Labour market performance and migration flows - European ...

European CommissionOccasional Paper 60, Volume IThis notwithstanding, given the sheer size of migration as an economic flow in AMCs, there is anacute need for articulated migration policies to optimize their impact on national labour markets andultimately on development.5. Elements for Analyzing the Impact of Migration Flows onNational Labour MarketsThe literature on the developmental impact of migration is enormous and growing. Indeed, theprevailing theory has seen a marked evolution. At the end of the 1990s, empirical research and policydebates revolving around the effect of emigration on the economic development of origin countriesreceived additional impulses. Up until the 1990s, the classical economic theory prevailed, according towhich migration – by reducing the supply of labour and unemployment and inducing remittancestransfers to the countries of origin – contributed to their development, reducing income disparities andultimately rendering migration unnecessary.Remittances were considered to be beneficial both for the aggregate economy and for themigrant’s family (Kapur 2005, Adams and Page 2005). It was commonly argued that remittancesalleviated poverty, increased schooling levels and reduced child labour, and that they were useful forthe sending country’s balance of payments. Moreover, the debate concentrated on the likelyunproductive use of remittances, mostly employed in consumption and for buying a house or a pieceof land, and only partially for productive investments. Policy interventions tried to favour theallocation of remittances in more productive assets by granting loans to start a business or to buy ahouse even before the migrant’s return to the origin country.In the last few years, a different approach has come to predominate, according to which migrationcauses brain drain and even labour shortages in certain sectors, and remittances boost privateconsumption and demand (which of course contributes to job creation), but at the same time distortmarkets, cause the Dutch Disease (through the overvaluation of national currency, with productiveresources being transferred from traded to non-traded sectors), increase income inequality andreinforce the informal economy. Moreover, the presence of remittances reduces the incentives forparticipation in the labour market and hence gives rise to a rentier mentality in which reward is not afunction of productivity or work in general (see Chami et alia 2005 and Chaaban & Gebara 2007 forthe case of Lebanon).The “brain drain-brain gain” literature (Stark, Helmenstein and Prskawetz 1997, 1998; Mountford1997; Beine M, Docquier F., Rapoport H., 2001, 2003) shows how the increased probability ofsuccessful emigration among the more educated stimulates investment in education among potentialmigrants. The result is an increase in the number of educated workers in the origin country. While partof this labour force will eventually migrate, a more educated labour force, beneficial to the growth andlong-term development of the country, will remain in the country.Nevertheless, it is noteworthy that whereas empirical evidence on the negative impact ofremittances exists, evidence revolving around the brain gain effect is very limited (Faini 2006). Thus,a widespread view is that migration is good for the migrant and for his/her close family because italleviates poverty, but it is not positive in the long run either for the migrants’ relatives or for thecountry. By creating a subsidized economy, it forces future workers to follow emigration patterns asemployment prospects in the origin country remain slight. For a general review of research into howemigration affects sending countries, see Docquier and Rapoport (2008) and Hanson (2008).It is the socioeconomic environment of countries of origin, and to a certain extent of hostingcountries as well, that determines which theoretical approach is relevant. Correlation betweenmigration and development is certainly highly dependent on the place of each country in thedevelopment scale. As far as the AMC region is specifically concerned, in 2006 the United Nations66