Thursday, September 16, 2010

Economics 16/9/10: Migration & natives mobility

In my presentation yesterday at IBM's Extreme Blue event, I mentioned that we know very little about the location decisions of the modern migrants - people with high skills, education, aptitude, creativity and innovation capacity.

An interesting new study from the Bank of Italy (“HOW DOES IMMIGRATION AFFECT NATIVE INTERNAL MOBILITY? NEW EVIDENCE FROM ITALY by Sauro Mocetti and Carmine Porello, Working Paper Number 748 - March 2010) assessed the relationship between “native internal mobility and immigration in Italy”. The study attempts to analyse “the impact of immigration on local labour markets and to gauge the consequences for the socio-demographic composition of the local population”.

Traditionally, immigration into a given geographic region is seen as a driver of outward migration of the natives due to jobs displacement (the argument that by taking lower wages migrants force indigenous workers out of their jobs). This is known as a substitution effect. Alternatively, there is a view out there that migration induces clustering of both migrants and domestic workers.

A set of studies in the 1990s and early 2000s have produced mixed results as to the relationship between inward migration and flows of the native workers:

  • Frey (1996) shows “a strong correlation between immigrant inflows and native outflows in US metropolitan areas, and argued that this behaviour was bringing about a ‘demographic balkanization’”. Borjas et al. (1997) report a strong negative correlation between native net migration and immigration from abroad. Hatton and Tani (2005) find a negative displacement effect in the UK. Brűcker et al. (2009) find that “foreign immigration replaces native internal mobility in Italy”. (substitution in levels)
  • Wright et al. (1997) disagree by showing that “immigrant inflows are unrelated to native outflows in large metropolitan areas.” Card (2001) confirms this in a broader setting. (independence)
  • Card and DiNardo (2000) find that “increases of the immigrant population in specific skill groups lead to small increases in the population of native-born individuals in the same skill group.” (clustering)
  • Borjas (2006) finds that “immigration is associated with lower in-migration rates, higher out-migration rates, and a decline in the growth rate of the native workforce.” (substitution at the level of growth rates)

In their study, Mocetti and Porello find that “immigration has a negligible impact on overall native mobility while it does have a significant impact on its skill composition” in Italy. Crucially, immigration leads to

  • a displacement of low-educated natives,
  • immigrant clusterization in the northern regions has partially substituted South-North mobility flows of less-skilled natives,
  • immigration is positively associated with highly-educated native inflows
  • the impact is concentrated among the young population and is somewhat stronger in more urbanized areas.

Interestingly, the devil is not in the details, but in interpreting the results: “is not clear how these results may be interpreted. If we consider the arguments in the literature on labour, we should read these findings as evidence of the substitution effect for low-educated natives and of complementarities for highly-educated ones. Task specializations and complementarities between immigrants and highly-educated natives might induce higher demand (and productivity) for natives in areas with a higher share of immigrants; having said this, if low-educated natives and foreign workers compete for the same jobs, then immigration might have a depressive effect on labour demand for natives.”

Labour market story aside, and related to our own study at the Institute for Business Value (here), immigration has skills-specific effects on internal mobility due to what I would term quality-of-life considerations. Inflow of migrants can alter quality of state in the recipient city. Mocetti and Porello refer to this effect as “the impact of immigration on natives’ location choices [that] might also work through other channels such as the housing market and the preferences for ethnic composition of the local context.”

Their study includes “house prices in the regressions to control for the effects through the real estate market; regarding “racial” preferences, they are likely to affect neighbourhood choice within a city rather than displacements across regions. Therefore, we argue that our estimates can be reasonably interpreted as the result of the interaction between immigrants and natives in the labour market.” The authors find that housing costs, associated with higher inward migration, do have a negative effect on the regions’ ability to retain domestic workers of similar skills levels.

So on the net, while the study does not deal specifically with the high quality of human capital group involved in migration, the study does suggest that better skilled/educated workers tend to produce a clustering effect leading to complementarity with the native workers of similar skills and creating a pull factor for inward migration of highly skilled workers to a specific location. The offsetting deterioration in living conditions (due to higher house prices etc) is not sufficient in size to cancel out this positive effect.

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