Net Benefits

How to Understand the Economic Impact of Migration

Tesfagebriel Abraha, an Eritrean asylum-seeker, works during an apprenticeship in Dortmund, Germany, August 2015.   INA FASSBENDER / REUTERS

To understand the economic stakes in Europe's refugee crisis, start in an unlikely place: the South Pacific island of Tonga. In 2006, the World Bank brokered a deal between this impoverished microstate and nearby New Zealand. Tonga would satisfy New Zealand’s unmet need for fruit pickers by sending some of its citizens to its wealthy neighbor; New Zealand would provide those citizens with employment. The experiment increased the income of participating Tongan workers by a factor of ten, an effect that dwarfed the potential benefit of any imaginable aid program. With this extraordinary leap in income came improvements in everything from the quality of workers’ homes to the school performance of their children. The program cost New Zealand nothing.

As in Tonga, so in Europe and across the world: the cross-border movement of people can boost prosperity more powerfully than other forms of globalization. Trade liberalization can expand countries’ output by a few percentage points—worth having, to be sure, but generally not transformative. International capital flows can in principle improve the allocation of the world’s savings, but they can also misfire, triggering crises. Migration, in contrast, can generate vast increases in living standards. “The gains to eliminating [migration] barriers amount to large fractions of world GDP,” the development scholar Michael Clemens has argued, that are “one or two orders of magnitude larger than the gains from dropping all remaining restrictions on international flows of goods and capital.”

If the gains from migration are so vast, why do political leaders tend to resist new arrivals? The answer lies in the distribution of these gains, the lion’s share of which accrues to the migrants. If a cabdriver from Lima moves to New York, for instance, his skills will remain unchanged, but his income will shoot up dramatically. Yet the economic consequences for New York and for its native-born cabdrivers will not be immediately obvious, and the impact of the migrant’s new job on the Peruvian economy will be hard

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