Immigration benefits us all – now the IMF gets in on the act

Only a short time after the Foged & Peri paper (summarised here) found that an “influx” of immigrants to Denmark benefited the both high-skilled and low-skilled workers in the local population, the IMF has examined whether or not those results apply to other advanced economies.

And, guess what? They do! Unsurprisingly.

In order to do so, the study uses a fairly nifty approach to accounting for potential reverse causation between migration and GDP per capita (since migrants might prefer moving to countries with higher GDP per capita in the first place). The study uses a “gravity model” to instrument for the share of migrants in a country, including various “push” factors (such as growth in the origin country, demographic variables etc.) and other controls, proving once again that describing something as “gobbledygook” just because you don’t understand it isn’t a particularly sensible thing to do.

The paper’s main findings are threefold. First, a 1% point increase in the proportion of population made up by migrants actually increases GDP per capita by 2%. Interestingly, this benefit arises via an increase in labour productivity, rather than an increase in the proportion of the population that is of working age.

For example, high-skilled immigrants can increase productivity through innovation and positive spillovers on native wages, while low-skilled workers can increase productivity by enabling native workers to re-train and move into more complex occupations (exactly as was found by Foged & Peri). An alternative mechanism cited by the IMF study suggests that the presence of low-skilled female immigrants increases the provision of household and child-care service, thereby increasing the labour supply of high-skilled native women. This result is robust to controlling for technology, trade openness, demographics, and country development.

Second, these benefits arise from both low-skilled and high-skilled migrants. As above, both skill-types affect GDP per capita through increasing labour productivity, rather than via increasing the proportion of the population that is of working age. However, the effect does appear to be more statistically significant for migration by low-skilled workers than it is for high-skilled migrants.

The study suggests that this difference could reflect differences in the impact of high-skilled migrants across different countries, but this seems unlikely to be sufficient to render the impact insignificant. More likely is the second reason posited by the study – namely, that high-skilled migrants initially might have to obtain jobs for which they are over-qualified, thereby meaning that their impact on the incentives of high-skilled native workers to retrain etc. is limited at first.

Third, the benefits to native workers arise across the entire income distribution. Both low-skilled and high-skilled immigration increase the GDP per capita of those in the bottom 90% of the income distribution by roughly the same amount, while high-skilled immigration increases the GDP per capita of those in the top 10% of the income distribution by roughly twice as much as does low-skilled immigration.

However, the study does not really examine the distribution within the bottom 90% particularly closely – the study just looks at the estimated impact of immigration on the Gini coefficient to conclude that the distribution within the bottom 90% would not be changed significantly. The study should, instead, have looked at, say, the impact of immigration on each decile or quintile of the income distribution separately so as to give a more complete picture of the impact of immigration across the income distribution.

The paper (and particularly the blog post linked to above) ends by getting somewhat more political. In particular the study suggests that there is a need for improvement in terms of providing support for native workers that want to re-train, find a new job etc. However, these policy suggestions are made without taking into account the fact that some countries do already have plentiful such schemes in place, to the extent that increasing the provision of such schemes in those countries might not be efficient. Of course, that’s not to say that some countries would benefit from increasing the provision of such schemes.

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