International Migration: Economic Consequences

Abstract

International immigration or movement of people from one country to another is a phenomenon that is always accompanied by advantages and disadvantages in equal measure. The country that is a target for many immigrants may experience social strain and the burden of hosting foreigners. Currently, immigrants are viewed as a source of social and economic instability. However, immigrants may be a source of much-needed labor, especially in countries with an aging population. Similarly, while a country that loses its population to immigration may suffer the consequences of losing its productive population to foreign countries, a host country gains from immigration through remittances that are sent back home to family and friends. In this assignment, the purpose is to explore how international immigration impacts various sections of the host and home countries.

Introduction

International migration is the physical movement of people from one country to another. The action may be voluntary or may be necessitated by harsh conditions such as political turmoil, economic turmoil, and natural catastrophes among others. Over the years, the phenomenon of immigration has taken a new twist and has become a global menace with its complicity, scope, and impact increasingly becoming unbearable for some countries. The simmering political turmoil in Syria and Libya and the presence of terrorist organizations such as ISIS in the Middle East have ignited a new migration trend that the world has never experienced under the current global social order. From this crisis, the movement of people from one region to another can, therefore, be considered both as a curse and a blessing. International migration to more developed regions has increased at a faster rate than migration to more rural areas. Aside from escaping political turmoil, people immigrate to other countries in search of employment and a better life. Statistically, wealthy states in Europe and the United States are major destinations for refugees seeking jobs and a chance to rebuild their lives. By contrast, immigration to developing countries is often subtle and driven by security reasons other than employment. This paper broaches the issue of international immigration from the labor market perspective. In this respect, the paper begins by exploring effects that international immigration has on host country’s labor markets, the average wage for existing local workers, and the unemployment situation in the host country. Additionally, this paper delves into benefits that immigration presents to the home country, as well as the receiving country, effects on trade, innovation, and economic growth, effects on skilled labor, and long-term effects that the home country experiences from having its citizens abroad.

Effects of Immigration on Labor Markets

The question of whether immigration affects the host country’s labor markets was frequently raised at the time of the first spikes in immigration. As such, many scholars have conducted extensive research with the aim of establishing how immigration impacts labor markets and how labor markets respond to immigration (Ismail, Yussof, & Awad, 2014). Therefore, to reveal in-depth effects that immigration has on labor markets in the host country, it is imperative to examine some of the traits of workforce providers.

The migrant’s skills partly influence the effect of migration on the local labor market. Migration patterns show that most migrants are usually between twenty and thirty age brackets. At this time, migrants are typically strong, flexible, and capable of picking up skills faster. More so, immigrants mostly constitute people that are fresh from learning institutions and are desperate to make a living out of their acquired skills. Therefore, an increase in immigration into an area with migrants of these characteristics will mean that there will be an increase in sensible workforce. An increasing labor force usually precedes a significant increase in the output capacity of the region’s economy (Schmidt & Jensen, 2013). For instance, if migrants are in the said age brackets, they will be highly flexible to changes in the labor market. They will be able to pick up skills faster and retain them longer. Such a situation will lead to the flexibility of the labor market in the region.

In turn, skills of the host country’s existing workforce are also likely to influence labor markets. The existence of highly skilled workforce in the host country will make it hard to compete when migrants arrive in the area. Highly skilled workforce will mean that the need to acquire those skills is very low and vacancies to be filled are almost non-existent. In such a case, migrants moving into such countries will need to have higher qualifications than those in the host country; otherwise, there will be no need to acquire skills.

At the same time, if the host country is made up of unskilled labor, the implication is that there is a need for new and more skilled labor. Migrants to such countries will be able to benefit the host country and in the process improve labor markets in the host country (Schmidt & Jensen, 2013). Such situations will require that migrants assess skills that are needed in the host country before migrating to avoid unemployment. Therefore, the labor markets will only be affected if the workforce skills of the host country are lower than those of migrants.

Economic features of a country are also likely to affect the influence immigration has on the labor market of the host country. Features such as poverty, capital, present technology, natural resources, infrastructure, industries, and enterprises will affect the number of migrants into a country. If these features are favorable to migrants, the state will attract more migrants and thus increase available labor and its flexibility. An influx of immigrants will have a ripple effect on the labor market because incoming labor can substitute or supplement the already existing labor in the host country.

Economic consequences of foreign immigrations are also affected by time and place. Some places have more potential for growth and a higher intake of labor. Other areas are conservative and not much growth is expected in those locations. As such, places that show the potential for the need of more labor are more likely to receive more migrants than the slower growing areas (Schmidt & Jensen, 2013). When a country registers high economic growth, demand for labor also increases, thus attracting migrants into the country. However, when a country goes into economic recession, demand for labor plummets, which consequently reduces the rate of immigration. All the consequences tied to immigration and its effects on the economy are, therefore, also linked with the time of migration and location of the host country.

Immigration and How It Affects Average Wages of Existing Workers

There has been speculation regarding the relationship between immigration and average wages of existing workers. As such, much research has been dedicated to finding out if the two are inversely proportional or if they do not have any correlation. Evidence indicates that immigrants from countries have little influence on average wages in a country (Nathan, 2014). On the contrary, immigration helps boost the host country’s Gross Domestic Product (GDP) per head.

When the incoming labor is complementary to the existing labor, there is no effect on average wages of native workers. In situations when the incoming labor substitutes the native labor, the effect on average wages is still minuscule, leading to the conclusion that immigration has little effect on average wages of existing workers. However, in countries such as Spain and the UK local workers have protested against immigrants, claiming that foreigners take up jobs meant for locals at lower rates (Kangasniemi, Mas, Robinson, & Serrano, 2012). This argument is valid given that an increased supply of labor in a country leads to low wages. Similarly, excess supply of labor means that average wages per person will reduce. The reduction in wages has an adverse impact on any economy because it means that more people will not have enough money for expenditure.

For instance, in the United Kingdom it has been observed that foreign nationals accept low-wage jobs, while medium- and high-wage workers earn even more with an increase in immigration (Peri, 2016). Most migrants are often put into the category of low-wage workers. An abundance of low-skilled employees causes a steep competition for low-wage jobs and this will cause cuts in wages if unemployment issues are to be avoided. The result of hiring many low-wage laborers to avoid unemployment is that wage rates will reduce, but the country may not record any economic growth because of minimal spending. Furthermore, immigration often leads to an increase in the host country’s GDP and high wage package for medium and highly skilled workers (Peri, 2016). From this, it can be seen that medium- and high-wage workers will benefit most from increasing migration into a country. Overall, effects of immigration on average salary of existing workers are not significant.

Unemployment in Relation to Immigration

There have been cases when natives of a country have complained that immigrants have caused increased unemployment. The argument is that immigrants take the jobs which are supposed to be allocated to locals. However, immigration is also said to increase investments in a country, which results in the increase in the demand for labor. An increase in demand for labor will increase employment opportunities in the country. Therefore, it is arguable that immigration is more likely to diminish job opportunities and cause unemployment than create vacancies.

Besides, the unemployment rates when considering natives and immigrants follows a correlation coefficient. The correlation coefficient is 0.92. From this, it is evident that the rates of unemployment for both parties move uniformly in the same direction (Perez-Batres, 2012). Even though both natives and immigrants tend to focus on different occupations, the rate of unemployment for the two groups will become similar over time.

Since the country of origin is not always a requirement when seeking employment, it is often futile to associate unemployment with immigration. Most employers tend to employ people with knowledge and skills in the concerned field rather than based on their country of origin. From that, it is possible to conclude that unemployment plays a dismal role in reducing employment opportunities for the natives of any country.

Benefits of Immigration to the Home and Host Countries

Both host and home countries are bound to benefit from migrants. For instance, the country of origin may gain from immigration through remittances or labor provided. Remittance is money that is sent by migrants to his or her home country. The money transfer is done through bank transfers, investments done in the home country, or ownership of property in the host country even after one returns to their country of origin. These remittances are usually tax-free. Remittances help in wealth distribution from the host country to the home country. As such, the host country is bound to lose a good portion of annual GDP through remittances to the home country (Tadesse & White, 2011). The home country’s GDP will benefit greatly from these remittances. Thus, the home country will benefit greatly from immigration.

A high number of immigrants will choose to make investments in the home country. That way, they feel more secure in their choices to invest. They also know what investment gaps exist in their home country; hence, it is easier to determine what sorts of investment are more likely to bring returns in the home country. They also know the market trends in the home country, which means that they know whether their investment will be beneficial to them and the locals in the long run. By investing in the home country, migrants will make a better profit and help the remaining families. People working in foreign countries also create job opportunities back home, which will increase job intakes and in the long run increase the country’s GDP (Peri, 2016). Such investments also increase business in the region where they are placed. Supply, as well as demand in the region will increase. Local banks are also expected to benefit while offering banking services. All this is geared towards boosting the GDP of the home country.

The home country is not the only party that will benefit from migrants. Most migrating people possess some knowledge and skills. The reason for relocating is to offer these skills to the host country. An increase in immigrants also leads to an increase in labor demand. Migrants who have researched the host country will most likely possess skills that are complementary to those of native workers. In doing so, the labor market is widened and job opportunities increase (Peri, 2016). The host country will benefit from these new skills of migrants. Meeting the demand that the natives could not meet increases business exchanges between the parties.

Migrants are also known to provide the said skilled labor at an exorbitantly lower cost than natives. As such, employers are more likely to increase their profit margins by employing skilled immigrants at a low cost. Immigrants with skills that substitute those of the native country will be able to provide alternative ways to apply skills to obtain the most efficient outcomes (Perez-Batres, 2012). Therefore, businesses in the host country will benefit from new skills migrants will have. The labor demand will increase; hence, more job opportunities will be availed. Migrants will also improve the aggregate demand and increase supply in the host country. New skills, alternative skills, as well as complementary skills will be availed to the host country by migrants. Due to this, income of the host country will increase and its GDP will also grow.

An increase in remittances to the home country is partly responsible for improving living standards of people there. Remittances contribute to the national economy. The result of this is that the GDP of the country increases. Remittance could also help to relax constraints regarding foreign exchange in the country. External remittances boost a country’s foreign exchange and enhance the value of their currency, thus reducing vulnerability to such situations as inflation (Tadesse & White, 2011). Remittances could also be used to help remove some of the international debts a country may have. Alleviating these debts will give the home country an ample time to develop. Remittances encourage investment and saving. An investing and saving country has more potential for growth. Most of the remittances to the home country are used to provide public services that help make lives of their citizens a little easier. Such services could be concern health care or provision of relief to people in need.

Saving as a result of remittances will help during planning for ways to develop oneself and the country at large. Remittances also contribute to stabilizing the macro economy in the home country. If remittances are applied locally, they could help generate benefits for the local community. This type of utilization will contribute to reducing poverty, especially if the remittance is spent locally. The relationship between the number of remittances received and the rate of alleviation of poverty in a country is almost proportional (Tadesse & White, 2011). As such, it can be concluded that remittances to the home country help improve living standards of people living there.

An increase in the standards of living in the home country means that there are enough funds to help citizens lead a more comfortable life. This would include improved wages for employees in the home country. Therefore, there is a direct relationship between remittances, standards of living in the home country, and wages with which employees are compensated for their jobs.

Effects of Immigration on Trade, Innovation, and Economic Growth

Immigration has shown a great impact on trade, especially with respect to services more than goods. The cost of trading goods has reduced with increasing immigration. Import into the host country will reduce significantly with the movement of migrants. This is because migrants will develop goods otherwise produced in their home country. Firms looking to develop these kinds of goods will decide to employ migrants from a specific country with specific skills to help them successfully develop the goods (Perez-Batres, 2012). These products will have a wider market since they are mostly untried in the host country.

The effect of immigration on services is even more noticeable. This is primarily because migration reduces the cost incurred in importing or exporting services from or to the home country of migrants, immigration bridges institutional and cultural barriers existing between host and home countries and in the process it increases mobility of services internationally.

It is entirely possible that immigration will enhance advanced innovations. Immigration entails a change in the existing age structure of the population, a change in the overall size of the population, and a shift in the general skill level in the population. A change in skill level is measurable by considering the migrants’ human capital level and comparing it to that of the natives. Innovation is significantly affected by the population size and the human capital level of inhabitants in that area. If the population of the country increases quickly or gradually, there will be a need to come up with ways to make life easier along with the population increase (Alesina, Harnoss, & Rapoport, 2016). Thus, one of the factors that encourage people to be innovative is a growth in the population. People will want to have better and faster means of transportation, improved machines in medical establishments, better equipment in learning institutions, and improved production methods. Thus, an increase in the population sparks innovation in a country.

Moreover, a change in human capital level is another factor that encourages innovation. A changing skill level will mean a change in people’s thinking. A change in thinking among the population sparks production of new ideas that in turn creates a platform for innovation. Migrants come and have a particular view of the new country and with that they can recognize areas that need improvement. Innovation will be birthed from these factors. A change in the age structure may also spur innovation where migrants are between twenty and thirty years. In these age brackets, people are more likely to be curious, creative, and innovative.

The proximity of the host country to the home country is more likely to spur trade in goods and services between the two nations more than if they were the two countries too much apart. The increased trading between the two countries will eventually be a leading cause facilitating economic growth in both countries. Increased trading will mean more exchanges, a better value of their currency, and in the process an increase in the GDPs of the two countries. Increased GDP translates into faster economic growth as a country will have funds to facilitate projects that will cause economic growth.

Effects of Migration on Skilled Labor in the Home Country

Migration is mostly done by healthy professionals in search of political stability, better technology, higher standards of living, and better salaries. As such, a percentage of all trained practitioners in the home country are expected to migrate from their home country. Some have argued that this migration is of concern to the amount of skilled labor in the home country. Some migrants are trained people and the government will suffer a loss since it has initially invested in training the professional (Maani & Chen, 2012). From this point of view, the home country will be losing its skilled labor, which will lead to a shortage of skilled labor in the country.

Besides, most skilled labor in a country is more likely to stay at home. Therefore, the number of skilled labor that migrates internationally is low as compared to the remaining unskilled labor. Migrants make up for migration through their contributions to the country with the help of remittances and investments. Plowing back resources earned abroad negates the effect of migration of the skilled labor. It is inconclusive that migration of skilled labor leads to any shortages of skilled labor in the home country. It is also not evident that movement of people from one nation to another will result in a decrease in the amount of skilled labor in a country. Effect of this migration could be canceled out when migrants from another country move to the home country.

Immigration and Long-Term Economic Benefits for Home Country

A tiny percentage of the overall population is willing and able to migrate from one country to another. Most people would choose to remain in their original countries irrespective of the challenges they may face. There are also laws of immigration that have been put in place to prevent unnecessary migration from one country to another. As such, there is a restriction on the number of people that can move either permanently or temporarily from one country to another (Rapoport, 2016). Most migrations are temporary, meaning that in a short span of time immigrants will return to the home country.

However, if conditions that make citizens migrate to other countries do not improve, the country may continue experiencing a continuous circle of its citizens leaving for other countries in search of better livelihoods. In such a situation, the home country benefits vastly from having its citizens working in foreign countries. To begin with, remittances to families and friends from abroad positively impact the economy of the home country. Nevertheless, remittances only increase the purchasing power of recipients and act as a source of external revenue to the state, but may not have a profound impact on the home country’s economy.

Similarly, since not many people migrate from one country to another, their benefit to the country is also limited. A small migrating population will mean that remittances sent to the home country are also limited. Limited remittances mean the overall impact on the country’s GDP is insignificant (West, 2011). In such a situation, funds that are sent back to the home country can only be used to cater for short-term needs. As a result, there are not enough remaining funds that can be used to fund heavy long-term projects in the country. If the country wants to fund its long-term projects, it will be forced to look for other means that may lead to debts it cannot repay. In the long run, remittances will lack major effects on a country’s long-term economy.

The fewer number of migrating individuals will also mean fewer investments made in the home country. Since it is not possible for all migrants to have a saving and investing culture, there are even fewer investments in the home country. Even if the investments are made, it may not be possible to gauge the lifespan of these investments. The investments made may not even be lucrative enough to benefit the local community in the home country. As such, it is difficult to determine the effect that these investments will be of benefit to the home country (West, 2011). Few investments will also mean that little profits are made and there is little contribution to the national income. The national minimum income will mean that the funds availed to the government to fund long-term projects are also minimum. As such, only small projects can be catered for and small projects will not affect the long-term economy of the home country.

Most people only move to other countries if living conditions in the home country are destitute. Mostly, these conditions are caused by poverty. Poverty levels in these countries are very high. It is impossible to eliminate poverty from a country while depending on remittances and investments made by migrants (Hinojosa-Ojeda, 2012). Funds from remittances and migrants’ investments are too low to be of any help in the long run. It will be wise of the home country to come up with alternative sources of income to complement remittances and investments if it wants to benefit from immigration in the long term. Therefore, considering the number of people that migrate and the level of poverty in the home country, it is apparent that immigration has little benefits for the country’s long-term economy.

Conclusion

International migration is often a spontaneous practice that many countries have failed to contain. While many states consider refugees as a source of social strife, an influx of immigrants may bring enormous advantages to the host state. For instance, countries with a high percentage of the aging population may receive much-needed labor to run factories from refugees fleeing from harsh living conditions in their host countries. While various economic sectors of the host country may be positively influenced, others may remain passively unaffected by international migration. Influences that cross-border migration has on the labor market can only be gauged by considering quality job skills that migrants possess, skills of the existing workforce, as well as the economic features of the host country. By contrast, the effects of immigration on average wages and unemployment are insignificant. Both host and home countries benefit economically from immigration regarding trade, innovation, as well as skills and knowledge transfer. Given that most immigrants come from countries with economic challenges, the effects of immigration on the skilled labor of the home country are often subtle.