While the economic theory that links income to productivity
explains how things will be, rather than how they ought to be, it does have some moral force. There is clearly some presumption
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that in large part the fruits of labor should belong to the worker.
However, the principle that income can be taxed in order to benefit others is also well established, and so migrants do not have an exclusive claim to the gain in productivity. Of course, like indigenous workers in host countries, they will be subject to the country’s tax system, but this is in no sense immigrant-specific. Is there an ethical basis for requiring migrants to contribute more than this, and if so, to whom?
The most prominent such claim has been made on behalf of
the societies of origin. Professor Jagdish Bhagwati, a highly distinguished economist at Columbia University and himself an emigrant from India, has long proposed that migrant workers should pay a special supplemental tax, the revenue from which would accrue to their countries of origin. At least superficially, this is ethically very attractive: migrants receive a massive windfall gain that makes them dramatically better off and so able to help their much poorer fellow citizens in the country they have left. From the utilitarian universalist perspective such an income transfer is highly beneficial: since the migrants are much better off than the people left behind, a financial transfer reduces the utility of migrants by much less than it increases the utility of recipients. Of course, within the utilitarian universalist framework the same argument could be used to justify a large tax transfer from the indigenous population of high-income societies.
But if the utilitarian ethical framework leaves you feeling unconvinced, then it becomes somewhat harder to find good reasons to justify a migrant-specific tax. A special tax could be seen as compensation for the education that the migrant received before leaving. But its costs are modest relative to the gains in productivity: they may not justify a significant rate of taxation. Indeed, the migrant might reasonably retort that it is only because elites within her country of
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origin have mismanaged the society so badly that it is necessary for her to migrate in order to realize the productivity of which she is capable. The elites who control the society should not, therefore, be rewarded by an enforced tax transfer.
The migrant might also plead that she indeed cares sufficiently deeply about her society of origin to send money home, but since she does not trust its elites, she prefers to send it to individuals in her own family. There is plenty of evidence for such behavior: the typical migrant makes remittances of around $1,000 per year to her country of origin. If migrants had to pay a substantial tax to the government of their country of origin, they would probably reduce their remittances: not only would the tax reduce available income, it would provide an alibi for reduced generosity to relatives. Analo-
gously, public provision of welfare reduces private charity. 5
While the claims of the country of origin for rightful ownership of the productivity windfall from migration are weaker than might at first appear, those of the host country are somewhat stronger.
After all, the gain in productivity is due to the superior social model of the host country. This social model is a form of public capital: a productive asset that has been accumulated over a long period, less concrete than a road network but not less important. The accumulation of this public capital has been paid for by the indigenous population. The form of payment might not have been obvious.
Inclusive political institutions are now seen by economists as valuable for economic development, but they have usually been produced by political struggle. Modern productivity is built on the back of past street demonstrations and protests that cracked the power of self-serving, extractive elites. So the windfall gains from migration are attributable ultimately to the public capital that has been built by the indigenous population. In a market economy these gains accrue to migrants rather than to the indigenous population.
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But that is because they are generated by a public good whose provision is not organized in such a way as to capture the benefits.
Migrants benefit for free from capital that has been costly to accumulate.
There are, however, very powerful arguments against migrant-
specific taxes. All such taxation, whether it accrues to the host country or the country of origin, lowers the net income of immigrants relative to that of the indigenous population in the host society. Were the net incomes of migrants reduced, it would be more difficult for them to match the living standards and life-styles of their host societies. The taxation of migrants would be the surest way of making them second-class citizens, making
integration more difficult. Even without migrant-specific taxation, in some host societies immigrants tend to become an underclass due to a combination of less education than the indigenous population, a lack of the tacit knowledge that contributes to productivity, and discrimination. Where this happens it is rightly seen as a social problem to which major resources must be
devoted. Imposing a tax on immigrants with one hand while
attempting to undo its consequences with the other would be an incoherent policy.
Further, if the revenue from an immigrant tax accrued to the
indigenous population, it could have the paradoxical effect of deepening the hostility of the indigenous population toward immigrants.
Its true rationale would not be a compensation for losses inflicted on the indigenous population. Rather, it would be a windfall return on public capital. But the political forces that are viscerally hostile to immigrants would surely interpret the tax as recognition by the elite that immigration has been detrimental. The narrative would surely develop that the tax reflected merely a sop by the elite in token recognition of the damage being done to others. In other
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words, it might inadvertently legitimize the popular misconception that immigration is economically damaging to the indigenous
population.
The bottom line is that the free lunch that comes from the windfall productivity gain as migrants move from dysfunctional to functional societies will continue to accrue to migrants. Migrants are the beneficiaries of migration.
Migration as an Investment
A corollary is that since these gains are large, people in poor countries should find migration very attractive. Of course, the most direct evidence is from migration itself: as described in chapter 2, migration from poor countries to rich ones has been increasing sharply. Further, few immigrants reveal sufficient signs of regret to decide to return to their countries of origin.
While the fact that someone has migrated is reasonable evidence that he wanted to do so, the fact that someone has not migrated cannot be interpreted as evidence that he does not wish to do so. There are many impediments to migration, both financial and legal.
Many people simply cannot afford to migrate: it is a form of
investment. Like all investments, costs have to be incurred up front, while benefits come gradually over time. The costs of migration can be substantial, especially when benchmarked against income levels in poor countries. Typical incomes in the poorest countries are under $2,000 per year, so that even an international airfare would usually require years of savings. But the best time for migration is while the worker is still young. Young people are not so tied down by dependents, and they have longer working lives ahead of them to recoup their investment. But young people face the most acute problems of financing an investment.
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Not only does migration have high initial costs and only gradual payback, but that payback is risky. Usually the migrant cannot know whether she will get a job, and if the decision turns out to be a mistake, it is costly to reverse. Not only are there the practical costs of tra
veling back home and searching for a job, there are psychological costs of publicly admitting to failure in a context where many other migrants are perceived as having succeeded. Imagine being the son who returns home broke to a neighborhood where
other families are bragging about how well their sons have succeeded. If the cost of failure is high, then a likely attitude is risk aversion: people avoid taking the risk even if the odds make it a reasonable bet.
In high-income countries investments that are costly and risky do not have to be self-financed: they can be financed from a variety of sources. But in the poorest countries financial institutions do not serve ordinary people. The only source of funding is the family.
This gives rise to two important characteristics: selection by income and family decisions.
At first glance it might be imagined that the people most likely to migrate would be the poorest: after all, the driver for migration is income differentials, and the differential between income in the country of origin and the host country is widest for the poorest potential migrants. But while the income differential determines the eventual payoff, the initial level of income determines the ability to finance the investment. In combination, these opposing influences generate a relationship between income and the propensity to
migrate shaped like an inverted U. The poorest people would like to migrate but cannot afford it; the richest people could afford it but would get little benefit, while the people in the middle of the income distribution have a substantial incentive to migrate and are also able to finance it. Migration helps people to transform their lives, but
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these people are not among the poorest. Selection by income is important both in determining who within a country migrates—the middle-income people—and which countries have the highest emigration rates. For example, the Sahel, the world’s poorest region, has not had emigration rates commensurate with its extreme poverty. Being so crushingly poor has made it difficult for people to finance the costs, while its being landlocked has made migration particularly expensive. Finance constraints give rise to an apparent paradox: an increase in income in the country of origin can actually increase emigration from it.
Young people are not usually in a position to finance their own migration. Their obvious recourse is the family, but the family is likely to expect something in return. Nor would such an expectation be unreasonable. Parents will have made sacrifices for the education of their children. Few sons give the proverbial response
“Mother, you’ve worked hard for me all your life, now go out and
work for yourself”? 6 Further, the loss of a young worker leaves the family with fewer breadwinners. The most obvious potential payback is remittances. The deal: we finance your migration now, but you will send us a share of your earnings later. Such a deal sounds attractive, but it is potentially problematic. It cannot be legally enforced; it is just a promise. Worse, it is a particularly unpromising type of promise—one that economists term “time inconsistent.”
Economists inhabit a rather chilling world in which people act only on their rational self-interest. Fortunately, our actual world is often more generous-spirited—hence mutual regard—but the implications of brute rational self-interest cannot be lightly dismissed.
Unfortunately, while it is rational for the young would-be migrant to promise remittances in order to get his ticket paid, once the ticket has been handed over, it is also rational for him to break his promise. International migration enables the migrant to escape the
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clutches of the family in the country of origin, and so enforcement is more difficult than is the usual promise. Evidently, what matters is trust. Especially in poor societies where overall trust levels are low, families function as islands of high trust. But even so, those migrants who wish to honor their commitment may wish regularly to signal to their family back home that they are doing their best.
This may explain one of the current paradoxes in the analysis of remittances, namely that migrants typically choose to make small
regular payments home. 7 From the naive economic perspective,
small and regular is stupid. The transactions costs of making remittances include a fixed charge that heavily penalizes small transfers.
It would be much cheaper for the migrant to accumulate cash and occasionally send a single large payment. The only big winner from the prevailing pattern of small-and-frequent appears to be the wire agency Western Union. But one unexplored explanation for such behavior is that small and frequent installments signal to the family back home that they are not forgotten. They give the appearance that the migrant is constantly struggling to put together something to send back. In contrast, were the family to receive only infrequent large amounts (albeit with the same total), the behavior could be misinterpreted as indicating that the migrant had done very well but was only fitfully remembering his obligations.
If the family is financing the costs of migration and benefiting from it through subsequent remittances, it is possible that the decision to migrate is not truly a decision of the migrant, but of the migrant’s family, and numerous studies of migration support this depiction. 8 In effect, rather than people choosing to change their country, families are choosing to become transnational. Families in poor countries are the mirror image of companies in rich ones.
While the multinational companies are predominantly anchored in high-income countries, the multinational families are predominantly
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anchored in low-income ones. Through companies, households in high-income countries send their surplus capital to poorer countries; meanwhile through families, households in low-income countries send their surplus labor to rich ones.
Please Let Us In
The need to finance the investment in migration is only one of the impediments to it. People might want to migrate and be able to finance it and yet be unable to do so because they face immigration restrictions in their preferred host country. Indeed, as discussed in chapter 2, in response to accelerating immigration, all high-income countries now impose immigration restrictions of some form or another. Faced with restrictions, the potential migrant has three options other than to remain at home. He could try to acquire the characteristics that enable him to satisfy the restrictions. He could try to cheat: getting the permission to migrate despite lacking the necessary characteristics. Most desperately, he could try to evade the physical barriers that impede the immigration of those who do not have permission to migrate. Put yourself in the place of a would-be migrant pondering these options.
The restrictions that host countries impose on migrants vary
considerably. Most impose some minimum requirements for edu-
cation, and some add professional skills. This is because indigenous populations in host countries gain more from a highly educated migrant than from an uneducated one. For one thing, the distribu-tional consequences are also likely to be better, with immigrants less likely to be in open competition with the lowest earning indigenous workers. Australia and Canada pioneered educational entry requirements, probably because they are so obviously immigrant societies that the details of policy toward immigration cannot be
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dodged by the mainstream political parties. Migration policy has been actively debated and so is coherently designed to be in the interest of the indigenous population. Reflecting this, Australian and Canadian educational requirements are the most demanding.
America is next: perhaps again, because immigration is in America’s DNA, policy debate has been somewhat more open. Europe has the least educationally demanding entry requirements. This surely reflects the absence of reasoned policy debate on the issue, as discussed in chapter 1. European immigration requirements are now rising, but this may have been driven more by the need for gestures than by a well-reasoned case.
An unintended effe
ct of these restrictions is to increase the demand for education in poor countries: educational attainment is the passport out. Young people may not even know whether they will want to migrate, but education is a form of insurance. This is particularly important for ethnic minorities that might face discrimination in their country of origin: education provides protection.
An instance of this behavior is the Indian ethnic minority in Fiji.
After a long period of peaceful coexistence, a coup by indigenous army officers led to a period of anti-Indian rhetoric and discrimination that drove many people to leave. Since then, even though the interim government lost power and policy returned to normal,
Indians have invested heavily in education so as to be able to gain entry to Australia if necessary. As a result, the Indian ethnic group has become significantly better educated than the rest of the indigenous population. Educational responses to the opportunity to migrate turn out to be important for the effects back in countries of origin, which I will consider in part 4.
While educational restrictions are increasingly common, host
countries also impose a wide array of other conditions. The most important of these concern family ties: migrants are allowed to join
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family members who are citizens of host countries. But family ties are not set in stone: marriage creates them. Indeed, it is a truth universally acknowledged (at least in countries of origin) that an unmarried migrant in a high-wage country is in want of a wife.
Especially in the context of arranged marriages, where the selection of the spouse is a family decision, families in countries of origin may decide to overcome entry barriers through marriage. Were the marriage contracted with the intention of it being purely a temporary device by which to gain the right of entry, it would clearly be an abuse of that right. But if families routinely decide on marriage partners on the basis of financial eligibility, then a preference for migrants as spouses is understandable, and indeed inevitable. So two of the predictable consequences of restrictions on migration are that families in the country of origin struggle harder to educate their children and send flattering photographs of their unmarried offspring to established migrants.
Paul Collier Page 15