Wednesday, July 14, 2010

Benefits of immigration

The Economist wrote an interesting article on the significance of migration and important spillovers from immigration into developed countries. The economic crisis of the past year has slowed the flow of international migration. As the estimate from Migration Policy Institute suggests, the stock of illegal immigrants in America fell from 12.1 million in July 2008 to 11.9 million in the year after. It is important to emphasize the economic benefits of migration for developed and developing countries.

The migration to developed countries has resulted in higher employment and greater specialization in the labor market. Without the flow of migrants the structure of the labor market in developed countries would incentivize workers to take lower paid jobs which would result in lower incomes. As the developed countries opened their borders to immigrants from all over the world, young individuals were enabled to invest in human capital and by doing so increase their career prospects. As for developing countries, migrants increase the stock of human capital availible to the country of migrant's origin. Therefore, immigration from less developed countries should not be seen as a loss but as an immense opportunity to get the know-how and high skills through which the country of migrant's origin shall prosper. The widespread emergence of technologies such as Google's applications, Twitter, Facebook, Linkedin etc. has further enhanced the flow of knowledge and information to the countries of migrant's origin. It should not be neglected that economic catch-up, generated from technological imitation, is the only way for less developed countries to reach the income per capita of their richer peers.

The OECD published a report where it estimated that the inflow of migrants to rich countries fell by 6 percent in 2008, to 4.4 million. Five years before 2008, the inflow of migrants soared. The main benefit of immigration is more favorable demographic outlook since developed countries will experience sharp increases in the share of older population (65 years and over), replacement rate and fiscal burden of entitlement spending. The inflow of immigrants not only benefits the labor market but it also boosts incentives to work, save and invest since immigrants work longer hours and retire later than native population. Therefore, immigration should not be discarded but encouraged and promoted by national governments.

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