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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.

The Immigration Decision


Source Country
Push Factors
famine
poverty
low wages
unemployment
crowding
high taxes
discrimination
religious persecution
civil war
violence and crime
forced military service
social immobility
Stay factors
family ties
friendships
social status
cultural familiarity
employment
property
familiarity
certainty
political privileges

Destination Country
Immigrants

Costs of Moving
transport costs
dangers of the voyage
time of travel
lost income during move

Formal Exit Barriers


Exit Visa
Exit Tax
Prohibition
Imprisonment
Penalties on Family

Formal Entry Barriers


Entry Visa
Quota
Prohibition
Imprisonment
Fines

Pull factors
higher wages
employment
property rights
personal freedom
economic freedom
civil rights
law and order
peace
religious freedom
educational opportunity
social mobility
lower taxes
Stay away factors
language barriers
cultural barriers
discrimination
low social status
unemployment
low wages
lack of political rights
unfamiliarity
uncertainty
war
crime

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.

Supply-Side Effects of International Migration


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.

Wage

The Labor Market

VMPL
0

Labor

Supply-Side Effects of International Migration


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.

Wage

The Labor Market

SL

VMPL
0

Labor

Supply-Side Effects of International Migration


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.

Wage

The Labor Market

SL
A
A
a

B
VMPL
0

Labor

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
VMPL

10

SL

2
0

VMPL
100

50

Figure 15.7
The Labor Markets in Morocco and France

Migration from Morocco to France


Suppose that 25
million workers
migrate from
Wage
Morocco to France.
The supply of labor
curve shifts to the
left by 25 million in
Morocco.
3
The labor supply
2
curve shifts to the
right in France.
0
The wage rises in
Morocco; it fall sin
France.

Morocco

Wage

France
S

10
8
S

VMPL

VMPL

75

100

50

75

The Labor Markets Before and After Immigration

Who Gains and Who Loses Welfare?


Wage

Morocco

Wage

France
S

D
10
8
S

3
2

VMPL

F
e

g
f

VMPL

h
75

100

50

75

Figure 15.8
Distinguishing 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.
Wage
GDP falls by the
amount of the areas
g + h in Morocco.
GDP rises in France
by the sum of G + 3
H.
2
World GDP rises,
0
since G+H > g+h.
Migration
reallocates labor to
where its marginal
product is greatest.

Morocco

Wage

France
S

D
10
8
S

GG
VMPL

HH

F
e

gg
f

VMPL

hh
75

100

50

75

Figure 15.9
The Gains and Losses of Output After Immigration

The Effects of Migration on World GDP


Native Moroccan
labor not
Wage
immigrating raises
wage income by the
light blue box e.
In France, native
labor loses welfare
3
equal to the light
2
green box E, as
0
total wage income
to native workers
falls from E+F to
just F

Morocco

Wage

France
S

D
10
8
S

EE

G
VMPL

S
F

e e

VMPL

h
75

100

50

75

Native Labor Gains in Morocco,


Native Labor Loses Welfare in France

The Effects of Migration on World GDP


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.

Wage

Morocco

Wage

France
S

10

VMPL

g
f

G
G

d
3
2

D
D
EE

VMPL

h
75

100

50

75

The Gains and Losses to Other Factors

Summarizing the Gains and Losses from Migration:


1. Morocco:
Owners of other (nonlabor) factors:
Remaining workers:
Net change in real income:

loss of e + g
gain of e
loss of g

- 87.50
+ 75.00
- 12.50

2. France:
Workers originally in France:
Owners of other (nonlabor) factors:
Net change in real income:

loss of E
gain of E + G
gain of G

- 100.00
+ 125.00
+ 25.00

3. Immigrants:
Loss of wages in Morocco
Gain of wages in France
Net change in real income:

loss of h
gain of H
gain of (H - h)

- 50.00
+ 200.00
+ 150.00

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

- 12.50
+ 25.00
+ 150.00
+$162.50