A Level Economics 24: Migration and Labour Markets

Migration can have significant impacts on labor markets, both in the origin and destination countries. Here are some key effects of migration on labor markets:

1. Labor Supply:

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   • Increase in Available Workers: Migration can increase the overall labor supply in destination countries. Migrant workers bring additional skills, qualifications, and labor resources that can fill gaps in specific sectors or occupations facing labor shortages.
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   • Impact on Wages: The increase in labor supply due to migration can affect wages, particularly in sectors with a high concentration of migrant workers. If the labor supply increases more rapidly than the demand for labor, it can put downward pressure on wages in those sectors.
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   • Complementarity and Substitutability: Migrant workers may possess skills and qualifications that complement the existing workforce, leading to improved productivity and specialization. Conversely, they may also be seen as substitutes for native workers in certain occupations, leading to increased competition for jobs.

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3. Labor Demand:

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   • Fill Skill and Labor Gaps: Migration can help address skill and labor shortages in certain industries or occupations. Migrant workers can contribute to meeting the demand for labor in sectors where there is a lack of local workers with the required skills or willingness to work in those roles.
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   • Sectoral Effects: Migration patterns can influence the composition of labor demand in different sectors. For example, sectors such as construction, agriculture, and healthcare often rely on migrant labor to meet seasonal or specific industry demands.
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   • Entrepreneurship and Innovation: Migrant workers may bring entrepreneurial skills, innovative ideas, and cultural diversity to the labor market, contributing to economic growth and fostering business development.

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5. Wage Differentials and Remittances:

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   • Wage Differentials: Migration can contribute to reducing wage differentials between origin and destination countries. Migrant workers often earn higher wages in destination countries compared to what they would have earned in their home countries, which can help bridge income gaps and improve living standards.
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   • Remittances: Migrant workers frequently send remittances, which are monetary transfers sent back to their home countries. Remittances can have positive effects on the labor markets of origin countries by increasing household incomes, stimulating local consumption, and potentially supporting investment in education, housing, or small businesses.

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7. Skill Drain and Brain Gain:

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   • Skill Drain: The emigration of highly skilled workers from origin countries, often referred to as brain drain, can lead to skill shortages and loss of human capital in those countries. This can negatively impact labor markets and hinder economic development in the origin countries.
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   • Brain Gain: On the other hand, migration can also result in brain gain for destination countries. Highly skilled migrants can contribute their expertise, knowledge, and innovation to local industries, research institutions, and the overall economy, leading to positive labor market outcomes.

It's important to note that the impacts of migration on labor markets can vary depending on factors such as the scale and composition of migration, labor market institutions, policy frameworks, and the social and economic context of both origin and destination countries. Careful management and policies that consider the needs and challenges of both native and migrant workers are essential to harness the potential benefits of migration while addressing any associated concerns or disruptions in labor markets. 

Why do rich Indians migrate?

Brain drain or not, the right to emigrate is fundamental

S A Aiyer

Socialists like health minister Ghulam Nabi Azad won't admit it, but they rather liked the Berlin Wall. They think it's morally right to keep citizens captive at home, unable to migrate for better prospects. Azad has proposed not a brick wall but a financial one: he wants all doctors going to the US for higher studies to sign a financial bond that will be forfeited if they do not return.




Sorry, but the right to emigrate is fundamental. States can curb immigration, but not emigration. The UN declaration of human rights says in Article 13, "Everyone has the right to leave any country, including his own." Article 12 of the International Covenant on Civil and Political Rights incorporates this right into treaty law. It says: "Everyone shall be free to leave any country, including his own. The above-mentioned rights shall not be subject to any restrictions except those provided by law necessary to protect national security, public order, public health or morals or the rights and freedoms of others." The public health exception relates to communicable diseases, not a shortage of doctors.



Hitler didn't give German Jews the right to migrate. Communist East Germany thought it had a right to shoot citizens attempting to escape over the Berlin Wall. The Soviet Union mostly had strict curbs on emigration, but allowed the mass exit of its Jews to Israel after the 1967 war in which Moscow backedthe Arabs. Moscow imposed a "diploma tax" on emigrants with higher education, to claw back the cost of their education. Israel often picked up the bill, leading to sneers that the Soviet Union was selling Jews. International protests obliged Moscow to abolish the tax.



Like the Soviets, Azad wants to claw back sums spent on educating doctors. Like East Germany, he seeks to erect exit barriers by denying Indian doctors a 'no objection certificate' to practice in the US. The right to emigrate does not enter his calculations: Azad does not want this azaadi!



Many Indians will back him, saying the brain drain imposes high costs on India. Well, all principles have some costs, but that's no reason to abandon them. Azad wants curbs just on doctors, but the principle applies to all Indians. Would India be better off if it had kept captive at home economists like Amartya Sen and Jagdish Bhagwati? Three Indian migrants to the US have won Nobel Prizes-Gobind Khurana (medicine) Chandra Shekhar (physics) and V Ramakrishnan (chemistry). Had they been stopped from leaving India, would they have ever risen to such heights?



Cost estimates of the brain drain are exaggerated or downright false. Remittances from overseas Indians are now around $60 billion a year. NRI bank deposits bring up to $30 billion a year. Together, they greatly exceed India's entire spending on education (around $75 billion). Even more valuable are skills brought back by returnees.



Remittances skyrocketed only after India made it easier in the 1990s for students to go abroad. One lakh per year go to the US alone. The number of US citizens of Indian origin has tripled since 1990 to three million, and the US has replaced the Gulf as the main source of remittances.



The brain drain has anyway given way to brain circulation. Youngsters going abroad actually have very limited skills. But they hugely improve their skills abroad, mainly through job experience, so returnees bring back much brainpower.



Indian returnees were relatively few during the licence-permit raj, because omnipresent controls stifled domestic opportunities. But economic liberalization has created a boom in opportunities of every sort, so more Indians are returning. Azad should note that the fast expansion of private hospitals has attracted back many doctors. Scientists, software engineers, managers and professionals of all sorts have flocked back. This carries a simple policy lesson: create opportunity, not barriers.



Millions of Indians will not come back. Yet they do not constitute a drain. They have become huge financial assets for India through remittances and investments.



They have also become a foreign policy asset. Three million Indian Americans now occupy high positions in academia, Wall Street, business and professions. They have become important political contributors, and two have entered politics and become state governors (Bobby Jindal and Nikki Haley). Indian Americans have become a formidable lobby, helping shift US policy in India's favour, to Pakistan's dismay.



However, these are secondary issues. The main issue is human freedom. The UN declaration of human rights recognizes the right to migrate. This fundamental freedom has more value by far than the financial or foreign policy value of the diaspora. Never forget this in the brain drain debate.