Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion An Incentive Mechanism to Break the Low-skill Immigration Deadlock David de la Croix and Frédéric Docquier IRES-UCLouvain May 26th, 2014 DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Research question I Paper on South-North migration I � 1.5p. of the pop. of the South I � 8.0p.of the pop. in the North (1.5p. in 1960) I Contrasting perceptions I Substantial gains for the South (lab. market, remittances) I Source of problems in the North (for 2/3 of natives) I What do we do? I Opening borders: alternative to aid but not politically feasible I Design coordination mechanism to break the gridlock (i.e. incite voters to host more LS immigrants) I Quantitative analysis: assess its potential e¤ectiveness DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Plan of the talk 1. Approach and contribution to the literature I Lit1 - Migration and global welfare I Lit2 - Political economy of immigration I Lit3 - Experimental economics: aversion to extreme poverty I Gains from coordinating immig. policies 2. Theory: design of the scheme 3. Quantitative Assessment DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Lit1 - Migration and global welfare I Positive approach: e¤ect of liberalization I Quantify e¤ect of partial/total liberalization on the world economy I From small (DMS: +10%) to huge e¤ects (Hamilton-Whalley: +150%) I Liberalization of low-skilled migration increase income in the South (Walmsley and Winters 2004, Pritchett 2006, Clemens 2011, etc.) I Normative approach: social planner’s problem I Benevolent planner max utilitarian SWF (Benhabib-Jovanovic) I Move many LS workers from South to North (2 bil.) I No concern for political feasibility!!! I We care about welfare in the South (objective) DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Lit2 - Political economy I Political economy framework explains restrictions I Survey data: 40-50% of voters in EU and US believe immigration reduces their income, want to decrease migration I Important issue for political parties (in Europe and USA) I Voters’ attitudes are endogenous I Facchini-Mayda (2008): attitudes a¤ect policy, depend on labor market and welfare state characteristics I Facchini-Mayda (2009): skill-heterogenous attitudes, depend on generosity of welfare bene…ts, tax rates/progressivity... (R 2 0.1-0.2) I Dustmann-Preston (2007): key role of the welfare state and xenophobic preference (non-economic factors) I No concern for global welfare!!! I We care about welfare in the North (impl. constraint) DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Lit2 - Political economy E¤ects of low-skilled migration permits on voters’ welfare I Economic e¤ects (income) I Labor market e¤ect I Fiscal e¤ect (welfare state) I Surplus I Non-econ e¤ects (residual) I Insecurity feelings I Trust, social K I Illegal migration I Xenophobic preferences I Aversion to extreme poverty!!! DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Lit3 - Experimental economics I Overwhelming evidence that households care about the worst-o¤’s (Charness-Rabin 2002-05) I Fehr and Schmidt (2006): conditions under which the maximin motive is key I Not important when players view each other as agents behaving strategically; I Highly relevant in the context of charitable giving or in the context of elections with a large number of people, where strategic voting is unlikely to occur (Aid, S-N migration) I We assume voters care about extreme poverty on Earth, to a small extent! I Note: same rationale operates if improving the situation of the worst-o¤ bene…ts to the donor DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion Lit3 - Experimental economics I Altruism (humanitarian motive) used to explain policies towards refugees (Hatton 2004, Hatton-Williamson 2006, Bubb et al. 2011) I What about economic migration? I 2006: IOM asked for EU development-friendly immigration policy I 2014: Obama asks for “altruistic immig policy” ( & deportations) I World Bank (David McKenzie): “improved labor mobility is by far the greatest way to give a leg up to low-income people around the globe [...] Allowing lower-skilled workers in is directly going to improve poverty in poor countries”. I And Prichett (2006), Clemens (2011), Winters (2012), etc. DdlC & FD Int’l Migration Fund
Approach and contribution Theory: Design of the scheme Quantitative assessment Conclusion In sum... I Despite aversion to extreme poverty, the richer have no incentives to welcome more migrants I The welfare of worst-o¤’s = public good: I When country j welcomes an additional migrant, income in source country increases I Everybody on Earth enjoys it (positive externality) but country j bears the cost alone I Use coordination gains to minimize extreme poverty I Secondarily, a taxation/subsidy scheme could help rich countries to internalize the externality DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Plan of the talk 1. Approach and contribution 2. Theory: design of the scheme 2.1 Environment 2.2 Nationalist allocation 2.3 No-regret allocation 2.4 Decentralization 3. Quantitative Assessment DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Environment I World made of J + 1 countries, I J developed (j=1...J) I The developing world (j=0) I Two types of national citizens: n j = n h j + n l j I The low-skilled supply raw labor ( l j ) I The high-skilled supply raw labor + human capital ( h j ) I They share another …xed factor ( k j ) I We model low-skilled migration from 0 to j ( m j ) 0 � m 0 1 J I In the South: n l DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Environment I Preferences in country j : � m j � 2 U s j = u ( c s + β u ( c l j ) 0 ) � ε j n j [ Altruism ] [ Econ ] [ Non � Econ ] I Production and surplus: y j = F j ( k j , h j ; l j ) = f j ( l j ) l j = l j ( n j , δ j m j ) f j ( l j ) � f 0 s j ( l j ) = j ( l j ) l j � � I High- and low-skilled citizens share the surplus 1 � ζ j , ζ j DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Environment I Consumption levels: j , 1 ( n j , δ j m j ) + ζ j s j ( l j ) c l f 0 j ( l j ) l 0 = + τ j j n l j j , 1 ( n j , δ j m j ) + ( 1 � ζ j ) s j ( l j ) � ( n l j + ξ j m j ) τ j f 0 j ( l j ) l 0 c h = j n h j c m f 0 j ( l j ) δ j l 0 = j , 2 ( n j , δ j m j ) + τ j ξ j j I In the South: c l 0 depends on m j and m i ( i 6 = j ) !!! 0 � m 0 1 J ) l 0 0 � m 0 1 J , 0 ) c l 0 = f 0 0 ( n l 0 , 1 ( n l DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Environment I Probabilitic voting set-up: I Smooth aggregation of preferences instead of median voter I Maximization of a "politcal objective function": n h n l j j U h θ j U l W j � j + j n j n j � 2 ! � m j n h n l n h j + θ j n l j j j u ( c h θ j u ( c l β u ( c l = j ) + j ) + 0 ) � ε j n j n j n j n j I Note that only natives have the right to vote! DdlC & FD Int’l Migration Fund
Approach and contribution 2.1. Environment Theory: Design of the scheme 2.2. Nationalist equilibrium Quantitative assessment 2.3. No-regret allocation Conclusion 2.4. Decentralization Environment De…nition (Country) A country j is a multiplet Ω j = f n h j , n l j , τ j , ξ j , θ j , δ j , ζ j , ε j g representing the size and skill structure of the population, the intensity of redistribution, the degree of political participation, the productivity of immigrants relative to low skilled nationals, the share of the surplus going to low-skilled natives, the scale of aversion to immigration, and functions f j ( . ) , l j ( . ) characterizing the production technology. DdlC & FD Int’l Migration Fund
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