Monday, 24 October 2016

Departures: The Effects of Emigration

Intrigued by the recent crisis unfolding in Europe, and being a migrant myself, I wanted to learn more about the movement of people. There is the economic issue of the effects of a changed supply of labour, the social issue of demographic change and also the political issue of which policies a government will implement to control migration. Yet while we often think of how migrants affect the countries that they move to, it is also important to consider the consequences for the countries they leave behind.

People move because they have better prospects elsewhere. Labour is one of the four factors of production, which means that it is used as an input into the production of goods and services. Each different factor of production receives a different reward, and the reward for labour is wages. Thus higher wages abroad can signal to labour elsewhere that they should move their supply (of work) to where they can earn the most.

Conflict is another reason behind a person becoming a migrant. Recently Europe has seen thousands of people arrive onto its shores fleeing wars in Syria, Afghanistan and Iraq. Historically, refugees have generally headed to countries like Germany where the social benefits are high. The economics can also be seen when migrants choose to go to countries where they speak the language or can be aided by family and close friends. Easier assimilation tends to reduce the number of days of lost work, hence reducing the opportunity cost of a move.

One effect of emigration is that the country may start to see an increase in revenue from remittances. Hence these inflows could be seen as an injection into the circular flow of income of a country, as remittances may contribute to increased investment. Moreover, this could lead to increased consumption; and as this makes up about a third of aggregate demand, they could contribute significantly to increased economic growth.
Who receives the most? Courtesy of
Yet these are short term effects and also dependent on other factors. Both consumption and investment would be heavily dependent on a household’s marginal propensity (likeliness) to save. They would also be affected by erstwhile business and consumer confidence and the expectations that economic agents had for the future. As a general case consumers in Britain enjoy spending on goods and services but this may not be the case elsewhere. Furthermore, remittances can act as a disincentive to work, as they increase the income of a household without labour having to work. Consequently the quality of human capital in a country could deteriorate as people are able to spend more time on leisure.

It is mostly the young, working age population who move. Therefore remittances may benefit family members who may not be working, such as older parents who receive additional income and are able to properly support themselves in old age. This is especially positive as we live in a time when many states are feeling the ‘burden’ of providing for an increasingly ageing population.

The case of Eastern Europe

Migration from Eastern Europe to Western Europe occurred on a large scale after the reintegration of previously communist countries into the world economy. One main reason for this was their proximity to each other, and thus transportation costs were low. The 2004 and 2007 enlargements of the European Union, the latter seeing Bulgaria and Romania join the bloc, continued this migratory pattern. Over 20 million people have left the region in the past 25 years (IMF).

In the case of people moving from Eastern Europe, the more highly skilled aim to move to countries which they perceive as having stronger governance. Consequently this migration could lead to greater inequality in terms of institutions, as those who are more likely to campaign for change have moved away. Why Nations Fail highlighted the value of institutions, and in my opinion this could then have an adverse effect, both politically and economically, on the people left behind. Coupled with remittances, which act as a disincentive to work, the emigration of citizens has reduced both the supply and productivity of labour in Eastern Europe. We have also seen an increase in social spending in the aforementioned region.
Global Remittance Flows, courtesy of The Economist
Though I understand that emigration has its downsides, such as the exodus of highly-skilled labour reducing the ‘pool of talent’ in a country, I believe that the remittances can outweigh this. This is especially true for countries which may have weaker social mobility, with labour earning higher rewards abroad than they are able to at home. Alternatively many occidental countries are experiencing a ‘skills shortage’ and highly skilled workers from abroad would come and fill in this gap. Remittances could also lead to an increase in tax receipts i.e. consumer based tax receipts such as excise duties or a tax on demerit goods.
The permanence of migration is an important factor to consider. The post 1970’s trend of migration to the oil-rich Persian Gulf nations saw many people from different parts of Asia go to this Middle East region. However, as citizenship is near impossible to obtain, these migrants may be reluctant to invest in their host country and instead choose to invest more in the country they will go back to after their working life. Thus, to make the best out of emigration as a whole, I think that a home country must implement policies to entice emigrants to return.

Policies that increase productivity and improve the ease with which business can be done, such as reduced corporation taxes or better education programmes, would go far in achieving this. Social based policies would also be useful, such as allowing people to retain their nationality even when they gain a new one, or provide alternatives like the ‘Overseas Citizen of India’ scheme. This would ultimately benefit the home countries, both politically and economically, as people return with new ideas and innovations.

From a more social point of view, in an ever-globalised world, I feel that having the opportunity to emigrate can be likened to a freedom. My view is that this is the freedom to be able to go and make the best out of yourself and the labour that you can provide. It is an opportunity that is becoming increasingly available to more people as travel becomes cheaper. For this reason, emigration is also an inevitable phenomenon and I am eager to see how it will continue to affect countries in the future. 

Links to Further Reading

How had emigration affected Latin America by the early 21st Century? - The Economist

The labour market effects of emigration