The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries

IZA Journal of Development and Migration, Sep 2014

In recent years, the economics of migration literature has shown a substantial growth in papers exploring host country impacts beyond the labour market. Specifically, researchers have begun to shift their attention from labour market and fiscal changes, towards exploring what we might call ‘the wider effects of migration’ on the production and consumption sides of the economy – and the role of high-skilled migrants in these processes. This paper surveys the emerging ‘wider impacts’ literature, including studies from the US, European and other countries. It sets out some simple, non-technical frameworks, discusses the empirical findings and identifies avenues for future research. JEL codes G23; G24; J15; J61; L5; L26; M12; M13; O31; O32; R11

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The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries

IZA Journal of Migration The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries Max Nathan In recent years, the economics of migration literature has shown a substantial growth in papers exploring host country impacts beyond the labour market. Specifically, researchers have begun to shift their attention from labour market and fiscal changes, towards exploring what we might call 'the wider effects of migration' on the production and consumption sides of the economy - and the role of high-skilled migrants in these processes. This paper surveys the emerging 'wider impacts' literature, including studies from the US, European and other countries. It sets out some simple, non-technical frameworks, discusses the empirical findings and identifies avenues for future research. JEL codes: G23; G24; J15; J61; L5; L26; M12; M13; O31; O32; R11 Immigration; High-skill migrants; Innovation; Entrepreneurship; Investment; Trade; Productivity; Cities 1. Introduction Skilled migrants are becoming an increasingly important element in global migration flows, especially to more developed nations. Between 2000/1 and 2010/11, for example, OECD countries saw total migrant stocks rise by over 20% to about 100m people. During the same period, the number of tertiary-educated arrivals rose by 70%, over three times faster than the global count, reaching 27.3m in 2010/11 (UN-DESA, OECD 2013). Skilled migrants now comprise nearly 29% all migrants in OECD countries, up from 24% in 2000/1. These shifts seem to be structural; during the past two decades the US and many European countries have experienced not just one-off migration ‘shocks’ but continuous ‘waves’, leading to permanent changes in population and workforce composition (Vertovec 2007). In turn, this has prompted many researchers to look beyond the short-term impacts of migrants on the labour market (about which we know quite a lot) towards longer term, dynamic effects on the rest of the economy (about which we know much less). In recent years, the economics of migration field has seen a rapid rise in studies exploring what we might call ‘the wider effects of migration’ – and the role of high-skilled migrants in these processes (Chiswick 2005; Huber et al. 2010b; Kerr and Kerr 2011; George et al. 2012; Hanson 2012; Lewis 2012; Nathan 2012a; Kerr 2013). ‘High-skilled migrants’ are usually defined in terms of formal qualifications (education to degree level or beyond). In other cases the focus is on occupations requiring advanced training (scientists, engineers, researchers and other professionals). Alternatively, human capital is defined in terms of attitudes and soft skills (entrepreneurial drive and aptitude) as well as qualifications. Nesting high-skilled migration within models of long-term economic development (Lucas 1988; Romer 1990) helps identify some potential ‘wider impacts’. For instance, migration may pre-select entrepreneurial individuals who contribute to new business formation, or ‘stars’ who generate new ideas (Bonacich 1973; Borjas 1987; Zucker and Darby 2007; Honig et al. 2010). For firms, diverse workforces may generate production complementarities, particularly in high-value, knowledge-intensive sectors (Fujita and Weber 2003; Page 2007; Nathan and Lee 2013). Access to co-ethnic networks can assist knowledge diffusion, lower co-ordination costs and thus improve international market access (Kapur and McHale 2005; Saxenian 2006; Saxenian and Sabel 2008; Foley and Kerr 2013). We may also see indirect effects on market structure. New firm entry spurs competition in domestic markets, forcing incumbents to innovate and raise their productivity (Aghion et al. 2012); migrant diasporas may help shift overall patterns of trade between home and host countries (Docquier and Rapoport 2012). In theory, as we shall see, there are constraints on all these channels, and their effects are ambiguous in size, sign and significance. In practice, the available evidence often – though not always – turns up small, robust positive aggregate impacts. The wider economic impacts of high skilled migrants are still poorly understood, and future research needs to plug a number of important gaps – not least, the distributional impacts of skilled migrants on different native workers and sectors (Collier 2013). However, the importance of these issues should already be clear to policymakers in more developed countries, who are faced with both an opportunity (more skilled migrants) and a challenge (developing policies that optimise welfare gains and minimise losses). Given their traditional focus on jobs and wages, the ‘wider impacts’ research agenda has potentially profound implications for migration policies in many countries. This review is based on research originally commissioned by the UK Migration Advisory Committee (MAC), and follows the broad outlines of that brief1. The 78 studies reviewed involve a mix of quantitative and quali (...truncated)


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Max Nathan. The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries, IZA Journal of Development and Migration, 2014, pp. 4, Volume 3, Issue 1, DOI: 10.1186/2193-9039-3-4