. It addresses questions like ‘Why do people migrate?’ and ‘Why do some individuals migrate and others stay at home?’ The macroeconomic theory of migration focuses on the societal impact of migration. It asks ‘What is the impact of migration on wages?’ or ‘Does migration increase the efficiency of the economy as a whole?’

Though the focus of the present book is on the macroeconomic impact of migration, the migration decisions will be modelled based on the microeconomic theory of migration. After all, whether migration is beneficial to at least one of the countries involved very much depends on the mechanism that defines who is moving and who is staying. Economic scholars agree that those who have the highest incentive to migrate are those who are most likely to do so. But who has the highest incentive? As we will see, this depends very much on one of the most fundamental and most contested features of microeconomic modelling: the shape of the utility function.

Imagine a setting in which there are only two regions to choose from for work and residence, East and West, and that wages are twice as high in West for all categories of employees. Certainly, in the absence of migration costs, everybody in East would have an incentive to move to West. But who has the strongest incentive? The most straightforward answer would be: those who gain most from moving abroad. In economic theory, we rather postulate that it is those who have the highest utility gain, and this is the gateway for ambiguity.

Suppose that the population of East is composed of individuals with different skill endowments, and that these skill endowments translate into different earnings both in East and in West. For simplicity, we assume that the skills are fully transferable to the West so everybody moving from East to West will earn twice as much. Whether this means that the high-skilled have a higher incentive than the low-skilled depends on the assumptions about the marginal utility of additional income.

Figure 1.1 depicts the utility gain from migration u_iM as a function of an individual’s skill endowments h_i, assuming that the income in West is higher by the same factor than the income in East for all skill levels. In the case of a linear utility function (constant marginal utility), the utility gain associated with emigration increases with skill endowments. When using the widespread logarithmic utility function, all individuals have the same incentive to migrate independently of their skill endowments because everybody doubles his or her income. If marginal utility decreases more strongly, then it is the low-skilled who have a stronger incentive to emigrate than the high-skilled – even in the absence of redistributive policies.

Of course, there are also costs associated with migration, and the economic theory of migration uses these costs to reach internal equilibria where the poorer region is not emptied completely. Here again, economists disagree about the form these costs take. They may take the form of lumpsums payable at the time of migration, i.e. monetary costs for changing residence. Others use costs to be borne as long as the individual lives abroad, e.g. costs for regular visits back home. Finally, some authors propose a constant disutility of living abroad connected with psychological factors like the separation from (parts of) the family or the difficulties associated with living in a foreign culture (see Bodvarsson and van den Berg, 2009, p. 7). While monetary costs can be borne more easily by individuals with a larger absolute income gain, hence favouring the migration of the high-skilled, the psychological disutility may be the same for all categories of migrants.

Figure 1.1 Utility gains from migration as a function of human capital endowment.

Source: Own illustration.

Against the background of these ambiguities nested in the microeconomic analysis of migration, it is hardly surprising that a vivid debate emerged between economists about whether it is the high-skilled or the low-skilled who have the highest incentive to migrate. The most prominent debate developed between George J. Borjas and Barry R. Chiswick (e.g. Borjas, 1999a; Chiswick, 2008; see Bodvarsson and van den Berg, 2009, pp. 81–8 for a summary). They took the perspective of the receiving states and argued about whether or not immigration was good for the United States. The sending states were concerned with the so-called ‘brain drain’, the out-migration of mostly high-skilled persons. Below we will briefly summarise the microeconomic foundations of each of these models.

Immigration into welfare states: the Borjas model

Borjas uses a probabilistic model based on the seminal work of Andrew D. Roy (Borjas, 1999b, pp. 1687–90). The major argument of the model is that the relation between earnings at home and abroad is not proportional. More specifically, Borjas assumes that¹

Where y_iE is an individual worker’s net income in the home country (here: ‘East’) and y_iW his income in the destination country (‘West’). The income can be decomposed into the average income

in each country and the individual’s personal deviation from the average income ε_iE and ε_iW. Before migration, the percentage deviation from the average wage is normally distributed in the home country. The same is true for the population of East if they would all move to West. The average wage and the variance would be different though. Migration costs are supposed to be proportional to earnings in the home country.² Borjas assumes that a person moves if the expected value of earnings abroad is higher than in the home country and if the difference is high enough to cover the migration costs.

The most important parameters of the model are:

the correlation between εiE and εiw, indicating whether those earning above average at home will also earn more than the migrant population’s average abroad;

the difference between

and

, indicating whether the inhabitants would earn more abroad than at home on average if they all moved to West;

the variance of the earnings distribution if the whole population stays and if the whole population moves

and a

, indicating – according to Borjas – the redistributive stance of each country.

Borjas goes on to show that if

=

, it is the correlation between the individual earnings at home and abroad which triggers the selection process. If this correlation is quite high and if the earnings distribution in the destination country is flatter than in the source country (i.e. the redistributive stance is lower), then the high-skilled will have the highest incentive to move and there will be a ‘positive selection bias’ with regard to skills. There will be a ‘negative’ selection bias if the correlation is high and if the redistributive stance in the destination country is higher. Finally, there is a special case in which those who migrate are from the lower end of the earnings distribution in the home country but will end up in the higher part of the income distribution in the host country. This is the case if the correlation between earnings at home and abroad is negative, or if the dispersion of earnings is similar in both countries but the correlation between earnings at home and abroad is less than perfect. In the latter case, those at the lower end of the earnings distribution may simply take their chance, hoping that they will be more fortunate in the destination country.

The results of the model hinge on its assumptions. Most notably, the assumption that migration costs are proportional to wages in the home country excludes the possibility that the high-skilled systematically gain more from migration in monetary terms than the low-skilled, even if the major incentive for migration is wage differentials between countries.³ However, the model is very useful in discussing a concept that is often neglected in economic models of migration: the transferability of skills. In Borjas’ model, it is measured by the correlation between the personal earnings at home and abroad. If knowledge is not transferable from the home country to the host country, those with the highest skills will lose most when moving, and they should therefore have the highest incentive to stay. Migrants will then be predominantly from the lower end of the skills distribution.

It has been noted, though, that there were many waves of migration in the past during which the high-skilled were over-represented among the migrants. Borjas explains this phenomenon with the discrimina...

Table of contents

• Cover
• Title page
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• Preface and Acknowledgements
• List of Abbreviations
• Introduction
• 1   Who Migrates? Theory, Lessons from the Past, and Latest Data
• 2   Are Welfare States Endangered by Migration? The Perspective of Economic Theory
• 3   A Model of EU Eastward Enlargement
• 4   EU Social Legislation and National Social Policies
• 5   Latest data: What Do We Know about the ‘New Migration’?
• 6   National Social Policies in the Light of the Eastern Enlargement
• Conclusions
• Appendix 1   Migration Data
• Appendix 2   Proofs
• Appendix 3   Regression Results
• Appendix 4   Definition of Labour Market Performance Indicators
• Legal Documents
• References
• Index