1 Across emigration countries it is the most educated that are more - PDF document

Returns to education and welfare magnets: what attracts skilled migration in Europe? Héctor Cebolla-Boado & María Miyar-Busto Abstract : This paper analyzes the potential of a number of pull factors in attracting highly skilled migrants. To do so we built a unique dataset combining information on the flows by level of skills from 18 European countries with a large list of proxies of pull factors. Specifically, using country fixed effects we predict the absolute number of migrants with tertiary education credentials arriving over time (between 1999 and 2013). Our analysis reveals that wages are, by and large, the most important factor attracting skilled migration flows. Other indicators of factors such as the rate of unemployment or the degree to which the economy is innovative are much less relevant. Social expenditure attracts more skilled migrants There are also bases to argue that fiscal pressure shrinks the flow of the most wanted migrants, particularly when they do not necessarily have the intention of staying in the long term. Keywords : Immigration, high skilled migration, pull factors, returns to education, welfare. JEL Codes : J11,J15, J6. 1

Across emigration countries it is the most educated that are more likely to engage in international migration (Dao et al. 2016). Since the start of the century, highly skilled migration represents an increasingly large component of global migration streams (Widmaier and Dumont 2011). Recent estimates suggest that the number of tertiary educated migrants in the OECD increased by 70% in the last decade to reach 30% of all migrants in the OECD (UN-DESA 2013) and that nations compete fiercely to attract them. According to migration experts, in the medium term Europe will need as many high skilled migrants as it has now, if not more (Kahanec and Zimmermann 2011). The increasing relevance of the ICT sector in contemporary economies also seems to increase the demand for highly skill workers (Michaels, Natraj, and Van Reenen 2013). Furthermore, the most educated migrants are the most wanted type of migration by national public opinion worldwide (Helbling and Kriesi 2014). In the context of this competition, many developed countries take explicit actions to clear access for highly skilled migrants (HSM) into their territory. Yet, the international evidence on the most relevant factors that effectively help to attract skilled migrants is to some extent inconclusive. Much has been said about the role of immigration policies (Chaloff and Lemaitre 2009; Papademetriou, Somerville, and Tanaka 2008; Czaika and De Haas 2013), with a supply driven (points-based) system being more effective than the alternatives (Czaika, Parsons, and others 2015). In his analysis of 14 OECD countries from 1980 to 2005, (Peri 2009) concludes that even though on average these advanced economies passed an average of two reforms reducing the access of immigrants to benefits available to citizens, they also passed about 2.5 laws on skilled migration. Meanwhile, there is an extensive literature depicting HSM as income-maximizers. As a consequence, returns to education and the cost of migration are seen as determinant pull factors in the sorting of HSM across countries. Canada, the US, New Zealand and Australia together with the UK, appear to be the most successful players in the global race for talent (Kerr et al. 2016). In this paper we look at the non-immigration policy related determinants of highly skilled migration to a selection of European countries. With the exception of the UK, European countries appear to lag behind other advanced economies in attracting HSM and in developing efficient tools for attracting the most talented migrants (Cebolla Boado et al. 2016). Our paper provides evidence on the sorting of HSM across European countries, a region that is under-represented in our literature of reference. We also go beyond the traditional description of returns to education related to pull factors, which dominate the literature on HSM, and bring in factors linked to the welfare configuration of destination countries (public spending and taxation), which are predominantly described as drivers of mid and low skilled as well as welfare migration. Our contribution is also empirical since we have built a macro level dataset merging information from the European Labor Force Survey (Eurostat) on the percentage of immigrants with higher education arriving to European countries per country and year with Eurostat data on the corresponding total number of inflows to build the dependent variable. It includes a wide range of country level characteristics that may work as pull factors from the OECD databases. 2

The paper is organized as follows. We first review the literature analyzing the role of returns to education and welfare in attracting migration and HSM, from which we produce a number of theoretical expectations. We then present our dataset and the methods, before proceeding to the presentation of our empirical results. A final concluding section summarizes the multiple results and develops the implications of our research. What attracts highly skilled migrants? The number and educational composition of migrants arriving to different countries differ widely by space and time (Grogger and Hanson 2011; Frederic Docquier and Marfouk 2004) and the challenges that migration represents for destination countries obviously vary depending on the skill composition of the flow (Nathan 2014). HSM, a flow leaded by entrepreneurial individuals (Zucker and Darby 2007; BENSON 2010), is supposed to have largely positive effects on destination countries (Regets 2001), decreasing inequality (Aydemir and Borjas 2007) and lowering levels of social spending (Giulietti and Wahba 2012). Highly skilled migration also boosts the levels of innovation in receiving economies (Aghion et al. 2012) while expanding high value knowledge intensive productive sectors (Nathan and Lee 2013) and exports (Frédéric Docquier and Rapoport 2008; Peri, Requena, and others 2009) as well as preparedness for international investment (Pandya and Leblang 2012). The arrival of more skilled migrants also promotes ties with foreign research institutions, improves technological exportations and expands the higher education system (Borjas and Doran 2012). Research has also identified negative consequences associated to HSM in origin (Boeri 2012) and destination, whereby the reduction of wages that it could create may disincentivize the educational investment of natives (Kerr and Kerr 2011; Borjas and Doran 2012). In the light of these massive benefits, the clarification of pull factors for HSM remains a dynamic field of enquiry. At the risk of oversimplifying complex traditions, there are two broad streams of elaboration on pull factors: the returns to human capital and the effect of welfare systems. It has been suggested that differences in returns to education explain most of the earnings divergence between migrants and autochthonous workers (Lam and Liu 2002a; Lam and Liu 2002b). The idea has been widely accepted since the seminal model developed by Roy (1951), which suggests that the direction and size of the selection of migrants depends on the educational returns obtained in sending and receiving countries. Borjas (1987) further developed this model suggesting that negative selection of migrants happens in poor and unequal sending countries and positive selection when the distribution of income is more dispersed in the destination rather than the origin country (a finding also confirmed in Parey et al. 2015 and Stolz and Baten 2012). It is a well-known regularity that international migration decisions respond to earnings differences (Bertoli et al. 2013; Stolz and Baten 2012; Ozcurumez and Yetkin Aker 2016) and especially to returns to education (Gould and Moav 2016; Fan and Yakita 2011), even if highly skilled migrants dot not 3