14/6/19: The Real U.S. Migration Crisis is Not at the Border, but at Home

I recently wrote about the new data from the U.S. Customs and Border Patrol on crime amongst the illegal and legal immigrants in the U.S. here: https://trueeconomics.blogspot.com/2019/06/3619-what-customs-and-border-protection.html. The key conclusion from this earlier post is that there is no evidence (based on arrests) of a large scale crime wave perpetrated by the legal and illegal aliens in the U.S.

New research from the Pew Research published this week shows that, just as with the migrant crime rates, there is no new migration crisis at the U.S. borders. However, there is a crisis in the U.S. migration, a crisis of different nature.

Take the headline figure:

Number of unauthorised immigrants in the U.S. has fallen 14 percent from the peak in 2007. While the overall numbers remain elevated at close to, but below, 2004 levels, the numbers are not consistent with the claim of a 'crisis on the border'.

However, the real crisis in the U.S. immigration system is the one related to policy and legislation:

Over the years, there has been a steady increase in illegal immigrants with long term U.S. residence. In fact, the increase has been shockingly unchecked. Currently, estimated 66 percent of all illegal aliens in the U.S. have been resident here for more than 10 years. Which exposes the simple fact of life: the U.S. system does not have functional avenues for long term illegal aliens - people who have higher chances of being assimilated into the American society, establishing family roots in the country and forming families in their place of residence - to legalise their status. In fact, Pew Research data shows that the median years of U.S. residence for the unauthorised adult immigrants has risen from 7.2 in 2000 to 15.1 today.

The very purpose of a well-functioning migration system is to encourage and support integration of migrants into the host society. By failing to create a functioning, effective and efficient pathways for illegal migrants with long term tenure in the country to legalise their status, the U.S. immigration system is actively preventing millions of well-integrated residents from securing their future in the place they called home for 15 years or more.

Full Pew Research note is available here: https://www.pewresearch.org/fact-tank/2019/06/12/us-unauthorized-immigrant-population-2017/.

23/2/18: Ireland's Migration Policies are Working Well

How to do immigration policy right? Ireland's CSO has published some new data on educational attainment in Ireland, covering 2017 results. The data is available here: http://www.cso.ie/en/releasesandpublications/er/eda/educationalattainmentthematicreport2017/. One table stands out on the issue of migration:

Click on the image to enlarge

Despite the report itself focusing on 3rd level attainment as a 'catch all' category, what really matters in terms of future quality of the workforce is more advanced education. And in this area, Irish migration system shines. Both, EU15 ex-Ireland & UK and non-EU migration pathways are working to enhance the stock of human capital in the country when it comes to honours tertiary degrees and post-tertiary education.

This is amazing, because the two pathways are distinct in terms of regulations covering mobility (access for immigrants). And both seem to be working well.

Of course, other factors contribute, beyond policy / regulatory facilitation, including Ireland's amazingly open society, welcoming people and social networks that support easy integration of those who want to integrate. But Ireland's policymakers and civil servants, who often act as the early contributors to this mobility also deserve credit. While problems and bottlenecks remain and need addressing, credit should be given where credit is due.

20/5/16: Migrating Extremism: Long Run Impact on Voters Preferences

What happens when there is a systemic pattern of migration across borders and geographies that captures migration by political extremists?

This is neither a trivial question nor an esoteric one. It is non-trivial, because, to the best of my knowledge, we are yet to have a good understanding of what happens in the aftermath of military and political efforts to curb extremism. Curbing extremism pushes some of it into underground, but if attempts to curb extremism are not uniform across various geographies, it also incentivises selective migration of large numbers of extremists to those locations, where the efforts to curb their ideologies and behaviour are less strong. If so, when such a migration is feasible on large enough scale, asymmetric treatment of extremists across two geographies can lead to a concentration of extremists in that geography where they are treated more leniently.

This is the logic. What about the evidence?

Here is a fascinating study by Ochsner, Christian and Roesel, Felix, titled Migrating Extremists (March 10, 2016) published so far as a CESifo Working Paper (Series No. 5799: http://ssrn.com/abstract=2763513).

Quoting their abstract (emphasis is mine):

• "We show that migrating extremists shape political landscapes toward their ideology in the long run. 
• "We exploit the unexpected division of the state of Upper Austria into a US and a Soviet occupation zone after WWII. Zoning prompts large-scale Nazi migration to US occupied regions. 
• "Regions that witnessed a Nazi influx exhibit significantly higher voting shares for the right-wing Freedom Party of Austria (FPÖ) throughout the entire post-WWII period, but not before WWII. 
• "We can exclude other channels that may have affected post-war elections, including differences in US and Soviet denazification and occupation policies, bomb attacks, Volksdeutsche refugees and suppression by other political parties. 
• "We show that extremism is transmitted through family ties and local party branches. We find that the surnames of FPÖ local election candidates in 2015 in the former US zone are more prevalent in 1942 phonebook data (Reichstelefonbuch) of the former Soviet zone compared to other parties."

This is pretty much nuclear. Migration of individuals holding extremist beliefs, when systematically biased in favour of a specific location, does lead to concentration of extremist voters and such concentration is robust over time. Big lessons to be learned for today's migration regulation and institutional environment, as well as the systems of incentives and pressures that drive the migrant selection mechanisms.

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.

24/4/15: Migration and Economic Development: CFR Q2 2015

My column for the Cayman Financial Review this quarter covers the issues of economic development and migration: http://caymanianfinancialreview.cay.newsmemory.com/ go to page B20-21.

Alternative link, here: http://www.compasscayman.com/cfr/2015/04/22/Migration-trends-and-economic-development/

7/6/2014: Ireland's Questioned Tax Regime & Taoiseach's Magnets

Two articles this week highlight the on-going saga of Irish corporation tax regime:

1) One covering California's Governor comments made to our Taoiseach: http://www.independent.ie/irish-news/politics/california-would-be-an-independent-state-if-it-had-irelands-tax-regime-30336242.html

2) And another covering the EU probe being launched: http://www.businessweek.com/news/2014-06-05/eu-said-to-decide-next-week-on-probe-of-irish-dutch-tax-breaks

The topic is of huge importance to Ireland and I covered it on the blog continuously over the years, so no comment from me on these.

One quick point. In the Irish Independent report, there is a quote from our Taoiseach Enda Kenny that strikes me as absolutely out of touch with reality. Taoiseach said that Dublin is "becoming a magnetic attraction for young people from all over the world".

Granted, he said Dublin, not Ireland, but… the bit of facts in order: based on CSO data (latest through April 2013, available here: http://cso.ie/en/releasesandpublications/er/pme/populationandmigrationestimatesapril2013/#.U5Npz5SwJ9k), in 2011, 2012 and 2013 the largest group with net emigration from Ireland was… the young people: those of age 15-24, in 2009 and 2010 the largest group was 'youngish' people - aged 25-44 (same group was the second largest source of net emigration in 2011, 2012 and 2013.

So, dear Taoiseach, it might be worth revisiting that high school physics class where you were (presumably) taught about magnetic force and polarity...

22/5/2014: Labor Mobility within Currency Unions & some Implications for Ireland

A very interesting theoretical paper "Labor Mobility within Currency Unions " by Emmanuel Farhi and Iván Werning, April 2014 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2436714) looks at "the effects of labor mobility within a currency union suffering from nominal rigidities."

The departing point for the paper is Mundell (1961) famous dictum that labor mobility must be a precondition for optimal currency areas. In support of this dictum, the U.S. "enjoys relatively high mobility and has proven to be a successful currency union. Mobility is arguably much lower within the Eurozone, which sunk into trouble scarcely ten years after its inauguration." Of course, despite the shallower extent of mobility in Europe, EU policymakers repeatedly cite free mobility regime for labour within the EU as a major cornerstone of the EU and, thus, by corollary - to the functioning or the promise of functioning of the euro zone.

Despite all the intuition behind Mundell's proposition, there is little formal research connecting mobility with macroeconomic adjustments in a currency union setting.

Farhi and Werning "set up a currency union model featuring nominal rigidities and incorporate labor mobility across the different regions (or countries) that compose the currency union." The paper tackles "…two related questions. First, does mobility help stabilize macroeconomic conditions across regions in a union? Second, is equilibrium mobility socially optimal?"

The study does not quite confirm Mundell's proposition, but its findings "…are consistent with a potential important role for mobility. Workers migrating away from depressed regions naturally benefit from the option to pick up and go somewhere better. The interesting and less obvious question is whether their exodus also helps those that stay behind. That is, whether it aids in the macroeconomic adjustment of regions. A major insight of our analysis is that the answer to this question is subtle because workers leaving a region depart not only with their labor, but also with their purchasing power."

This leads to a divergent set of outcomes depending on the source of the original shock to the economy. If the demand shock comes from internal (region-specific) shock (like, for example, in the case of Ireland where property crash led to massive disruptions in domestic demand and where domestic demand continued to shrink every year since 2008, uninterrupted), the authors find that "…migration may not help regional macroeconomic adjustment." How so? "…we provide a benchmark case where migration has no effect on the per-capita allocations across regions. For this benchmark, the entire demand shortfall in depressed regions is internal, located within the non-tradable sector [again, think Irish construction, property and retail sectors, and associated banking sector bust]. When workers migrate out of a depressed region local labor supply is reduced, but so is the demand non-traded goods, which, in turn, lowers the demand for labor. The two effects cancel, leaving the situation for stayers unchanged."

In contrast, "…when external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers." This, of course, applies to economies like Portugal and Cyprus, where external shocks are the main drivers for the crisis. When depressed regions also suffer from external demand shortfalls, "…migration out of depressed regions may help improve the region’s macroeconomic outcome. For example, at the opposite end of the spectrum, suppose regions only produce traded goods and that there is no home bias in the demand for these goods. The demand for each region’s product is then determined entirely by external demand at the union level, and internal demand plays no special role. In this case, migration out of a depressed region improves the outcome of stayers by increasing their employment, income and consumption."

On a positive side, from Ireland's point of view: "…the degree of economic openness (how much regions trade with one another) turns out to be a key parameter. Openness was proposed by McKinnon (1963) as another precondition for an optimal currency area." Except, of course, as we in Ireland are fully aware, openness can be real (e.g. Swiss exporting indigenous output that is matched by the MNCs exporting out of Switzerland) and accounting (e.g. Irish exports of ICT services or phrama).


Lastly, it is worth noting that the paper does not consider rigidities beyond those present in the pricing mechanisms. Thus, for example, labour laws are not included and neither are hiring practices or promotional practices that can severely skew flows of labour.