Impact of labour migration   on the countries of Eastern        neighbourhood                  Olga Kupets             Dep...
OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on:   sending (origin, ...
Recommended literature:         Impact of migration in the world• Bauer T. K., J. P. Haisken-DeNew and C. M. Schmidt (2005...
Recommended literature:    Impact of migration in the ECA region• Ivakhnyuk I. (2006) “Migration in the CIS Region: Common...
OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on:   sending (origin, ...
Potential economic, demographic and     social effects of labour migration:              sending countriesThree main chann...
Potential economic, demographic and      social effects of labour migration:               sending countriesI. Labour mark...
Potential economic, demographic and       social effects of labour migration:                sending countriesI. Labour ma...
Potential economic, demographic and      social effects of labour migration:               sending countriesII. Demographi...
Potential economic, demographic and      social effects of labour migration:               sending countriesIII. Economic ...
Potential economic, demographic and        social effects of labour migration:                 sending countriesIII. Econo...
Potential economic, demographic and      social effects of labour migration:               sending countriesIV. Living sta...
Potential economic, demographic and     social effects of labour migration:              sending countriesV. Public budget...
Potential economic, demographic and     social effects of labour migration:              sending countries     Opposing vi...
Potential economic, demographic and    social effects of labour migration:            receiving countriesI. Labour market...
Potential economic, demographic and    social effects of labour migration:            receiving countriesII. Demographic e...
Potential economic, demographic and    social effects of labour migration:            receiving countriesIII. Productivity...
Potential economic, demographic and    social effects of labour migration:            receiving countriesIV. Public budget...
Potential economic, demographic and    social effects of labour migration:            receiving countriesWidespread concer...
OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on:   sending (origin, ...
Similar problems in FSU countries (exceptthe Baltic countries) in economic migration                  research: lack of r...
Impact of labour migration      on the countries of Eastern  neighbourhood: discussion in groups             Please put fo...
Impact of labour migrationon the countries of Eastern neighbourhood                       Group 1: Sending countries      ...
Impact of labour migrationon the countries of Eastern neighbourhood                       Group 2: Sending countries      ...
Impact of labour migrationon the countries of Eastern neighbourhood                   Group 3: Sending countries          ...
Impact of labour migrationon the countries of Eastern neighbourhood                     Group 4: Sending countries        ...
Labour migration from the countries of   Eastern neighbourhood: A developmental           path or a low-level trap?       ...
Impact of labour migrationon the countries of Eastern neighbourhood                    Group 5: Receiving countries       ...
Impact of labour migrationon the countries of Eastern neighbourhood                  Group 6: Receiving countries         ...
OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on:   sending (origin, ...
Conclusion• Labour migration may contribute to economic development of countries  at both ends of the migration spectrum I...
Thank you for attention!Contact info:Olga KupetsAssociate ProfessorDepartment of EconomicsNational University of Kyiv-Mohy...
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Impact of labour migration on the countries of Eastern neighbourhood

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Executive Training Migration in the EU and its Neighbourhood

Florence, 21 January 2013
by Olga Kupets

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Impact of labour migration on the countries of Eastern neighbourhood

  1. 1. Impact of labour migration on the countries of Eastern neighbourhood Olga Kupets Department of Economics,National University of Kyiv-Mohyla Academy (Ukraine) Executive Training Migration in the EU and its Neighbourhood Florence, 22 January 2013
  2. 2. OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on: sending (origin, source) countries receiving (destination, host) countriesImpact of labour migrationon the countries of Eastern neighbourhood:discussion in groupsConclusion 2
  3. 3. Recommended literature: Impact of migration in the world• Bauer T. K., J. P. Haisken-DeNew and C. M. Schmidt (2005) “Chapter 7. International Labour Migration, Economic Growth and Labour Markets: the Current State of Affairs”, in: M. Macura, A.L. MacDonald and W. Haug, eds., The New Demographic Regime: Population Challenges and Policy Responses (New York and Geneva, United Nations), pp. 111–135.• Chappell L. and D. Sriskandarajah (2007) “Mapping the development impacts of migration”, Global Development Network and Institute for Public Policy Research, Development on the Move Working Paper 1.• de Haas H. (2010) “Migration and Development: A Theoretical Perspective”, International Migration Review, Volume 44 (1), pp. 227–264.• Ellerman D. (2005) “Labour Migration: A Developmental Path or a Low-Level Trap?”, Development in Practice, Vol. 15 (5), pp. 617–630.• IOM (2005) World Migration Report 2005: Costs and Benefits of International Migration, Geneva, International Organization for Migration.• Katseli, L. T., R. Lucas and T. Xenogiani (2006) “Effects of migration on sending countries: what do we know?” OECD Development Centre Working Paper No. 250.• World Bank (2006) Global Economic Prospects 2006: Economic Implications of Remittances and Migration, Washington D.C., World Bank. 3
  4. 4. Recommended literature: Impact of migration in the ECA region• Ivakhnyuk I. (2006) “Migration in the CIS Region: Common Problems and Mutual Benefits”, a paper prepared for International Symposium “International Migration and Development”, United Nations Secretariat, June 28-30, 2006, Turin, Italy.• Kupets O. (2012a) The Development and the Side Effects of Remittances in the CIS countries: The Case of Ukraine, CARIM-East Research Report 2012/02, RSCAS, European University Institute, Florence.• Kupets O. (2012b) The Economic and Demographic Effects of Labour Migration in the EU Eastern Partners and Russia: A Synthesis Report, CARIM-East Research Report 2012/26, RSCAS, European University Institute, Florence.• Mansoor A. M. and B. Quillin (2006) Migration and Remittances: Eastern Europe and the Former Soviet Union, Washington D.C., World Bank.• Tishkov V., Z. Zayinchkovskaya and G. Vitkovskaya (2005) “Migration in the Countries of the Former Soviet Union”, a paper prepared for the Policy Analysis and Research Programme of the Global Commission on International Migration. 4
  5. 5. OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on: sending (origin, source) countries receiving (destination, host) countriesImpact of labour migrationon the countries of Eastern neighbourhood:discussion in groupsConclusion 5
  6. 6. Potential economic, demographic and social effects of labour migration: sending countriesThree main channels of the effects of internationallabour migration on the development of sendingcountries: Remittances Return migration Diaspora 6
  7. 7. Potential economic, demographic and social effects of labour migration: sending countriesI. Labour market Emigration can provide some temporary relief from unemployment by reducing the number of job-seekers and thus alleviating the situation of economic hardship and limited number of jobs in high emigration areas in the short-term. However, it can create temporary labour shortages in certain industries or high emigration areas. This, in turn, can lead to a substitution of capital for labour in the production process, reducing job opportunities in the longer term. If large-scale emigration leads to temporary labour shortages in specific industries or high emigration areas, it can, at least temporarily, lead to a rise in domestic wages. 7
  8. 8. Potential economic, demographic and social effects of labour migration: sending countriesI. Labour market (cont.) Returnees or household members receiving remittances can set up entrepreneurial activities that produce a job-creation effect. Returnees may bring new skills, values and attitudes (‘brain gain’) that contributes to higher labour productivity. On the other hand, (return) migration may reduce the present stock of human capital in the origin country through ‘brain waste’. Emigration may also result in a dependency of household members on remittances and reduced labour efforts (moral hazard problem). The selection of migrants tends to cream off some of the most enterprising and innovative workers of the sending country (‘brain drain’). This tends to have a negative effect on labour productivity and human capital base. 8
  9. 9. Potential economic, demographic and social effects of labour migration: sending countriesII. Demographic and social effects Large-scale emigration of workers from depressed regions and sectors depletes population and changes its age structure, further undermining economic viability of these regions. Labour migration may affect marriage/divorce behaviour and fertility rates by separating couples across international boundaries, by altering the incentives of those who might have children, or by reducing the number of individuals of reproductive age. Labour migration may also affect morbidity and mortality rates in the origin countries through its adverse effect on health of migrant workers, increased disease transmission, and ‘brain drain’ of health workers. (Long-term) labour migration of one or two parents can detrimentally affect educational outcomes, health performance and economic activity of the children left behind. 9
  10. 10. Potential economic, demographic and social effects of labour migration: sending countriesIII. Economic growth and development Remittances coupled with increased technology transfer from migrants abroad (including Diaspora) may provide resources for investment in innovative production activities. This, in turn, can stimulate exports and economic growth. Remittances may boost investment in education and health thus contributing to human capital formation and promoting the social basis for economic development. Remittances and extra income from migration may increase the propensity of households to consume that can increase overall output through multiplier effects. 10
  11. 11. Potential economic, demographic and social effects of labour migration: sending countriesIII. Economic growth and development Remittances-induced demand for non-tradable goods such as housing and services may result in expanding local employment opportunities and the development of the financial system. However, such remittances-induced demand may provoke inflation. Remittances-driven conspicuous consumption of foreign goods may cause a psychological downgrading of domestic goods and a further increase in imports and worsening of the balance of payments. Remittances in foreign currency may cause an appreciation of the real exchange rate and therefore may undermine a country’s price competitiveness (the so-called ‘Dutch disease’ which most often refers to the damaging effect of the exploitation and export of natural resources on an economy and takes its name from the crisis in the Netherlands in the 1960s). Emigration can have negative impact on economic growth in the long run because of demographic, education and health impacts. 11
  12. 12. Potential economic, demographic and social effects of labour migration: sending countriesIV. Living standards Labour migration provides opportunities for household members to finance essential human needs (including nutrition and housing), to have a better access to under-provided public goods (health care and education), to ease liquidity constraints and to smooth household consumption in case of adverse shocks, e.g. flood, crop failure, job loss, etc. (insurance function of remittances). Therefore labour migration is likely to improve living standards of households. Labour migration can reduce the incidence of poverty in migrant- sending areas. Remittances may be an effective means to redistribute income and thus reduce income inequality. But remittances may sharpen income inequality in the case of the underrepresentation of the poor among migrants. 12
  13. 13. Potential economic, demographic and social effects of labour migration: sending countriesV. Public budget and public policy As labour migration and remittances provide temporary relief from unemployment and poverty, they release resources from social funds and provide government with an extra degree of fiscal freedom. But remittances and emigration may reduce government’s incentives to implement the necessary structural reforms (public moral hazard problem), while increasing the exposure of the domestic economy to external shocks. The opportunity cost of emigration (the possible earnings forgone by the migrant and the output loss to the economy) may be significant compared to its benefits. It adversely affects tax revenues. Temporary migrants as well as returnees after long period of stay abroad may undermine the pension and social welfare system in the home country if their contributions made abroad (if any) are not portable. 13
  14. 14. Potential economic, demographic and social effects of labour migration: sending countries Opposing views on migration and development Migration optimists Migration pessimistsNeo-classical Neo-MarxistModernization DisintegrationBrain gain Brain drainMore equality More inequalityBalanced growth of regions Asymmetric development of regionsRemittance investment Remittance consumptionDevelopment Dependency/ underdevelopmentLess migration More migration Source: de Haas (2010), Table 1 14
  15. 15. Potential economic, demographic and social effects of labour migration: receiving countriesI. Labour market Immigration may lead to wage gains and/or improvements in the employment prospects of those natives who are complements to the immigrants. For example, female immigrants employed in outpatient and home care of the elderly exert positive effects on the labor supply of native highly skilled females. Immigration may lead to a reduction in the wages and/or employment prospects of those natives, who are substituted by the immigrants, or of former immigrants from other regions, with whom they compete for similar niches in the labour market. Empirical studies based on the different approaches conclude that the labor-market effects of immigration on natives are negligible or statistically insignificant, while there are often large and significant effects in terms of former immigrants. 15
  16. 16. Potential economic, demographic and social effects of labour migration: receiving countriesII. Demographic effects Increased immigration flows of working age population into ageing societies can have a significant impact on the demography of the receiving countries which are assumed to have a labour shortage. Therefore, immigration can remove labour scarcity and reduce wage-push inflationary pressure. Even the temporary immigration of low-skilled workers may be beneficial, given the demographic situation in the receiving countries 16
  17. 17. Potential economic, demographic and social effects of labour migration: receiving countriesIII. Productivity and economic growth Immigration may reinforce specialization and complementarities and induce organizational changes, which, in turn, increases competition and may help to reduce protectionist measures on the labor market and hence may ultimately lead to productivity-increasing efficiency gains. Immigration may also foster technological progress, since immigrants bring new ideas and knowledge with them, potentially increasing the transfer of technologies between countries. However, if immigration increases the availability of low-skilled labor, incentives of firms to invest in R&D may be reduced, leading to lower technological progress. The existing empirical evidence on the effects of immigration on productivity and economic growth in OECD countries is rather mixed. 17
  18. 18. Potential economic, demographic and social effects of labour migration: receiving countriesIV. Public budget Immigration may affect the public budget of destination country through the ensuing increase in the tax base. Temporary migrants with a formal job contract are also likely to experience serious limits on the portability of their pension rights, which could represent a gain for social welfare systems at destination. However, immigration may negatively affect the public budget of destination country through the expanded demand for public services and receipts of public transfers. 18
  19. 19. Potential economic, demographic and social effects of labour migration: receiving countriesWidespread concerns (often myths) that contributeto a negative perception of the effects ofimmigration in the receiving countries:1) migrants take away jobs from the local population;2) immigration is driving down wages;3) immigrants are a heavy burden on the country’s social welfare system;4) immigrants take money out of the host countries;5) immigration contributes to higher crime rate. 19
  20. 20. OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on: sending (origin, source) countries receiving (destination, host) countriesImpact of labour migrationon the countries of Eastern neighbourhood:discussion in groupsConclusion 20
  21. 21. Similar problems in FSU countries (exceptthe Baltic countries) in economic migration research: lack of reliable statistical data on labour migration and remittances with long time series that hampers a rigorous empirical analysis of the effects of labour migration (including its illegal component) on the economy and labour market; existence of various myths about the magnitude and composition of migration flows and the effects of migration on a given country which are often not supported by facts; prevailing negative perception of emigration among the experts and policymakers, with focus only on its certain negative effects (e.g. outflows of working-age population and human capital depletion) and without considering possible benefits for economic development; the development role of Diaspora and return migration is largely neglected; emigration usually receives more attention than immigration and internal migration (except for Russia) despite an increasing importance of ‘replacement’ immigration in view of shrinking and ageing population 21 in most countries.
  22. 22. Impact of labour migration on the countries of Eastern neighbourhood: discussion in groups Please put for each country and each entry: “+” if a positive effect is observed; “—” if a negative effect is observed; “DS” if an effect is ambiguous; empty cell if an effect is not observed (or not studied).For example, UA Labour market Unemployment rate + Labour shortages in certain sectors — Domestic wages DS Entrepreneurship + Reduced labour supply (moral hazard) DS 22
  23. 23. Impact of labour migrationon the countries of Eastern neighbourhood Group 1: Sending countries AM AZ BY GE MD RU UA Labour marketUnemployment rateLabour shortages in certain sectorsDomestic wagesEntrepreneurship and job creationReduced labour supply (moral hazard)‘Brain drain’ (emigration of the highlyskilled)‘Brain waste’ (skill waste) 23
  24. 24. Impact of labour migrationon the countries of Eastern neighbourhood Group 2: Sending countries AM AZ BY GE MD RU UA Demographic and social effectsTotal population (number)Age structure of populationGender structure of populationMarriage/ divorce and fertilityMorbidity and mortalityEducation outcomes of those childrenleft behind‘Care’ drain (old parents left behind) 24
  25. 25. Impact of labour migrationon the countries of Eastern neighbourhood Group 3: Sending countries AM AZ BY GE MD RU UA Macroeconomic effectsInvestment and innovationHuman capital formationConsumptionEconomic growthDevelopment of financial system‘Dutch’ diseaseInflation 25
  26. 26. Impact of labour migrationon the countries of Eastern neighbourhood Group 4: Sending countries AM AZ BY GE MD RU UA Living standardsPovertyIncome inequalitySocial protectionAccess to public goods andutilities Public budget and policyContributions to the publicbudget, pension fund and othersocial fundsPublic moral hazard and policytrap 26
  27. 27. Labour migration from the countries of Eastern neighbourhood: A developmental path or a low-level trap? A low-level trap in Ukraine A fiscal-policy-driven Deviant behavior and exit consumption boom, to the shadow economy reinforced by rapidly or to economic inactivity expanding household creditInefficient public services andsocial protection Delayed transition reforms; rent-seeking system and state capture; weak rule of law, widespread corruption and poor Limited investment climate financial intermediationSource: Kupets (2012a) 27
  28. 28. Impact of labour migrationon the countries of Eastern neighbourhood Group 5: Receiving countries AM AZ BY GE MD RU UA Labour marketEmployment prospects for nativesWages for nativesFemale labour supply (natives)Demographic and social effectsWorking-age population and labourscarcityAge structure of populationGender structure of populationCrime rate 28
  29. 29. Impact of labour migrationon the countries of Eastern neighbourhood Group 6: Receiving countries AM AZ BY GE MD RU UA Productivity and economic growth Investment and innovation Flexibility and competitiveness of local employers Public budget and social welfare system Contributions to the public budget, pension fund and other social funds Demand for public services and receipts of public transfers 29
  30. 30. OutlineRecommended literaturePotential economic, demographic and socialeffects of labour migration on: sending (origin, source) countries receiving (destination, host) countriesImpact of labour migrationon the countries of Eastern neighbourhood:discussion in groupsConclusion 30
  31. 31. Conclusion• Labour migration may contribute to economic development of countries at both ends of the migration spectrum IF migrants find the enabling conditions to develop and then successfully apply their skills, to make productive investments and to enhance supply chain relations.• The benefits of labour migration in the Eastern neigbourhood are of limited scale so far.• The major reason is that labour migration is not mainstreamed into the national employment, poverty reduction and development strategies.• The governments of sending countries in the region tend to address labour migration as a problem rather than take it as an opportunity.• And receiving countries try to take advantage of large inflows of desperate migrant workers for their benefit only.• As a result, there are still no enabling conditions for human capital formation, brain circulation and productive investments by migrants. 31
  32. 32. Thank you for attention!Contact info:Olga KupetsAssociate ProfessorDepartment of EconomicsNational University of Kyiv-Mohyla Academy10 Voloska Str., office 6-20304070 Kyiv, UkraineTel. (+38-067) 7398708E-mail: kupets@kse.org.ua 32

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