Economics of Human Resources

Economics of Brain-Drain

Lecture Map
Introduction (definition of brain-drain) Causes of brain-drain Effects of brain-drain (Arguments in favor and against brain-drain) Policies to stop brain-drain

Introduction
according to the Oxford dictionary of economics brain drain means,

This phenomenon is a form of external migration. Here the people who are migrating are mainly skilled people. The education level of people who are migrating is about secondary education and above. Its a world wide phenomenon i.e., brain-drain is also occurring from developed countries.

A pejorative description of the tendency of the talented people to seek employment in the richer countries. Some times the word Diaspora or Human capital Flight is also being used to describe the same phenomenon.

Causes of Brain-Drain
Two types of factors:
Pull factors:
Economic
wage differential, job opportunities, high demand for skilled worker.

Non-economic

Push factors:

physical and social infrastructure. (good educational and research institutes etc.)

Economic

Non-economic

unemployment, poverty. poor work condition and work habits, non-supporting government policies, political regime etc.

Effects of Brain-Drain
The phenomenon of brain drain is under scrutiny from early 1960s. The work of economists like,
Grubel, H. G. and A. Scott (1966): The international flow of human capital, The American Economic Review, 56: 26874; and Johnson, Harry. (1967): Some economic aspects of the brain drain, Pakistan Development Review, 7, 3: 379-411.

Economists differ about the effects of brain-drain:

Negative effects (arguments against brain-drain) Positive effects (arguments in favor of brain-drain)

Negative Effects
Arguments against brain-drain:
Brain-drain will hurt economic growth The backwash effects (some regions are better off making others worse off. Non Pareto optimal situation. Externalities:
Fiscal externality (burden on left behind and loss of educational subsidies). Technological externality: skilled labor is instrumental in attracting FDI and fostering R&D expenditures

Complementarities of skilled and unskilled labor.

Positive Effects

Arguments in favor of brain-drain:

According to factor price equalization theorem free mobility of labor will equalize their prices. So this will remove wage inequality in the long run and it will also help remove the income inequality of the world. It will result in a pareto optimal situation because, In a world of perfect competition with complete markets, the free mobility of labor would seem to be Paretoimproving: migrants receive higher incomes, natives in the receiving countries can share the immigration surplus, and remaining residents in the sending countries can benefit from the rise in the land/labor and capital/labor ratios.

Positive Effects
The success of the Indian software professionals across the world influences the views by creating a brand image favorable for the industry. Indian nationality for a software programmer sends a signal of quality just as a made in Japan label signals first-class consumer electronics. The industry as a whole benefits from this. Brain-drain will bring social transformation.

Positive Effects
When human capital accumulation is endogenous and if successful emigration is not a certainty, that paradoxically a brain drain may increase the growth of a developing country. The intuition behind this paradox is that the chance of emigration increases the returns to education and may increase human capital accumulation on enough to offset the negative effect of the brain drain itself! The increase in human capital accumulation can occur for both short run and long run reasons.

Positive Effects
The short run reason is simple the individuals optimization decision: a higher expected real wage per efficiency unit implies a greater optimal leave of investment in obtaining these efficiency units. The long run reason is that the brain drain may also effects the long run income distribution in the economy and may cause there to be a greater proportion of highly educated people in the economy. It is show that it is this long run channel that is potentially the most powerful and most long lasting.

Policies to Stop Brain-Drain

Tax on brains (Bhagwati-tax) Improvement in pay scales, working condition and work habits, freedom of work, supporting policies etc. Make emigration laws stricter. Give dual citizenship.