On immigration – The Economist’s surprising structuralist turn

immigration airportHere is a useful extract from a recent piece in The Economist magazine on the economics of immigration. Surprisingly for this free market-oriented publication, which often emphasizes individual freedom in its analysis, they highlight the importance of structural factors in boosting the earning power of immigrants:

“Workers who migrate from poor countries to rich ones typically earn vastly more than they could have in their country of origin. In a paper published in 2009, economists estimated the “place premium” a foreign worker could earn in America relative to the income of an identical worker in his native country. The figures are eye-popping. A Mexican worker can expect to earn more than 2.5 times her Mexican wage, in PPP-adjusted dollars, in America. The multiple for Haitian workers is over 10; for Yemenis it is 15.

No matter how hard a Haitian worker labours, he cannot create around him the institutions, infrastructure and skilled population within which American workers do their jobs. By moving, he gains access to all that at a stroke, which massively boosts the value of his work, whether he is a software engineer or a plumber. ”

‘The best policy’, The Economist, March 18th 2017, p.74

This is interesting stuff, but it ignores the potential downside of one obvious implication of immigration: emigration. Those who leave poor countries for more remunerative opportunities elsewhere can in large enough numbers create a brain drain, reducing the supply of those who could make a real contribution to the development of their home country.

For me what this quote points to is the need for dramatically improved institutions, infrastructure and a greater division of labour in poorer nations, which together help create improved opportunities for the population; in other words, much of the essential nature of economic and social development. Individual emigrants may be much better off working in more developed nations, but this underlines the tragedy of the lack of development in poor nations across the world.

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