321 ch18a-2

Chapter 18 Introduction to

the Economics of Immigration

Push, Pull, Stay, and Stay Away Factors

The incentives that influence immigration fall into four categories:

1. Negative incentives that push people to leave a country;

2. Positive incentives that pull people to immigrate to another country;

3. Positive incentives that cause people to stay at home;

4. Negative incentives that cause people to stay away from a foreign country.

Costs of Moving

Source Country Destination Country

Formal Exit Barriers Formal Entry Barriers

Exit Visa Entry Visa Exit Tax Quota Prohibition Prohibition Imprisonment ImprisonmentPenalties on Family Fines

“Push” Factors

faminepovertylow wagesunemploymentcrowdinghigh taxesdiscriminationreligious persecutioncivil warviolence and crimeforced military servicesocial immobility

“Stay” factors

family tiesfriendshipssocial statuscultural familiarityemploymentpropertyfamiliaritycertaintypolitical privileges

“Pull” factors

higher wagesemploymentproperty rightspersonal freedomeconomic freedomcivil rightslaw and orderpeacereligious freedomeducational opportunitysocial mobilitylower taxes

“Stay away” factors

language barrierscultural barriersdiscriminationlow social statusunemploymentlow wageslack of political rightsunfamiliarityuncertaintywarcrime

transport costsdangers of the voyagetime of travellost income during move

Immigrants

The Immigration Decision

Supply-Side Effects of International Migration

• Economic incentives are most often the driving force behind international migration.

• The supply and demand model of immigration is based on the assumption that people migrate to countries where they expect to improve their well-being.

• A simple version of this model, which is most often used in economics textbooks, assumes that international migration changes the supply of labor in the source and destination countries but leaves the demand for labor unchanged.


• The labor demand curve is, more specifically, the value of the marginal product of labor (VMPL ) curve.

• The VMPL curve is the product of the marginal physical product of labor, MPL, and the price of output, P, or VMPL = MPL x P.

• The marginal product of labor declines as more labor is hired, so the VMPL curve is downward-sloping.

0 Labor

Wage The Labor Market

VMPL


• The equilibrium wage in the labor market is determined by the intersection of the VMPL curve and the labor supply curve.

• The equilibrium wage is equal to w, where the quantity q of labor is supplied.

w

0 q Labor

Wage

c

a

The Labor Market

VMPL

SL


• The area under the VMPL curve represents the total value of output produced in the economy (GDP).

• Total labor income is equal to the wage times the quantity of labor, which is equal to the rectangle B.

• The remaining value of output, the triangle A, provides the income of the remaining productive factors, such as capital and land.

w

0 q Labor

Wage

c

a

A

The Labor Market

A

BVMPL

SL

A Two-Country Model of Migration

• The Figure shows the labor market in two countries, Morocco and France.

• The supply and demand conditions result in equilibrium wages of 10 euros in France and 4 dirham in Morocco.

• If the exchange rate is equal to one euro = 2 dirham, then the comparable Moroccan equilibrium occurs at 2 euros.

Wage Morocco Wage France

SL

SL

VMPL

VMPL10

2

0 100 0 50

Figure 15.7The Labor Markets in Morocco and France

Migration from Morocco to France

• Suppose that 25 million workers migrate from Morocco to France.

• The supply of labor curve shifts to the left by 25 million in Morocco.

• The labor supply curve shifts to the right in France.

• The wage rises in Morocco; it fall sin France.


S’ S

S S’

VMPL

VMPL

10

2

0 75 100 0 50 75

The Labor Markets Before and After Immigration

8

3

Who Gains and Who Loses Welfare?


S’ S

S S’

VMPL

VMPL

10

2

0 75 100 0 50 75

8

3d F H

e g

f h

D

E G

Figure 15.8Distinguishing the Gains and Losses from Immigration in Morocco and France

The Effects of Migration on World GDP

• The value of output (GDP) changes in both countries.

• GDP falls by the amount of the areas g + h in Morocco.

• GDP rises in France by the sum of G + H.

• World GDP rises, since G+H > g+h.

• Migration reallocates labor to where its marginal product is greatest.


S’ S

S S’

VMPL

VMPL

10

2

0 75 100 0 50 75 Figure 15.9The Gains and Losses of Output After Immigration

8

3d F H

e g

f h

D

E GG

H

g

h


• Native Moroccan labor not immigrating raises wage income by the light blue box e.

• In France, native labor loses welfare equal to the light green box E, as total wage income to native workers falls from E+F to just F


S’ S

S S’

VMPL

VMPL

10

2

0 75 100 0 50 75

Native Labor Gains in Morocco, Native Labor Loses Welfare in France

8

3

d

e g

D

E G

H

h

e

f

E

F


• Outmigration in Morocco reduces the income of other factors by the areas e+g to just d rather than d+e+g.

• In France, other factors raise their income by E+G when Moroccan immigrants arrive.


S’ S

S S’

VMPL

VMPL

10

2

0 75 100 0 50 75

The Gains and Losses to Other Factors

8

3

f h

D

E G

d

e g

D

E G

F H

Summarizing the Gains and Losses from Migration:

1. Morocco:Owners of other (non‑labor) factors: loss of e + g - 87.50Remaining workers: gain of e + 75.00Net change in real income: loss of g - 12.50

2. France:Workers originally in France: loss of E - 100.00Owners of other (non‑labor) factors: gain of E + G + 125.00Net change in real income: gain of G + 25.00

3. Immigrants:Loss of wages in Morocco loss of h - 50.00Gain of wages in France gain of H + 200.00 Net change in real income: gain of (H - h) + 150.00

World (1 + 2 + 3): Net change in Moroccan real income: loss of g - 12.50Net change in French real income: gain of G + 25.00Net change in immigrants’ real income: gain of (H-h) + 150.00

Net gain: gain of (H+G) - (h+g) +$162.50

321 ch18a-2

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