Efficiency Gains from Liberalizing Labor Mobility

• Date: 01 April 2015
• DOI: http://doi.org/10.1111/sjoe.12097
• Author: Joël Machado,Frédéric Docquier,Khalid Sekkat
• Published date: 01 April 2015

Scand. J. of Economics 117(2), 303–346, 2015

DOI: 10.1111/sjoe.12097

Efficiency Gains from Liberalizing Labor

Mobility∗

Fr´

ed´

eric Docquier†

IRES, Universit´

e Catholique de Louvain, Louvain-la-Neuve B-1348, Belgium

frederic.docquier@uclouvain.be

Jo¨

el Machado

IRES, Universit´

e Catholique de Louvain, Louvain-la-Neuve B-1348, Belgium

joel.machado@uclouvain.be

Khalid Sekkat‡

Universit´

e Libre de Bruxelles, Brussels B-1050, Belgium

ksekkat@ulb.ac.be

In this paper, we quantify the effect of a complete liberalization of cross-border migration

on the world GDP and its distribution across regions. We build a general equilibrium model,

endogenizing bilateral migration and income disparities between and within countries. Our

calibration strategy uses data on effective and potential migration to identify total migration

costs and visa costs by education level. Data on potential migration reveal that the number

of people in the world who have a desire to migrate is around 400 million. This number is

much smaller than that predicted in previous studies, and reflects the existence of high “in-

compressible” migration costs. In our benchmark framework, liberalizing migration increases

the world GDP by 11.5–12.5 percent in the medium term. Our robustness analysis reveals

that the gains are always limited, in the range of 7.0 percent (with schooling externalities)

to 17.9 percent (if network effects are accounted for).

Keywords: Liberalization; migration; migration costs; migration policies

JEL classification:F22; O15; O24

I. Introduction

The debate on the links between migration, development, and inequal-

ity has recently been revived. Even though a complete liberalization of

∗We thank Michel Beine, Daniel Bernhofen, Simone Bertoli, Philippe Fargues, Jes´

us

Fern ´

andez-Huertas Moraga, Fabio Mariani, Tobias M¨

uller, Maurice Schiff, two anonymous

referees, and seminar participants at Bordeaux IV, Geneva, Louvain-la-Neuve, Namur, Nantes,

Nottingham, Marseille, Paris, and Southampton for helpful suggestions. We acknowledge fi-

nancial support from the Economic Research Forum (contract 2009-057) and the Belgian

French-speaking Community (convention ARC 09/14-019 on “Geographical Mobility of Fac-

tors”). The usual disclaimers apply.

†Also affiliated with FNRS, National Fund for Scientific Research, Belgium.

‡Also affiliated with the Economic Research Forum, Egypt.

CThe editors of The Scandinavian Journal of Economics 2014.

304 Efficiency gains from liberalizing labor mobility

international migration is clearly not on the political agenda, it is worth-

while for economists and policymakers to estimate the effects that an abo-

lition of visa costs could have on the world allocation of the labor force,

the world production frontier (i.e., the world GDP), and income distri-

bution across countries and regions. This is a complex task because it

requires quantifying these visa restrictions (i.e., policy-induced costs borne

by migrants to overcome the legal hurdles set by national authorities in

destination and origin countries), and their impact on the size and structure

of migration flows. There is no cross-country database measuring the size

of migration costs and giving the breakdown of their private and legal parts.

In this paper, we propose a backsolving calibration strategy, which consists

of using original data on effective and desired migration by education level

to identify total migration costs and visa costs as residuals of the migration

technology.1

Our analysis is conducted for the year 2000. Comprehensive matrices of

effective migration stocks were developed by Artuc¸et al. (2014). Based on

the 2000 census round, this database identifies 111.6 million international

migrants aged 25 and over; this represents about 3.5 percent of the world

adult population (see Table A1 in the Appendix). As for desired migration,

we aggregate four waves of the Gallup World Poll survey (Gallup, 2014;

Esipova et al., 2011). This unique and largely understudied survey allows

us to identify the proportion and the characteristics of people who had

not yet migrated and expressed a desire to leave their own country in the

last decade (hereafter referred to as “desiring migrants”). About 290,000

adults from 142 countries were questioned about their desired migration

and preferred country of destination. These countries are representative of

about 97 percent of the world population.2In our benchmark scenario, we

only focus on people who would permanently emigrate to another country

if they were given the opportunity. We also consider alternative variants

including temporary migration and network effects.

Table 1 documents the number of desiring and potential (effective +

desiring) migrants in the benchmark scenario and before any general equi-

librium feedback effect. For the year 2000, we identify 274.5 million

desiring migrants aged 25 and over. Adding them to the effective mi-

grants gives a total stock of 386.1 million potential migrants (i.e., 12.1

percent of the population). Most of these desiring migrants originate in

poor countries and want to relocate to rich countries. The main regions

of origin are Asia (30 percent of the total, including China and India),

1Sims (1990) developed the backsolving method to calibrate stochastic general equilibrium

models. We also deal with exogenous processes as if they were endogenous, not to solve a

model, but as a calibration device in a deterministic framework.

2For the remaining countries, we predict the aggregate proportion of desiring emigrants and

its bilateral structure.

CThe editors of The Scandinavian Journal of Economics 2014.

F. Docquier, J. Machado, and K. Sekkat 305

Tab le 1 . Data on actual, desired, and potential migration by region

Emigration Immigration

ActualaDesiredbPotentialcPotentialc,dActualaDesiredbPotentialcPotentialc,e

Regions (×106)(×106)(×106) (percent) (×106)(×106)(×106) (percent)

WORLD 111.6 274.5 386.1 12.1 111.6 274.5 386.1 12.1

US 0.9 6.2 7.2 4.5 24.2 73.9 98.0 39.0

EU15 15.6 22.7 38.2 14.5 19.9 70.5 90.5 28.6

CANZ 1.5 2.2 3.6 12.8 8.6 44.7 53.3 68.3

GCC 0.6 0.5 1.1 12.3 5.7 23.3 29.0 78.5

MENA 9.1 21.9 31.0 22.7 5.6 5.8 11.4 9.8

SSA 10.5 45.8 56.3 24.9 8.7 9.7 18.4 9.8

CIS 19.1 15.0 34.1 19.4 16.7 1.9 18.7 11.7

CHIND 10.0 43.7 53.7 4.3 5.2 3.8 9.0 0.8

ASIA 20.0 65.4 85.4 14.9 9.0 21.2 30.2 5.8

LAC 15.5 38.6 54.1 20.5 2.6 8.9 11.5 5.2

OTHERS 8.7 12.7 21.5 21.6 5.3 10.8 16.1 17.1

Notes:aStock of migrants aged 25 and over in 2000 (Source: Artuc¸et al., 2014). bStock of non-mig rants

aged 25 and over who would like to leave their country if they had the opportunity (Source: Gallup, 2014).

cPotential migration =Actual migration +Desired migration. dShare of emigrants in the native labor force.

eShare of immigrants in the labor force of the country of residence. Regions: US =United States; EU15 =

15 members of the European Union; CANZ =Canada, Australia, and New Zealand; GCC =countries of the

Gulf Cooperation Council; MENA =Middle East and Northern Africa; SSA =sub-Saharan Africa; CIS =

Commonwealth of Independent States (ex-Soviet Union); CHIND =China and India; ASIA =Rest of Asia;

LAC =Latin American and Caribbean countries.

sub-Saharan Africa (17 percent), Latin America (14 percent), and the Mid-

dle East and Northern Africa (8 percent). In terms of destinations, a vast

majority want to emigrate to an OECD, high-income country (27 percent

to the United States, 26 percent to Europe, and 16 percent to Canada,

Australia, and New Zealand). Other important destinations are Japan, Sin-

gapore, Saudi Arabia, and the United Arab Emirates. Prospective migrants

are slightly more educated than those left behind (i.e., there is a posi-

tive selection in emigration), but less educated than non-migrants in the

host countries (i.e., there is a negative selection in immigration). However,

positive selection in desired emigration is much smaller than in effective

emigration.

The use of Gallup data allows us to approximate the number of adults

who could respond to a complete abolition of visa restrictions. Existing

studies of liberalization disregard or minimize the existence of private (or

“incompressible”) migration costs, and the endogeneity of migration deci-

sions. Disregarding private migration costs and assuming that liberalization

leads to wage equalization across countries, they predict that about 50

percent of the world population would live in a foreign country after a

complete liberalization of migration. This is much greater than the poten-

tial migration stocks inferred from the Gallup survey data. In these studies,

CThe editors of The Scandinavian Journal of Economics 2014.