The migration of talent – global inequality or global benefits?

Much of the public debate on migration centers on the skill level of migrants. While receiving countries are concerned about low-skilled labor immigration and refugee flows, emigration countries fear that high-skilled workers will increasingly leave the country. Global migration flows indeed show a significant skill bias leading to a highly unequal distribution of global talent. Two IZA Discussion Papers analyze this development and contrast the problems of individual countries with the global benefits of migration.

Contrary to public perception, the migrant share of the world population has not changed substantially since the 1960s, with roughly 3 percent currently living in a country different from their country of birth. Global migration patterns, however, have become increasingly asymmetric as high-skilled migration has become a greater force globally. The international distribution of talent thus is highly skewed, and the resources available to countries to develop and utilize their best and brightest vary substantially.

High-skilled workers four times more likely to emigrate

The migration of skilled workers across countries tilts the deck even further, as Sari Pekkala Kerr, William Kerr, Çağlar Özden and Christopher Parsons conclude in an IZA Discussion Paper. High-skilled migration has increased at a larger rate than low-skilled migration. The approximately 28 million high-skilled migrants that were residing in OECD countries in 2010 represent an increase of nearly 130 percent since 1990, while low-skilled migrants increased by only 40 percent during that time. From the average sending country, tertiary-educated people are four times more likely to emigrate than less-skilled people.

The distribution of high-skilled migration is also heavily skewed. Four Anglo-Saxon countries (US, UK, Canada and Australia) account for nearly 70 percent of high-skilled migrants to OECD countries in 2010. The United States alone has historically hosted close to half of all high-skilled migrants to the OECD and one-third of high-skilled migrants worldwide. The globalization of economic ties is also leading to a rise in shorter-term and circular migration patterns for skilled labor. For example, executives of global corporations are often required to spend part of their careers abroad.

Simulating a world without skill-biased migration

So far, most studies on the economic effects of migration have considered single countries in isolation, for example analyzing the impact of immigration on the wages of U.S. or British workers, or the impact of emigration on growth in African countries. The IZA Discussion Paper by Costanza Biavaschi, Michal Burzynski, Benjamin Elsner and Joel Machado takes a global perspective by quantifying the welfare effects of the skill bias in worldwide migration in order to determine how much the world as a whole has gained or suffered from migration flows.

To assess how the skill bias affects non-migrants across the globe, the authors build a stylized model of the world economy that allows them to simulate what the world would look like with the same number of migrants but no skill bias in migration. As shown in the figure below, the skill bias in migration makes non-migrants in OECD countries better off.

figure_3

Global welfare effects of migration

In the current world, a larger number of high-skilled migrants live and work in the OECD, which leads to a higher per-capita income compared to a world in which all migrants have the average skills of their countries of origin. In the main sending countries (i.e. non-OECD countries), the average non-migrant loses from the skill bias in migration. Overall, however, the positive effect per person in the receiving countries exceeds the negative effects in the sending countries such that the global effect is positive.

Skilled migration improves the global allocation of talent

This analysis shows that, from a global perspective, skill-biased migration is a good thing. More high-skilled migration means that talent is allocated more efficiently across the globe. A higher number of productive people are working in countries where they can be most productive, which increases global welfare.

Some observers may be worried about the negative effects in the sending countries. But the effects displayed here represent a worst-case scenario. They are based on the authors’ most conservative model. But there are additional channels at work, through which sending countries might benefit from skilled out-migration. Migrants contribute to their home countries’ development through money (remittances) or technology transfers. Once the authors account for these channels, most sending countries benefit as well, and the global effect becomes even larger.

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Mental health affects employment outcomes – and vice versa

depressionDepression, which is the focus of this year’s World Health Day, is also an important topic for labor economists as mental health and employment outcomes are inherently intertwined. People with poor mental health have lower levels of economic activity, lower earnings, and less stable employment. On the other hand, employment difficulties can undermine mental health; many who struggle to find meaningful work or who lose their jobs will experience poorer mental well-being as a result.

Mental health issues: cause or consequence of poor labor market outcomes?

A new IZA Discussion Paper by Melisa Bubonya, Deborah A. Cobb-Clark and David Ribar uses nationally representative data to estimate how transitions into and out of depressive episodes affect subsequent employment outcomes, including participation, employment and unemployment. Further, the authors address the potential for the reverse relationship to exist by estimating how changes in employment status affect the chances developing severe depressive symptoms. Their aim is to shed light on the interplay between depression and the labor market, which is particularly important because the appropriate policy responses depend on whether depressive issues are a consequence or a determinant of poor labor market outcomes.

Men’s mental health more closely tied to employment outcomes

The findings show that severe depressive symptoms lead to economic inactivity by reducing labor force participation and employment, and increasing the likelihood of unemployment. Severe depressive symptoms are also partially a consequence of economic inactivity. Interestingly, the results show larger effects for men than women, indicating that men’s mental health is more closely tied to their employment outcomes than is women’s. Further, men seem to be more responsive to the shock of a bad event — either the onset of a depressive episode or the onset of unemployment. In contrast, women appear to be more affected by prolonged depressive symptoms.

The results imply that reducing the economic costs of mental illness is a challenge that is best tackled from both sides: improving mental health by promoting economic activity, minimizing employment disruptions and shortening unemployment spells, and reducing the barriers to employment and providing positive work environments for those with mental health issues. The results also call for a gendered approach to these policies.

Download the paper (IZA DP No. 10653):

The economics of mental health

menal illnessA recent IZA World of Labor article by Richard Layard stresses that mental illness accounts for half of all illness up to age 45 in rich countries, making it the most prevalent disease among working-age people (see figure). Since mental illness costs billions in welfare payments and lost taxes, Layard argues that better treatment would more than pay for itself.

Download more IZA Discussion Papers on the topic

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IZA Journal Series merged into three high-quality journals

In 2012, IZA launched a series of five open-access online journals in cooperation with SpringerOpen to provide a high-quality, peer-reviewed outlet characterized by a fast decision-making and publication process. By now, the IZA Journals have become well-established in the scientific community. All five journals are listed in the Scopus series. The Australian ABDC index ranks the IZA Journal of Labor Economics as an A journal. Two journals are being evaluated for inclusion in the Thompson Reuters index.

izajournalsThese successes notwithstanding, it is time to look at potential improvements, both in terms of quality and in terms of costs, which have so far been covered fully by IZA. Based on valuable feedback from the members of the IZA research network, it was decided to merge journals with a similar focus and continue with three instead of five journals. All previously published and forthcoming articles will be accounted for within the newly merged journals, thus ensuring that the authors’ investments are preserved.

As of April 1, 2017, the IZA Journal of Labor Policy and the IZA Journal of European Labor Studies will be merged into the IZA Journal of Labor Policy. The new JoLP is strategically positioning itself more explicitly towards policy relevance. The other merger will affect the IZA Journal of Labor & Development and the IZA Journal of Migration, which will become the IZA Journal of Development and Migration. Its focus will be on labor and migration in the context of economic development and vice versa. The IZA Journal of Labor Economics will remain as is.

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Revitalizing the EU requires new reforms that build on past successes

#EU60Sixty years after the Treaties of Rome, the European Union faces several contemporary challenges on both the political and economic front. With the staggering blow of the 2008-2009 recession, followed by the sovereign debt crisis in the Eurozone, and recent political developments which have seen the growth of anti-EU sentiments and extreme right-wing parties, even culminating in one Member State leaving with the Brexit referendum, the EU must come to terms with these phenomena by not only evaluating areas in need of potential reform, but also by effectively highlighting its successes.

Five recent IZA policy papers seek to examine various policy dimensions and propose reforms to not only enhance the perception of the EU, but also find ways to encourage the development of an EU identity as means of creating an economic and culturally vibrant Europe.

A New Deal for the EU is needed to confront economic challenges

During the sovereign debt crisis, Europe experienced several asymmetric shocks. Capital flight, a contraction in domestic demand, and a deterioration in public finances radically changed the landscape of the euro area and reversed much of the convergence in income per capita that had been achieved during the first decade of the common currency.

In a recent IZA Policy Paper on “Sustainable Euro Area with Exit Options,” Jo Ritzen and Jasmina Haas criticize the Five Presidents’ Report for relying too heavily on high international economic growth and assuming the permanence of such a trend would continually smooth the convergence in labor productivity between EU Member States. Furthermore, the high debt levels of many EU countries have placed a strong drag on economic growth. In spite of this varied success across the economic zone, support for a further transfer of sovereignty on financial policy and for debt mutualization to the EU level remains low.  Thus, the authors propose a New Deal for the EU, which, in exchange for debt-mutualization for highly indebted countries, would establish an automatic exit from the Euro area in cases of non-compliance with the agreed rules.

Besides the problem of debt overhang, Ritzen and Haas see the economic convergence and cohesion in the EU threatened by a stagnation and even a decrease in the rule of law and in control of corruption in several EU countries. In order to counter the centrifugal forces reinforced by Brexit, in their IZA Policy Paper “In Europe We Trust?” Ritzen and Haas propose new treaty revisions, in particular creating the possibility of individuals to appeal to European courts, to counter negative developments in governance in EU Member States. Also a strengthening of the European Court of Human Rights and tracking funds on the level of the Member States are proposed.

Upgrading policies on mobility will strengthen the EU

The importance of a free movement of people and workers, one of the core principles of the EU, is highlighted in the IZA Policy Paper on “EU Mobility,” authored by Ritzen, Haas, and Martin Kahanec. The paper emphasizes that earlier apprehensions about the possible negative consequences of free mobility, particularly the risk of immigrants crowding out less educated workers and the potential of welfare migration, by and large turned out to be refuted. In contrast, there were overwhelming benefits for EU citizens in both the countries of origin and the countries of work. But despite this success, fears and issues remain, and there is still a need for a significant deepening and upgrading of EU mobility policies, especially with respect to fighting fraud, cutting red tape and managing the integration of circular mobile migrants.

In addition to upgrades in intra-EU migration, Ritzen and Kahanec argue in “A Sustainable Immigration Policy for the EU” that many improvements can be made to create a more sustainable policy for immigration coming from outside the EU. A selectively managed immigration policy based on the employability of potential immigrants, putting more attention on integration alongside stricter measures to fight discrimination, and screening asylum-seekers in refugee camps near conflict areas will create a more effective system while at the same time help to quell growing fears.

One of the key benefits and successes of a borderless EU, explained in an IZA Policy Paper on “European Identity and the Learning Union,” are student exchanges within the EU. By enriching inter-European understanding, these programs are one of the most important contributors to a European identity. The authors (Jo Ritzen, Jasmina Haas, Annemarie Neeleman, Pedro N. Teixeira) propose two policy measures to improve the already fruitful endeavor: Firstly, European student mobility should be increased by enhancing the transparency of the actual value added in undertaking studies in higher education in different EU countries. Secondly, if education policies across Europe follow strong principles to promote effective schools, increase school autonomy and allocate sufficient funding, basic education could increasingly be a source of intra-European social cohesion, equality of opportunity and of economic growth.

In addition to benefits in creating social cohesion across Member States, intra-EU migration may also play a key role on the economic front. While traditional macroeconomic policy tools have appeared to be toothless in addressing the dire need for more convergence within the euro area, politicians and researchers alike have turned their focus back to European labor mobility, an issue that received substantial attention in the early days of European monetary integration but has since been largely absent from public debate.

Labor mobility can help cope with asymmetric shocks across the EU

As an alternative to macroeconomic policy tools, labor mobility can act as a crucial adjustment channel. In “Labour Mobility and Labour Market Adjustment in the EU,” Alfonso Arpaia, Aron Kiss, Balazs Palvolgyi and Alessandro Turrini (European Commission and IZA) assess the extent to which mobility flows have been influenced by the EU integration process and evaluate its interaction with labor market developments.

The findings reveal that asymmetric labor demand shocks in Europe are mostly felt by impacts on unemployment, labor market participation and real wage adjustments. Over the period 1970-2013, only about one quarter of asymmetric labor demand shocks were absorbed by labor mobility over the following year.

However, the authors argue that there might be some scope for improvement for a bigger role of labor mobility. Cross-country mobility flows in the EU are still much lower than those recorded in other highly integrated economic areas and well below mobility within countries, notably with respect to the United States. Nevertheless, an upward trend in mobility is visible in the EU, and this is not only as a result of enlargement.

Euro area membership does not seem to increase mobility per se, but it is estimated to make mobility more sensitive to different unemployment levels across Europe. Workers appear more ready to move from countries where unemployment is high to those where it is lower. The evidence also reveals that labor mobility flows among the fifteen countries that were EU members before 2004 have increased since the mid-2000s, on top of what is explained by the normal development of “fundamentals.”

The paper was published in the IZA Journal of Migration:

Download the policy papers by Ritzen et al. here:

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The gender pay gap: Discrimination or structural differences?

IZAWOL.16.gaBy Solomon W. Polachek

Women earn less than men. In the US the gap is approximately 22%. Among OECD countries the gap averages 15%. One might argue this indicates rampant discrimination. But the story is far more complicated.

Many women earn more than men, and for those that earn less, the gap is not uniform. For 55–64 year olds in the US the gap is close to 25%, yet for 16–24 year olds the gap is just 5%. For single-never-marrieds the gender gap is about 5%, but for married men and women the pay gap is almost 23%. Children exacerbate the gap between 2% and 10% per child, and the gap is even bigger when children are spaced widely apart. In contrast, the median salary for full-time young single women in a number of metropolitan areas exceeds men’s by over 8%.

These same patterns persist across most countries. The gender wage gap for marrieds is between 3 and 30 times greater compared to singles. Similarly children widen the gap.

If discrimination were the reason, then one would need a theory about why employers discriminate less against young childless women employees, but so much more against older and married women.

Perhaps the explanation isn’t gender discrimination, but lifetime work commitment. Work patterns also differ by gender, marital, and child status. In 1970 US married men’s labor force participation rate was 86%; married women’s was 40%. In 2010 it was 76% for married men and 61% for married women. For singles these gender differences are much smaller. In 1970 the labor force participation rate was 66% for single men and 57% for single women, and in 2010 they were 67% for single men versus 63% for single women. Even today, many women still drop out to raise children. Studies indicate many are hesitant to work long hours. In short, single men and women accumulate experience at roughly similar rates, but married women accumulate far less labor market experience than married men.

One cannot overemphasize the importance of work continuity. Dropping out is costly. Earnings power depreciates up to 5% for each non-work year. Those who expect to drop out tend to enroll in less job-related schooling and to take jobs with less training and lower earnings growth. The same is true for those who seek shorter work hours and smaller commutes.

Over the last century female lifetime work increased dramatically, while male lifetime work has declined moderately. Concomitant with this gender work convergence is a decline in the gender earnings gap from approximately 70% in the early 1800s to the current 22% in the US. Similar patterns hold in other countries.

Policies consistent with promoting greater female lifetime work effort have reduced the gender wage gap. One such policy is making day care more available. An analysis by the OECD finds smaller gender wage gaps in countries with greater day care enrollment. Lower marginal tax rates that encourage greater participation of women in the labor force would work in the same direction.

Related IZA World of Labor article:
Equal pay legislation and the gender wage gap, by Solomon W. Polachek

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Women’s lower wage sensitivity

Another IZA World of Labor article by Boris Hirsch (Leuphana University of Lüneburg and IZA) points to recent studies finding that imperfect competition in the labor market can account for a large part of the unexplained wage gap. The gap thus reflects “monopsonistic” wage discrimination—that is, employers exploiting their wage-setting power over women—rather than any sort of prejudice.

Hirsch argues that many women, due to domestic responsibilities, tend to care more about commuting times or working hours than salary offered. While equal pay legislation may help prevent employers from exploiting their wage-setting power, Hirsch recommends addressing the sources of women’s limited wage sensitivity by investing in additional and better childcare or enforcing more flexible working time arrangements.

Gender gap in leadership positions

Gender wage gaps are most pronounced in leadership positions. As Mario Macis (Johns Hopkins University and IZA) explains in his article, this is due to a combination of economic forces, cultural and social norms, discrimination, and unequal legal rights. Apart from social justice concerns, these gender disparities are economically  inefficient because they imply a sub-optimal allocation of female talent.

Gender differences in competitiveness

A common explanation of the gender pay gap is that attitudes towards competition differ between genders. Mario Lackner‘s (Johannes Kepler University Linz) article references laboratory and field experiments finding that women are more reluctant and less aggressive when it comes to initiating negotiations or applying for jobs with negotiable salaries.

According to the article, such differences in competitiveness are formed at young ages and are relatively persistent, exerting a profound influence on an individual’s future career. Consequently, policy measures should be targeted at early childhood education and education systems in general. The driving forces of this ‘competitiveness gap’ are, however, still under debate. Moreover, closing the gender gap in competitiveness might not be desirable under all circumstances, as men are often found to be overconfident and over-competitive.

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How the origins of language structures may help explain current economic outcomes

A growing literature in economics has demonstrated that grammatical features of languages influence our economic decisions. For example, whether or not a language makes a clear-cut distinction between present and future (while an English speaker uses a future marker as in “it will rain tomorrow,” a German speaker can simply rely on present tense as in “it rains tomorrow”) may affect intertemporal choices with regard to savings or retirement.

But why do languages differ in grammatical features such as tense, gender or politeness distinctions in the first place? New research by Oded Galor (Brown University and IZA), Omer Ozak (Southern Methodist University), and Assaf Sarid (University of Haifa) published in a recent IZA Discussion Paper argues that these differences can to a significant degree be explained by differences in historical economic and geographic circumstances – crop return, variation in agricultural productivity across genders, and ecological diversity – several hundred years in the past.

Crop return predicts the existence of a future tense

Languages differ in the structure of when and how they mark future events by whether speakers have to adjust a verb when talking about the future. For example, French speakers are required to change the form of the verb when changing a statement from the present (“Il fait froid aujour d’hui” (It is cold today)) to the future (“Il fera froid demain.” (It will be cold tomorrow)). Languages like this, which grammatically distinguish between present and future, have what is known as an inflectional future tense. By comparison, in Finnish, the present tense is used in reference to both the present (“Tänään on kylmää” (Today is cold)) and the future (“Huomenna on kylmää” (Tomorrow is cold)).

future-tenseIn an economic sense, possessing an inflectional future tense is believed to indicate an on average lower long-term orientation. The researchers argue that a long-term orientation is a cultural trait that should be inversely correlated to crop returns. In regions with high historical crop returns, people were able to rely on contemporary food production and thus would have had to care less about the future.

Results relating pre-1500CE potential crop returns to the existence of a distinct future tense confirm this hypothesis:  The higher the historical crop return in a geographical area, the less likely languages in this area developed a future tense.

crop-returnHistoric language development affects current economic outcomes

But do language structures indeed transmit pre-industrial crop returns into economic behavior today? Results focusing on second-generation immigrants in the US suggest there is such a long-term effect. Immigrants speaking a mother tongue with inflectional future tense display lower probabilities of attending college by 4 percentage points, indicating indeed a lower long-term orientation. Thus, the study by Galor and his colleagues sheds light on very long-run interlinkages between pre-industrial variation in geographical features, language structures and (current) economic outcomes.

Download the paper (IZA DP No. 10379):

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Decoding attitudes towards migrants

The recent political success of right-wing populists in the US and in many European countries is often attributed to a surge in anti-immigrant sentiments among broad parts of voter populations. Researchers, however, have struggled to understand the development of these hostile attitudes. What are key drivers and determinants? Can misperceptions be tackled? These questions are addressed in several recently published IZA Discussion Papers.

muslim_populationEmpirical data suggest that voters are often blatantly misinformed about the facts of immigration. As an example, the chart above shows a high degree of misperception among people worldwide about the share of Muslims living in their country. Similar figures have been found for over-estimations of immigrant proportions in general.

The good news is, people are willing to update their perceptions in response to newly provided factual information. This is the finding of an IZA Discussion Paper by Oxford economists Alexis Grigorieff and Christopher Roth with Diego Ubfal (Bocconi University, IGIER and IZA), who have studied whether providing official statistics about immigrants affects people’s attitude towards them.

The researchers designed an online survey for the US in which all 800 respondents were asked to estimate a range of figures regarding immigrants, which they wildly overestimated: share of immigrants (estimated 22% vs. correct 13%), of illegal immigrants (14% vs. 3%), of unemployed immigrants (22% vs. 6%), of incarcerated immigrants (13% vs. 2%) and of non-English speaking immigrants (33% vs. 8%).

Information about immigration positively affects attitudes

Half the sample was then provided with the correct figures followed by a continuation of the survey and further questions about attitudes and policy preferences. The information turned out to have a strong effect on self-reported attitudes: Respondents provided with factual information were 30% more willing to donate to a pro-immigrant charity. However, the effect does not extend to political behavior, as no difference was reported with regard to signing a petition asking for more Green Cards (permanent residence permits).

Those most affected by the new information were those most worried about immigration. Providing information displays a larger effect on Republicans than on Democrats. A follow-up survey a month later showed that the information effect persists.

Public information campaigns have a powerful impact

A second recent IZA Discussion Paper similarly demonstrates the power of information to counter misperceptions about immigration. Giovanni Facchini (University of Nottingham and IZA), Yotam Margalit (Tel Aviv University) and Hiroyuki Nakata (University of Leicester and RIETI) look at how broad information campaigns can decrease public opposition to immigration. They analyzed results from a large-scale experiment conducted in Japan, a country with widespread anti-immigrant sentiment. The researchers randomly exposed a large national sample of citizens to information pertaining to potential social and economic benefits from immigration.

The findings reveal that the campaign led to a substantial increase in support for a more open immigration policy and motivated citizens to take political action in support of this cause. Notably, while smaller in magnitude, many effects also persisted 10-12 days after the information was distributed, which highlights the potential value of public information campaigns to combat negative attitudes towards foreigners.

Minority salience influences extremism

Attitudes towards immigrants, however, do not form on externally provided information alone. People also become more aware of immigrants by being exposed to their cultural and religious practices in public life. The IZA Discussion Paper by Tommaso Colussi, Ingo E. Isphording and Nico Pestel investigates how a change in “salience” of Muslim communities in German municipalities influences voter behavior, potentially increasing the level of political extremism. The researchers use unique data on the construction of mosques and election results in municipalities over the period of 1980-2013.

The results indicate that the presence of a mosque increases residents’ political divergence from the political center. The negative effect of the presence of a mosque increases strongly if an election is scheduled right after the holy month of Ramadan, a period in which mosques happen to be much more visible to the general public due to extensive festivities and openly displayed religious practices. The findings show that vote shares for both far right- and left-wing parties become larger when the election date is closer to Ramadan. In addition, the change in visibility of the minority population increases the likelihood of politically motivated crimes against Muslims.

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