2/4/19: Brain Drain Reversed or Inverted?

Generally, we associate skilled emigration with the phenomenon of 'brain drain' or a zero sum game - the loss of human capital from the country of origin and a corresponding gain to the recipient country. However, as common, the real nature of these effects is more complex than the first order analysis implies.

A new paper by Fackler, Thomas, Giesing, Yvonne and Laurentsyeva, Nadzeya, titled "Knowledge Remittances: Does Emigration Foster Innovation?" (CESifo Working Paper No. 7420) accessible via https://ssrn.com/abstract=3338774, looks at the issue of knowledge flows relating to emigration. The authors find that based on "industry-level patenting and migration data from 32 European countries," "...emigration in fact positively contributes to innovation in source countries. ... While skilled migrants are not inventing in their home country anymore, they contribute to cross-border knowledge and technology diffusion and thus help less advanced countries to catch up to the technology frontier."

More specifically, authors show that "one percent increase in the number of emigrants increases patent applications by 0.64 percent in the following two years. This result is statistically significant at the one percent level and robust to controls, fixed effects, and varying lags. The effect is quantitatively more pronounced when we consider only the flows of migrants with patenting potential."

A picture worth a 1,000 words:

Notice, the above suggests that the positive effect of opening up migration channels on technological convergence is evident as early as two years prior to the EU Accession of 2004. The same is confirmed in the following chart:

In line with their findings, the authors suggest that

• The EU "could benefit from further facilitating migration within Europe", by focusing on reducing cultural and social barriers to migration, such as "language and administrative barriers, ...ensuring the recognition of foreign qualifications and the promotion of language courses at all age levels."
• "Another policy implication is to ease skilled migration to Europe from outside the European Union. This could be achieved by easing the access to European labour markets and the recruitment of highly qualified foreign workers. While the Blue Card has been a step in this direction, its scope could be increased to obtain a higher impact and administrative barriers should be reduced." 

Update: Similar findings are reported in Kim, Jisong and Lee, Nah Youn, High-Skilled Inventor Emigration as a Moderator for Increased Innovativeness and Growth in Sending Countries, East Asian Economic Review Vol. 23, No. 1 (March 2019) 3-26: https://ssrn.com/abstract=3360938. Their paper uses data from 154 countries to show that high-skilled inventor emigration rate has a positive growth effect on the country of origin (COO) by spurring "knowledge diffusion and technology transfer back to their COOs, which in turn affects innovation and growth in their home countries. The result indicates that the direct negative impact of the brain drain can be mitigated by the positive feedback effect generated by the high-skilled inventor emigrants abroad. When coupled with an active trade policy that reinforces growth, countries can partially recoup the direct effect of the human capital loss."

22/8/17: Focus Economics on Refugees Integration Challenge

Focus Economics posted a neat and timely blog post on the topic of potential economic impacts of mass forced migration that has been sweeping across Europe in recent years, driven by the civil war in Syria and botched 'democratization' efforts in Iraq and Afghanistan, as well as the less-discussed dismantling of Libya.

The link to the post is here: http://www.focus-economics.com/blog/impact-of-refugees-on-european-economies.

In my opinion, the key here is the following issues:

"In the longer term, the picture becomes far murkier. This isn’t just because little is known about the current cohort of refugees, such as their average level of education or how long they will remain in their host countries. It is also because the long-term economic impact of refugees rests largely on how successful countries are at weaving them into the economic fabric of their societies."

Yes, long term viability of all positive assessments of the current migration crisis is questionable. And the problem rests on both sides, the migrants' quality of human capital, and the host countries quality of labor markets.

End result, so far, is that history offers only ominous assessments of the success rates that can be achieved in integrating refugees into active members in the host societies. "If past experience is anything to go by, the full economic integration of refugees will prove an arduous task. Studies from many developed countries have repeatedly shown that refugees tend to earn less, have worse employment prospects and hold lower occupational status than native workers or economic migrants. Even in Sweden, a country with a relatively strong track record of integrating refugees, a study of those arriving between 1997 and 2010 found that fewer than 20% had found employment after one year. Ten years down the line, only between 50% and 60% were working, significantly below the corresponding figure for Swedish natives."

This is not to say that attempts to integrate refugees are a waste of scarce resources. Quite to the contrary, both humanitarian and socio-economic dimensions of the current crisis suggest that we should be doing more (and doing it better) to develop policies and institutions to provide refugees with more open and more efficient access to work-related training, language skills acquisition and general education, including avenues to complete unfinished degrees and pursue higher degrees. As the  Focus Economics post stresses, positive incentives and pro-active systems for engagement should be put forward. One question, however, remains unasked and unanswered, as is common with this analysis: what should be done to identify early and correct any negative choices that some of the refugees might make following their arrival in the host societies. While we have an idea as to how we can help those who want to integrate (note: having an idea is yet to translate into deploying actual policies), we don't really have a good understanding as to how we can prevent adverse choices.

18/2/16: Lack of Support for 'Refugees --> Growth' Link in German Survey

As a separate matter, the same survey of 'some 220' German economists by CESIfo found that...

"A relative majority (40 percent) of participants expects the asylum-seekers to have a negative impact on the country. Only 23 percent see them as benefitting the country. The remainder was undecided. The majority of German economics professors therefore do not share the optimism of the Deutsche Bank’s Chief Economist, David Folkerts-Landau. He described the flood of refugees as Germany’s biggest economic opportunity since its reunification.

The majority of economics professors (56 percent) believes that the minimum wage should be lowered to facilitate the integration of asylum-seekers with poor skills into the German labour market. 37 percent, however, does not support this view. Some economists feel that this could lead to tensions between Germans and new arrivals. “I am no advocate of the minimum wage,” writes Prof. Dr. Erwin Amann of the University of Duisburg-Essen in the survey. “But a reduction in the minimum wage would prompt a debate over German workers being crowded out,” he warns."

So much for that "Keynesian growth stimulus" from immigration, then...

15/12/15: Europe’s Refugees Crisis: Some Economic Perspectives

In recent months, we have observed an ever-increasing cost estimates for Germany (and by a corollary Europe) of absorbing the 2015 inflows of refugees.

Central to these estimates have been numbers released by the Ifo Institute. These estimates started with the assumed inflows of 800,000 refugees in 2015 and were first pegged at EUR10 billion, “just to cover accommodation and food”. I covered these estimates earlier here: http://trueeconomics.blogspot.ie/2015/09/22915-germanys-ifo-refugees-to-cost-ten.html.

Subsequent estimates raised both the number of refugees (to 1,100,000) and the cost per refugee, raising the estimate to EUR21.1 billion (covered here: http://trueeconomics.blogspot.ie/2015/11/111115-new-cost-estimates-of-european.html) and per Ifo including “accommodation, food, creches, schools, German courses, training and administration” over 12 months.

In part, very high costs estimates are premised on the assumed ability of refugees to integrate into German labour markets (http://www.cesifo-group.de/ifoHome/presse/Pressemitteilungen/Pressemitteilungen-Archiv/2015/Q4/pm-20151204_Bildung_Fluechtlinge.html) due to lack of language skills, work skills and education. These assumptions - based on population averages and aggregate scores for key countries of origin for refugees - appear to be in line with German employers’ perception of refugees as generally lacking in key basic skills as noted here: http://www.cesifo-group.de/ifoHome/presse/Pressemitteilungen/Pressemitteilungen-Archiv/2015/Q4/press_20151126_sd22_fluechtlinge.html.

Taking Ifo Institute’s estimate of EUR19,000 in annual costs per refugee, and based on the EU Commission estimate that some 4 million Syrian refugees currently are in Turkey, Lebanon and Jordan, with some also in Egypt, Iraq and Libya, what are the chances that EU’s latest ‘aid’ to Turkey of a miserly EUR3 billion is going to be enough to address the problem?

If research also attempts to quantify cost/benefit assessment of the refugees inflows. In a more recent note (http://www.cesifo-group.de/cesifo/newsletter/1115/From_the_Editor_November_2015.html) the Institute states that “…Europe, with its ageing societies, needs new workers. Germany alone theoretically needs more than 30 million young immigrants until 2035 to keep the old-age dependency ratio constant at the current pensionable age, and maintain both the pension and contribution rates in its pay-as-you-go system unchanged. So, could the newcomers be the solution?”

The answer depends on which model one uses to estimate costs/benefits of inflows. “There have been different calculations about the benefit that refugees bring to the recipient countries. While a Keynesian model using a multiplier analysis until 2035 (!) comes to the conclusion that there are positive net benefits for the incumbent population, generational accounting models come up with frighteningly large loss estimates for the state, reaching between 79,000 and 450,000 euros per person in present value terms. This burden might well prove unsustainable if the number of immigrants continues unabated.” In other words, if you believe in a world where Government spending on anything (be it digging of ditches or building refugees shelter or hospitals) is a positive contributor to growth in the long run, things are just fine. If you believe that there can be misallocation of resources in investment and there can be inefficient transfers across generations as a result of multi annual policy commitments, things are pretty costly.

As usual, there is no agreement amongst the economists on the subject of economic impact of refugees. Which is not to warrant any statement about ethical and human dimension of how Europe should be addressing the crisis (economics, of course, is by far not the only consideration on this matter). But it is a good starting point (albeit a bit late for the current crisis) to have a debate as to the merits of different models for selecting refugees based on specific characteristics, such as prior work experiences, basic skills and education. It is also a good point to start thinking about how the balance between humanitarian assistance and development supports (in countries of origin) as well as social supports and workplace integration incentives in the host countries should/could be structured.

Ifo Institute position on the subject of host countries labour market and social supports structures is to stress the need for reducing minimum wage (Hartz IV) barriers to labour market entry. Without endorsing this view, here is an interesting link to a study that covered impacts of social welfare nets on entrepreneurship amongst migrants in the US, Canada and the UK (with Canadian experience being very interesting as Canadian model of highly selective migration filters is being advocated for Europe): http://trueeconomics.blogspot.ie/2010/02/economics-07022010-human-capital.html.

The refugees crisis of 2015 (and possibly 2016 and on) is testing European systems (labour markets, social welfare, capital structures etc) along the economic dimension. The debates and policy responses so badly needed today should have taken place years ago. Absent these, we are now staring at the possibility that this crisis will alter our political systems, while stressing our economic and social systems. A right response would, in my opinion, involve recognising first and foremost the humanitarian dimension of the crisis, while accelerating the process for developing long term economic responses.


Note: this post is a follow up on my appearance on Bloomberg Radio last morning discussing the topic of economic impact of the refugees crisis.

26/11/15: Refugee Camps Are the Cities of Tomorrow

Given the plight of refugees and the current global crisis involving movements of people displaced by wars, famines, natural disasters and internecine governments, the problem of designing facilities for refugees is non-trivial and extremely important. Here is a fantastically informative interview by DeZeen on the topic: http://www.dezeen.com/2015/11/23/refugee-camps-cities-of-tomorrow-killian-kleinschmidt-interview-humanitarian-aid-expert/.

Quote: "These are the cities of tomorrow," said Kleinschmidt of Europe's rapidly expanding refugee camps. "The average stay today in a camp is 17 years. That's a generation. In the Middle East, we were building camps: storage facilities for people. But the refugees were building a city."

11/11/15: New Cost Estimates of European Refugees Crisis: Ifo

Back in September, German think tank, CESIfo estimated the cost of European refugees crisis to be at around EUR10 billion (Germany costs alone). Yesterday (with update today), the Institute released updated estimates:

Crucially, per above release, the Ifo pours some serious cold water on the commonly repeated in the media claims that refugees can provide a substantial boost to the German economy due to their alleged employability.

13/9/15: Some Insightful Links on European Refugees Crisis

There has been a lot written about the migration crisis or refugees crisis or whatever one might choose to call the crisis on European borders. I am not about to add to the continuously expanding literature on the subject (at least not yet).

But here are a couple of links / summary data tables worth checking out.

First, an excellent essay in the Foreign Policy showing the extent of discontinuity between the Central European self-interest-driven humanitarian values of the 1990s and the region's current attitude toward migration.

But then again, Eastern and Central Europe has been re-writing its own history at will, on one occasion after another, to suit one master or the other, one nationalist leader or the next... here's a good reminder from earlier this month from one side, and the same view from another, both valid (by the way).

So here's a table of facts on European attitudes toward refugees, so hard to re-shape to suit a particular political narrative:

There is a neat summary of key issues behind the current crisis in the Vox but for all the facts and all the good discussions, the Vox article just can't get itself around to one topic - the role of the U.S. in all of this (and the role of the U.S. allies), so for the sake of not re-writing history, here's an alternative angle on that too.

And for all the headlines about the current crisis being the worst in European history since WW2... there's this handy chart from Globe & Mail:

Source: http://www.theglobeandmail.com/news/world/europes-migrant-crisis-eight-reasons-its-not-what-youthink/article26194675/

Nor is the problem tied into Syrian crisis alone as the following chart from the same Globe & Mail article shows:

Which leads to the conclusion. And an unpleasant one. Either the Schengen is going to go bust... or we are going to hear - pretty soon - a call for yet another *Genuine* Union, this time around a Genuine Migration Union or a Genuine Borders Union, for any solution to all European crises must always involve greater harmonisation of something.