Global Economics Eco 6367 Dr. Vera Adamchik

1. Global EconomicsEco 6367Dr. Vera Adamchik Intl Factor Movements and MNEs: Part 3

2. Outline • Summarize the various push, pull, stay, and stay-away factors that determine immigration, and introduce the role of immigration policy. • Describe immigration policy and history in the U.S. • To grasp the motivation for labor migration and its effects on participating countries.

3. Introduction • Just as capital moves in large volume across country borders, so too does labor. • As of 1999, for example, 24.6% of Australia’s force was born outside the country; for Canada, the figure was 19.2%, and foreign-born labor constituted 11.7% of the U.S. labor force. (“The Longest Journey: A survey of Migration,” The Economist, Nov. 2, 2002, p.4)

4. Between 1989 and 1998, about 1 million people per year entered the U.S. legally and 500,000 per year did so illegally; for the EU, the figures were 1.2 million and perhaps 500,000, respectively. • In both America and Europe, immigration has been the main driver of population growth. (“The Longest Journey: A survey of Migration,” The Economist, Nov. 2, 2002, p.5)

5. Determinants of labor migration

6. International migration is the movement of people from one country (the sending country)to another country (the receiving country)in which they plan to reside for some noticeable period of time. • Technically, the desire to migrate on the part of an individual depends on the expected costs and benefits of the move.

7. Push, pull, stay, and stay away factors The incentives that influence immigration fall into four categories: 1. Negative incentives that push people to leave a country; 2. Positive incentives that pull people to immigrate to another country; 3. Positive incentives that cause people to stay at home; 4. Negative incentives that cause people to stay away from a foreign country.

8. The immigration decision

9. Immigration into the U.S.: An Overview

10. Gross immigration rates into the U.S., 1820-2004, and Canada, 1852-2004

11. Waves of immigration to the U.S. • “Except for the Native Americans, everyone has immigrated or has ancestors who have immigrated from another country. There have been several waves of immigration over the course of United States history. The first wave began with the colonists of the 1600's and reached a peak just before the Revolutionary War in 1775. The second wave of immigrants occurred between 1820 and 1870. Almost 7 1/2 million newcomers entered the U.S. The third wave, between 1881 and 1920, was the largest wave of immigration. Almost 23 1/2 million people poured into the U.S. The most recent wave of immigration has taken place since 1965 with the passing of the Immigration Act of 1965 which abolished quotas based on national origins and produced major changes in patterns of immigration” (Cited from the “Immigration: Yesterday, Today and Tomorrow”, 2003).

12. In-class exercise • To learn more about the forces behind immigration and their impact on the immigrant experience, go to http://www.ellisislandrecords.org/immexp/wseix_4_3.asp . Click the time period you'd like to explore. It is entertaining and informative at the same time.

13. A nation’s immigration policy consists of the laws, regulations, and bureaucratic procedures that address the following questions: 1.Is immigration to be restricted? 2. If immigration is to be restricted, how many immigrants will be allowed to enter the country? 3. If the number of foreigners seeking to immigrate exceeds the number of immigrants to be allowed into the country, what criteria will be used to ration the scarce entry permits? 4. How many resources will be devoted to enforcing the immigration restrictions? 5. What methods will be used to enforce immigration restrictions? 6. How are immigrants to be treated compared to citizens of the country?

14. U.S. immigration policy The Six Questions: 1776-1875 1. Restrict: No restriction 2. How much: n.a. 3. Selection Criteria: n.a. 4. Control Effort: n.a. 5. Control Methods: n.a. 6. Foreigners’ Rights: Same as nationals

15. U.S. immigration policy The Six Questions: 1900 1. Restrict: Restrict Chinese, criminals, and people in poor health 2. How much: No restrictions on others 3. Selection Criteria: Racial criteria, interview and inspection at entry 4. Control Effort: Few resources applied 5. Control Methods: Border inspections, permanent agency to enforce immigration laws 6. Foreigners’ Rights: Reduced rights until citizenship was acquired

16. U.S. immigration policy The Six Questions: 1930 1. Restrictions: Country-by-country quotas 2. How much: Overall limit of 150,000 3. Selection Criteria: Country quotas not to exceed 2% of total number of that national origin already in U.S. 4. Control Effort: Stricter control of borders 5. Control Methods: Ellis Island, Angel Island, other border controls 6. Foreigners’ Rights: Reduced rights until citizenship was acquired

17. U.S. immigration policy The Six Questions: 2000 1. Restrictions: Restrict but increase the total number of immigrant visas 2. How much: Total visas issued approached 1 million per year by 2000 3. Selection Criteria: Variety of criteria, including family reunification, special skills, lottery, refugees, and investment. 4. Control Effort: Greatly increased expenditures for border control, monitoring of aliens, and processing of visas. 5. Control Methods: Border checks, required documentation, employer checks 6. Foreigners’ Rights: Limited rights until citizenship

18. Illegal immigration • Illegal immigration is immigration that involves disregarding a country’s immigration laws, regulations, and procedures. • Illegal immigration a result of the clash between policies and economic incentives. • U.S. census data for 2000 suggests there may be close to 9 mil. illegal immigrants in the U.S. (the most recent estimate is 15 mil.). • Illegal immigration does not only occur in developed economies; it occurs between all countries where there are substantial differences in economic opportunities.

19. Key U.S. legislation on immigration • The Chinese Exclusion Act of 1882 - The first legislation explicitly limiting immigration, this law was blatantly racist since it specifically banned only Chinese immigrants. • In 1891 legislation was passed creating the Office of Immigration, an agency that is today known as the Immigration and Naturalization Service (INS). • An immigrant processing center was established on Ellis Island in New York harbor in 1892 to enforce new health and moral criteria established by law. • In 1913 Congress reacted to the alleged “deteriorating quality” of immigrants and passed a law requiring that all immigrants be literate, which President Wilson vetoed. • A literacy law was again passed in 1917, and Wilson’s veto was overridden.

20. Key U.S. legislation on immigration • The 1921 Emergency Quota Act set strict limits on immigration for the first time. • It was followed by theJapanese Exclusion Act of 1924, which placed an outright ban on immigration from Japan. • The Immigration Act of 1924 limited immigration from any particular country to 2 percent of the number of descendants of immigrants of that nationality residing in the United States back in 1890. • Supporters of this latter law felt that by going back to the 1890 census the “traditional” ethnic makeup of the United States would be preserved. • In 1929, immigration law was amended to set an overall limit of 150,000 immigrants per year, divided among nationalities according to the ethnic makeup of the U.S. population as given by the 1920 census.

21. Key U.S. legislation on immigration • In 1965, when civil rights were a popular political issue, Congress passed the Immigration and Nationality Act Amendments of 1965. • This Act abolished the national quota system in favor of a new set of criteria for the granting of permanent resident visas. • The 1965 Act prescribed that 80 percent of the numerical limits were to be allocated to relatives of persons already living in the United States. [Critics call this process "chain migration.“] • The remaining were to be allocated to those with desirable skills and their family members. • Spouses and children of U.S. citizens were no longer subject to numerical limits at all.

22. In-class exercise Recently, a lot of attention has been devoted to illegal immigration to the U.S. The issues of legal immigration to the U.S. attract much less attention. However, some historians and economists believe that the recent U.S. Immigration Law adopted in 1965 was a terrible mistake. Listen to the NPR broadcast on the U.S. immigration law onhttp://www.npr.org/templates/story/story.php?storyId=5391395Is the 1965 U.S. Immigration Law skilled-based or family-based? How does this Law affect the composition of immigrants? How does it affect the composition of the U.S. labor force? Should the U.S. Immigration Law be changed? Why?

23. Key U.S. legislation on immigration • By the 1980s, illegal immigration in the U.S. was growing rapidly, which led to the Immigration Reform and Control Act of 1986 (IRCA). • This Act strengthened the Border Patrol and, for the first time, established penalties on employers who knowingly employ illegal aliens. • Employers were required to check the identification of their employees to verify their legal status in the United States. • IRCA also provided for a one-time amnesty for illegal immigrants by giving about 2.7 million illegal aliens living in the United States legal residence status.

24. Key U.S. legislation on immigration • Illegal immigration continued to grow despite the new measures. • Increased border patrols have had little effect on the number of people entering the U.S. illegally. • The requirement that employers verify citizenship may have done little more than induce a new industry producing all varieties of forged documents. • Even though the amnesty was advertised as a one-time event, prospective immigrants could also have interpreted it as a signal that the status of illegal immigrants may again be legalized in the future.

25. Key U.S. legislation on immigration • The Immigration Act of 1990 addressed the concerns about the decline in the skill levels of U.S. immigrants by reducing residence visas for unskilled labor and increasing visas for “priority workers.” • The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 set up a telephone clearing house for employers to verify the immigrant status of employees and expanded the Border Patrol. • The Personal Responsibility and Work Opportunity Reconciliation Act barred non-citizens from some types of public assistance. • In 2000 Congress authorized an increase in H-1B visas, which are temporary work visas for foreigners with talents and skills that are in short supply in the U.S.

26. Immigration and emigration by decade: 1901-1990(Numbers in thousands)

27. The table shows that from 1900 to 1990, the ratio of U.S. emigrants to U.S. immigrants was 0.31. However, in 1931-40 it was much higher (1.23). The 1931-1940 period witnessed the lowest inflow of immigrants into the U.S. Why? We know that the Great Depression began in 1929. Unemployment soared, in the United States it peaked at 24.9% in 1933. It remained above 20% for two more years, reluctantly declining to 14.3% by 1937. Real GDP fell by 29% from 1929 to 1933, and the US stock market lost 89.5% of its value. Thus, the data on the website are consistent with the theory that labor moves to find jobs or higher wages.

29. The number of immigrants had been steadily increasing since 1820 and reached its peak in 1900-1909 (wars and political unrest in Europe), then it declined to its lowest level in 1930-39 (the Great Depression in the U.S.), and since then it has been rising again, and in 1990-1999 it surpassed the 1900-09 historical record.

31. The U.S. can improve the net economic effects of immigration by skewing its admissions toward selecting young, educated, and skilled adults and away from less skilled persons. While this policy will improve the economic side of the immigration accounts, it may clash with other objectives such as reuniting families and providing humanitarian aid to asylees and refugees.

33. The graph illustrates that the composition of the major source countries changed dramatically since 1820. In 1820-1829, about 80% of immigrants came from Europe, in particular from Ireland, United Kingdom, and Germany. In 2006, the major portion of immigrants came from Asia (China), Europe, and America (Mexico).

34. Economic effects of labor movements

35. Motives for international labor migration • Some of the international labor migrations take place for non-economic reasons (motivated by the desire to escape political and religious oppression). • But most international migration takes place for economic reasons (motivated by the prospect of earning higher real wages and income abroad).

36. The economic implications of labor movements between countries can be observed most readily by using the labor supply and demand framework.

37. Labor-market effects of migration Sn+Smig

38. Effects of Migration • labor migration equalizes wages • increase in output and welfare in the U.S. • decrease in output and welfare in Mexico • net gain in world output due to higher VMP in U.S.

39. Costs and benefits of labor migration

40. Immigrant remittances • Immigrants usually transfer some income back to the home country. • In the year 2000 India received $9.0 billion from its citizens abroad, Morocco $2.2 billion, and Bangladesh $2.0 billion. (“The Longest Journey: A survey of Migration,” The Economist, Nov. 2, 2002, p. 11.) • In 2001 more than $23 billion flowed from the U.S. to Latin America and the Caribbean ($9.2 billion in Mexico). (K.O. Maggard, The Role of Social Capital Decisions of Mexican Migrants, 2004.)

41. Remittances to developing countries amounted to $93 billion in 2003. In general, these remittances more than exceeded the amount of foreign aid received by these countries. More specifically, these payments were equivalent to more than a quarter of GDP for several countries and more than 5% for many others. (“Monetary Lifeline,” The Economist, July 31, 2004, p. 66.)

42. In-class exercise • Read “Immigrant remittances” (handout).

43. International migration is a very complex and controversial topic. Despite a large body of research on this issue, it is not clear if the benefits of migration outweigh its costs. The following gains and losses are usually listed in economic literature:

44. Gains: • international labor migration re-allocates scarce labor resources to their highest value use, allowing maximal global production; • the receiving country (assumed to have a labor shortage) gains as immigration removes labor scarcity, facilitates occupational mobility and reduces wage-push inflationary pressure, leading to fuller utilization of productive capital, increased exports and economic growth; • for the sending country, emigration can reduce unemployment and boost economic growth through access to strategic inputs such as remittances and returning skills. The migrants, in turn, can benefit from higher wages and productivity in the capital rich receiving country.

45. Losses in the receiving country: • immigrants take away jobs from the local population; • immigration is driving down wages; • immigrants are a heavy burden on the receiving country’s social welfare system.

46. Unfortunately, no clear answer has been given to the question regarding benefits and costs of international labor migration. “Current knowledge about the benefits and costs of migration remains inadequate, diffuse and often confusing. The impressive volume of literature on the subject shows how complex and diverse the effects of international migration are and how difficult it is to make generalizations about the complex effects of international migration. Existing knowledge bases are fragile and fragmentary and, combined with the lack of an adequate theoretical or empirical framework, increase the difficulty of assessing these effects properly. This can also feed the politicization of migration issues and polarize the debate.” (“World Migration 2005: Costs and Benefits of International Migration”, Chapters 8 and 9).

47. In addition, judgments on the welfare and development implications of factor flows differ according to who is making the assessment and to the weights placed on various objectives. • As capital and labor mobility become more prominent in the world economy in the future, it will increasingly become necessary to investigate further the causes, the consequences, and the policy implications of the international movements of factors of production.

48. In-class exercise This BBC site on immigration is an excellent source of information http://news.bbc.co.uk/1/hi/talking_point/special/migration/  . All the materials are very interesting and enlightening. In particular, you can focus on the following: • “Economic arguments for and against the movement of people” under the “World Service Debates” title; • VIDEO “Open borders forum” under the “You Asked the Experts” title; • “Migration is a force of history” under the “Viewpoint” title.