Labour market performance and migration flows - European ...

European CommissionOccasional Paper 60, Volume IFigure 1.1. Relative skill premium and income levelSource: Bertoli and Brücker (2008)The decision to invest in education is driven not by the actual return to education at destination, butby the expected return for the would-be migrant, and the two differ whenever the countries ofdestination pursue skill-selective immigration policies. These policies, which confer a higherprobability of migration to better- educated individuals, increase the distribution of expected labourearnings at destination for potential migrants, inducing them to invest in education “in order to beeligible for emigration” (Mountford, 1997). As Stark and Wang (2002) provocatively suggest, theprospect of migration reduces the need to provide educational subsidies, as it increases theexpected private return on schooling. 71Still, some recent theoretical and empirical contributions have introduced relevant caveats againstthe endorsement of excessive optimism. The expected income-schooling profile at destination,which drives the educational decision of would-be migrants, can be flattened by relevantconfounding factors. Immigrants tend to be overqualified for the job positions that they take(Mattoo et al., 2008), and overrepresented in manual occupations. 72 Furthermore, Docquier et al.(2008) have shown that the theoretical predictions of the literature about the so-called beneficialbrain drain is based an unwarranted hypothesis, as they regard the governments of migrant-sendingcountries as passive by-standers concerning the foreign demand for their talented workers.Governments can adjust their policies in response to the international mobility of highly-skilledworkers, and Docquier et al. (2008) predict that governments will cut back public subsidies toeducation, as all this “implies far-reaching changes in the geographic incidence of the costs andbenefits of publicly-funded higher education” (Justman and Thisse, 1997). 73Thus, the dynamic contribution of the prospect to migrate upon human capital formation inmigrant-sending countries tends to fade away if migrants are poorly assimilated in the labourmarket at destination, when the country has a long-established migration history, and when thegovernments reduce educational subsidies to prevent an excessive leakage of fiscal resources with71 One could also argue that the prospect to migrate might influence the distribution of students across various disciplines, asit creates an incentive to invest in those fields which are demanded in the destination countries.72 Moreover, the income-schooling profile at destination tends to flatten over time, as the migration process gainsmomentum; such a change is due to the fact that an increase in the size of migration networks at destination has anuneven impact on migration costs across educational levels; low educated would-be migrants enjoy a greater reduction inmigration costs than highly-educated individuals do (Munshi, 2003; McKenzie and Rapoport, forthcoming), and thisflattens the net income-schooling profile.73 Docquier et al. (2008) predict that the reduction in public subsidies more than offsets the increase in the expected return toschooling induced by the prospect to migrate, thus worsening rather than improving the skill composition of the domesticworkforce.116