Report

Labor Migration – Employment protection legislation has the largest positive impact on the stock of high-skilled immigrants

• Population aging, technology-induced changes in labor demand as well as the recent refugee crisis have once again stirred continuous debates about the economic and social consequences of international labor migration in Europe and other developed countries. Proponents of international labor mobility highlight that migrants substantially contribute to the fiscal budget, provide well-needed skills and frequently take jobs that natives eschew. Critics, in turn, accuse immigrants of draining the welfare and healthcare systems, taking natives’ jobs, or eroding social trust in the destination countries. To date, and detached from this recent turmoil, many developed countries, however, actively attract and retain a wide range of foreign talent in order to strengthen their economies and to offset the (severe) consequences of aging populations, decreasing labor force potentials and unsustainable fiscal deficits.
• Against this backdrop, our project aimed at assessing potential determinants of worker and job mobility in an international context. Chapter 1 studies determinants of worker migration – both from an individual and an aggregate, country-level perspective. Chapter 2 highlights expected changes in labor supply net of targeted migration flows up until 2030. Chapter 3 offers a short but comprehensive discussion of firms’ (re)location choices to investigate the potential of job flows in response to skill shortages. In Chapter 4, the main findings from this project are summarized and policy- relevant conclusions are drawn and discussed.
1.1: WHAT MOVES TALENT? THE ROLE OF INSTITUTIONS IN ATTRACTING HIGH-SKILLED IMMIGRANTS
• The first chapter of the project provides an
empirical assessment of workers’ international mobility with respect to legislative features of the labor market in both the receiving countries. To these ends, the study investigates the relationship between a set of labor market institutions (minimum wages, employment protection regulation, unions, and mandated benefits), overall economic prosperity, and the skill composition of immigrants in the OECD countries. The analysis is based on detailed data on the educational attainment of the immigrant population in all OECD countries by place of birth paired with detailed information from the OECD’s database on tax-benefit policies and employment. Regression results offer suggestive evidence on the relationship between labor market regulations and skilled migration patterns, as well as to assess the importance of each factor in attracting and retaining foreign-born skilled workers.
• In the analysis, immigrants are classified into three categories according to their educational attainment. High-skilled immigrants hold a tertiary education degree (ISCED 5-6), medium-skilled have received upper secondary school qualifications (ISCED 3-4), while low-skilled have completed at most primary or lower secondary education (ISCED 1-2). Since the analysis is based on stock data, i.e., net cumulative flows, the analysis thus focuses on the role of institutional factors in attracting and retaining differently skilled immigrant workers.
•Simple descriptive statistics show that the immigrants’ average skill level has increased in almost every OECD country over the period from 2001 to 2011. Canada, Australia, and the United Kingdom exhibit the largest share of tertiary-educated immigrants in 2011, while Southern and Central European countries, such as Italy and Germany, rank last. Top sending countries of high-skilled immigrants to OECD countries are India, the Philippines, and China. However, a large number of high-skilled immigrants come from other OECD countries, too; for example, the UK or Germany. There are no significant gender differences in the composition of the stocks: males and females are equally represented among the high-skilled immigrants, and the increase in the number of tertiary educated immigrants is similar for both groups, too.
The study’s regression analysis reveals additional empirical regularities. About 58 percent of the variation in the stock of high-skilled immigrants can be attributed to push factors in the country of origin; correspondingly, only 42 percent of this variation is due to pull factors in the receiving country. Among the pull factors, economic variables – such as tax rates, average wages, unemployment rates, and GDP growth – largely account for differences in the magnitude and the composition of migration stocks across countries. The relative contribution of these factors to the overall variation is about 30 percent for both high and low skilled foreign workers. In particular, the average wage paid in the host country is positively correlated with the number of high-skilled immigrants, contributing to roughly 13 percent of the
total variation; a slightly larger effect is found for the low-skilled migrants.
• When looking at labor market institutions, the results demonstrate that employment protection legislation has the largest positive impact on the stock of high-skilled immigrants. Unemployment benefits are, in turn, negatively associated with the presence of high-skilled immigrants. As high-skilled individuals are typically net contributors to unemployment insurance systems, an increase in the generosity of these benefits may reduce the attractiveness of a particular destination for this immigrant group. Conversely, the presence of low-skilled immigrants is found to be larger in those countries with more generous welfare systems and a higher union density. Intuitively, more powerful unions may increase workers’ conditions, in particular for low-skilled workers. For example, this may explain why liberal market economies like Canada, the UK, Australia and to a lesser extent the USA have larger shares of high- skilled migrants compared to Social Dialogue countries like Germany and the Netherlands.
• The study also aims at investigating whether immigrants move to destinations where they are needed. When particular skills are short in supply, the entry of immigrants may alleviate shortages in critical occupations and sectors. The analysis suggests that the number of immigrants increases with the number of vacancies. However, due to data limitations, the findings need to be interpreted with caution. The effect is positive and statistically significant for both low and high-skilled workers. Part of
this effect may be driven by specific policies aimed at facilitating the entry of immigrants in periods of high demand for skills.
• Overall, the analysis puts forth two main conclusions. First, immigrants, both high- and low-skilled, are more responsive to economic factors than to changes in labor market institutions. Second, labor market institutions may better explain differences in the number of high-skilled immigrants across countries than in the number of low-skilled. Limited access to information may be a possible explanation for this result: low-skilled immigrants may not be aware of labor regulations at the destination countries and they may thus be more responsive to factors directly affecting their wages.

1.2: WHAT WILL MOVE TALENT?

• The second chapter of this project shifts the focus to individual-level determinants of migration intentions of individuals having different skill levels and socio-economic backgrounds and living in different world regions. While emigration intentions are tentative, studying factors and circumstances linked with potential emigration decisions may help policymakers to address global mobility issues proactively rather than retroactively, both in migrant-receiving and migrant-sending societies.
• To better understand individual-level migration decisions, the chapter utilizes the main publicly available cross-country data sources on emigration intentions for the 2010-2013 period, covering a wide range of developing and developed regions (Europe,
Central Asia, Latin America, the Middle East and North Africa). Based on these data, the chapter then assesses the relative importance of different factors for the emigration intentions of high-skilled individuals: socio- demographic and family characteristics, skills, foreign contacts and experiences, and the perception of socio-economic and institutional conditions at home. Moreover, and related to chapter 1.1., the study further investigates how emigration intentions are shaped by institutional mobility restrictions.
• Overall, the extent of emigration intentions and their determinants vary considerably across regions and skill groups. However, several unifying themes emerge. First, highly-educated individuals are most likely to express emigration intentions, desires, and aspirations. For example, in 2010, respondents in transition economies with Master’s or Ph.D. degrees were around 9 percentage points more likely to express intentions to move abroad than comparable individuals with primary education. Second, previous stays abroad or networks of family and friends in foreign countries are robust determinants of emigration intentions. For example, interviewees from Europe, who have either lived or worked abroad before, were 4-4.5 percentage points more likely to express intentions to live abroad in the future compared with comparable individuals with no previous foreign experience. Third, perceptions of politico-economic and institutional conditions serve as determinants of emigration decisions. Specifically, poor economic conditions, crime, and lack of trust in institutions motivate talented individuals from developing and transition countries to seek better opportunities abroad. Potential emigrants also tend to have lower than average life satisfaction, despite being more educated and having a higher income than their fellow citizens. Fourth, it appears that emigration intentions are higher among respondents facing more mobility restrictions. This result likely reflects the fact that countries with considerable travel restrictions are also subject to relatively poor macro-economic and institutional conditions, which potential emigrants are trying to escape.
• Fifth, evidence from the EU Neighborhood barometer and Eurobarometer (polling respondents aged 15-35) suggests that emigration is mostly intended to be of temporary nature. This result implies that temporary migrants may help alleviate (temporary) skill shortages in receiving countries, but may also disseminate knowledge and technology in their home countries. The study also shows that potential emigrants from the Eastern Partnership countries may respond to skill shortages when choosing a potential destination country. Last, it is documented that emigration intentions declined during the recent economic crisis in both developed and developing countries. Interestingly, emigration intentions in Europe were lower in those countries that were most affected by the crisis, i.e., Portugal, Ireland, Greece, and Spain.

Chosen excerpts by Job Market Monitor. Read the whole story at Report No. 74: People to Jobs, Jobs to People: Global Mobility and Labor Migration | IZA – Institute of Labor Economics

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