Destination countries are progressively shifting towards selective immigration policies. These can effectively increase migrants' average education even if one allows for endogenous schooling decisions and education policies at origin. Still, more selective immigration policies reduce social welfare at origin.international migration, selective immigration policies, education policies, social welfare

Bertoli, Simone

Brücker, Herbert

English

Research Papers in Economics

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Forschungsinstitut 
zur Zukunft der Arbeit
Institute for the Study 
of Labor 
Selective Immigration Policies, Migrants’ Education 
and Welfare at Origin
IZA DP No. 5395
December 2010
Simone Bertoli
Herbert Brücker 
Selective Immigration Policies, 
Migrants’ Education and Welfare at Origin 
 
 
 
Simone Bertoli 
RSCAS, EUI 
 
Herbert Brücker 
University of Bamberg, 
IAB and IZA 
 
 
 
 
Discussion Paper No. 5395 
December 2010 
 
 
 
IZA 
 
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available directly from the author. IZA Discussion Paper No. 5395 
December 2010 
 
 
 
 
 
 
 
 
 
 
 
ABSTRACT 
 
Selective Immigration Policies, 
Migrants’ Education and Welfare at Origin
* 
 
Destination countries are progressively shifting towards selective immigration policies. These 
can effectively increase migrants’ average education even if one allows for endogenous 
schooling decisions and education policies at origin. Still, more selective immigration policies 
reduce social welfare at origin. 
 
 
JEL Classification:  F22, J24, H52, 015 
  
Keywords:  international migration, selective immigration policies, education policies, 
social welfare 
 
 
Corresponding author: 
 
Simone Bertoli 
Robert Schuman Centre for Advanced Studies 
European University Institute 
Via delle Fontanelle 19 
I-50014, San Domenico di Fiesole 
Italy 
E-mail: sb3151@gmail.com   
 
                                                 
* The authors gratefully acknowledge financial support from the TEMPO project funded by NORFACE 
and from the TOM project funded by the 6th framework programme of the EU. The authors wish to 
thank Sascha Becker, Tito Boeri, Giovanni Facchini, Anna Maria Mayda and Giovanni Peri for their 
useful comments; the authors are also grateful to the participants to the fRDB XI European 
Conference, Pisa, May 2009, where an earlier draft of this paper was presented; the usual disclaimers 
apply. 1 Introduction
This paper analyzes the impact of skill-selective immigration policies on migrants' education
and welfare in the sending countries in a model where schooling decisions and education
policies at origin are endogenously determined. More and more destination countries are
moving towards the adoption of immigration policies which out-select applicants on the
basis of human capital criteria.1 The eects of this policy shift depends upon how would-be
migrants adjust their schooling choices, and upon the possible changes in public policies
towards education at origin.
Our analysis draws on the literature on the benecial brain drain (Mountford, 1997;
Stark, Helmenstein, and Prskawetz, 1997; Beine, Docquier, and Rapoport, 2001), which is
built upon the idea that would-be migrants' schooling choices are endogenous with respect
to the prospect to migrate. In his seminal contribution to this literature, Mountford (1997)
argues that selectivity can improve the private incentives to invest in education, as would-be
migrants want \to be [better] eligible for emigration". This represents only a part of the
story, as policy makers in origin countries do not behave as passive bystanders in the contest
for talent, but rather adjust their education policies in response to changes in immigration
policies. Such a reaction is induced by the fact that the policy stance at destination aects
the social return to education as well as the private incentives to bear a larger share in the
costs of education.
The model that we propose is related to other papers that analyze the eects of a greater
labor mobility on the nancing of education (Justman and Thisse, 1997) and on migrants'
average education (Stark and Wang, 2002; Docquier, Faye, and Pestieau, 2008). In contrast
to the theoretical models by Stark and Wang (2002) and Docquier, Faye, and Pestieau
(2008), which assume that destination countries adopt general immigration policies that do
not out-select applicants by their skill-level, our model considers not only the eects of a
greater openness but also the eects of a greater selectivity, which is becoming an increasingly
salient feature of immigration policies.
Our theoretical analysis reveals that a shift towards a more selective immigration policy
which keeps the scale of migration unchanged improves the average level of schooling of
the immigrants, and of the stayers at origin. While such a policy shift is benecial for the
1\Countries that are non-selective and have relatively few highly skilled immigrants [...] may be most
likely to demand increased levels of highly skilled migration in the future" (OECD, 2009).
2countries of destination, it is detrimental for the sending countries, where social welfare falls
notwithstanding the adjustment of education policies following the change in the migration
prospects.
2 Selective immigration policies and schooling choices
We consider a small open economy populated by one-period lived agents. We assume per-
fect credit markets, and no heterogeneity across agents as in Stark and Wang (2002) and
Docquier, Faye, and Pestieau (2008). An agent endowed with s years of schooling earns a
log wage !0(s) which is given by
!0(s) = 0 + 0s: (1)
We assume that education gives rise to positive intra-generational externalities, so that
the baseline component 0 in (1) is an increasing function of the average level of schooling
in country 0, s0. For the sake of simplicity, we assume a linear relationship between 0 that
and s0
0 = 0s0: (2)
The private cost of acquiring schooling, c(s), is increasing and convex in s
c(s) = 0(1   0)s
2; (3)
where 0 is a cost-shifter parameter and 0 is a public education subsidy (Mayr and Peri,
2009). The subsidy 0 is nanced with a lump-sum tax 0, whose amount is determined by
the equilibrium condition of the scal balance2
0 = 0c(s
e
0); (4)
2We assume risk neutrality, as it is standard in the literature, so that it is immaterial to specify whether
the government levies taxes only on non-migrants, or it also imposes a Bhagwati-tax on migrants (Bhagwati,
1979).
3where se
0 is the equilibrium level of schooling. Agents can opt for migration to a foreign
country,3 where log wages !1(s) follow
!1(s) = 1 + 1s: (5)
We assume that 1 > 0, while we do not introduce any assumption on the domestic
and foreign private returns to schooling 0 and 1.4 Migration is a probabilistic event whose
outcome is unknown when agents make their schooling choices, and an agent with s years of
schooling who applies for migration has a probability p(s)  0 to be admitted at destination.
We assume that p(s) is non-decreasing in s, so that we allow destination countries to confer
a better chance to migrate to better educated applicants.
Given p(s), which we assume to be dierentiable in s, a risk-neutral agent choses s so to
maximize expected utility
EU(s) = [1   p(s)]!0(s) + p(s)!1(s)   c(s)   0: (6)
Given (1)-(5), the rst order condition for the maximization of (6) is represented by5
0 + p(s)(1   0) + p
0(s)[!1(s)   !0(s)] = 20(1   0)s: (7)
The private return to schooling on the left hand side of (7) is a weighted average of 0 and
1, plus a positive term that depends the dierential in log wages between the two countries,
and on the extent to which the education-migration probability prole p(s) rewards an
3See Bertoli (2010) for a migration model where foreign wages are only locally observable, i.e. they cannot
be observed before migration occurs.
4The empirical literature has not yet reached a consensus on the relationship between the level of income
of a country and the private returns to schooling: the extensive review by Psacharopoulos and Patrinos
(2004) suggests that \the returns are lower in the high-income countries of the OECD", while Banerjee and
Duo (2005) argue that \the returns to one more year of education are [...] no higher in poor countries",
and Barro and Lee (2010) recently provided evidence that the private rate of return to an additional year
of schooling is higher in advanced countries than in lower-income countries. Furthermore, the literature
suggests that relative migration costs decline with schooling (Chiquiar and Hanson, 2005; McKenzie and
Rapoport, 2010), and it is the foreign return to schooling net of migration costs which drives schooling
decisions at origin (Bertoli and Br ucker, 2010).
5Throughout the paper, we assume that (7) suces to uniquely identify the optimal schooling choice, i.e.
(6) is concave in s.
4additional year of schooling in terms of better chances to migrate. For analytical convenience,
we assume that p(s) is an ane function of schooling s
p(s) = ' + s; (8)
with due restrictions on ' and  which ensure that 0  p(s)  1.6 Under the functional
specication in (8), we can explicitly dene the utility-maximizing level of schooling sa
0
s
a
0 =
0 + '(1   0) + (1   0)
2[0(1   0)   (1   0)]
: (9)
The choice of sa
0 depends - via sa
0 - on the schooling choices of the other agents, which in
equilibrium need to be identical; combining (9) and (2), we can derive the equilibrium level
of schooling se
0
s
e
0 =
0 + '(1   0) + 1
2[0(1   0)   (1   0  
0
2 )]
: (10)
2.1 The optimal education subsidy 
0
The optimal level of the education subsidy 0 is determined by the maximization of the
social welfare function; we assume here that the government wish to maximize the expected
utility of the representative domestic agent.7 Such a choice entails that the social return
to schooling that drives the choice of 0 does not respond to domestic factors alone, as it
would do if the social welfare function was dened only on non-migrants' utilities. Hence,
the objective of the social planner is to maximize social welfare W, which is given by
W(s
e
0) = EU(s
e
0); (11)
subject to the equilibrium condition for the scal balance in (4). The rst order condition
for the constrained maximization problem faced by the social planner is given by
6Observe that (8) can be thought as a linear approximation of a more general education-migration prob-
ability prole p(s).
7Stark and Wang (2002) assume that the government maximizes the utility of the non-migrants, but they
suggest that dierent implications could be derived \if the problem of the social planner in the presence
of the possibility of migration is perceived as maximizing the ex ante expected net earnings", and here we
analyze the implications of this alternative assumption.
5@W(se
0)
@0
=
@se
0
@0
h
[1   p(s
e
0)](0 + 0) + p(s
e
0)1 + [!1(s
e
0)   !0(s
e
0)]   20s
e
0
i
= 0: (12)
With some tedious but straightforward algebra it is easy to verify that the optimal
education subsidy 
0 which satises (12) is


0 =

20
0 +
0(1   ')
0 + 0 + '(1   0   0) + 1
h
1  

0
(1   0   0)
i
; (13)
and the adoption of 
0 induces the socially optimal level of education s
0
s

0 =
0 + 0 + '(1   0   0) + 1
2[0   (1   0   0)]
: (14)
When there are no options to migrate, i.e. ' =  = 0, then the optimal level of the
subsidy is
0
0+0, and the resulting optimal level of schooling is
0+0
20 .
2.2 Changes in immigration policies and migrants' skills
Changes in the shape of p(s) inuence both the private incentives of the agents in country
0 to invest in education, and the education subsidy which is set by the government. From
(14), we can observe that the combined impact of this two distinct eects is given by
@s
0
@'
=
(1   0   0)
2[0   (1   0   0)]
; (15)
and by
@s
0
@
=
!1(s
0)   !0(s
0)
2[0   (1   0   0)]
> 0: (16)
In words, a marginal increase in the baseline probability to migrate ' produces an impact
on s
0 which is ambiguous,8 while a greater selectivity increases the average skill level of the
migrants as well as that of the population at the country of origin.
We can implicitly dene a family of functions fs('), such that an immigration policy
p(s) characterized by

';fs(')

determines an average education of the migrants equal to
8The ambiguity would not be resolved by introducing assumptions on the private returns to schooling
in the two countries; (15) is positive (negative) if the private return to schooling at destination is higher
(lower) than the social return to schooling at origin, with this asymmetry following from the fact that the
government does not internalize the impact of its education policies on the country of destination.
6Figure 1: Increasing migrants' skill levels for a given scale of migration
s. Combining (15) and (16), we can observe that
f
0
s(') =
1   0   0
!1(s
0)   !0(s
0)
; (17)
whose sign coincides with the sign of (15). The family of functions fs(') identies a map of
curves in the (';) space, where higher curves correspond to a higher migrants' skills.
2.3 Changes in immigration policies and the scale of migration
A marginal variation in the pair (';) which identies the function p(s) also inuences
the scale of migration, which is proportional to p(s
0); we can implicitly dene a family of
functions gp('), such that an immigration policy p(s) characterized by

';gp(')

gives rise
to a scale of migration which is proportional to p(s
0) = p. The implicit function theorem
implies that
g
0
p(') =  
1 + 
@s
0
@'
s
0 + 
@s
0
@
< 0: (18)
It is easy to prove that, for any pair (';), the following relationship holds
g
0
p(') < f
0
s('): (19)
7This entails that a marginal reduction in ' along the graph of the function gp(') improves
migrants' skills while leaving the scale of migration unchanged, as depicted in Figure 1.
Dierently from Docquier, Faye, and Pestieau (2008), Figure 1 also evidences that destination
countries can become more open to immigration while simultaneously increasing immigrants'
average level of schooling: this occurs whenever we move from a point (';) towards a point
that lies above both the gp(') and fs(') schedules.9
2.4 Selectivity and welfare at origin
Which is the impact upon the social welfare in the country of origin when the country of
destination increases the selectivity of its migration policy to improve migrants' education
levels? More specically, what happens with a a marginal reduction in ' along the graph of
the function gp('), so that the policy shift towards selectivity occurs with an invariant scale
of migration? We can apply the envelope theorem to the social welfare function W together
with (12) to observe that
"
@W(s
0)
@'
+ g
0
p(')
@W(s
0)
@
#
@' = [!1(s

0)   !0(s

0)]@': (20)
There are conicting interests in the setting of immigration policies, as (20) reveals that
a shift towards a greater selectivity at destination, i.e. a lower ', reduces the social welfare
in the country of origin of the migrants, notwithstanding the adjustment of the education
subsidy in the face of a changing immigration policy.
3 Concluding remarks
This paper demonstrates that selective immigration policies can be an eective tool for
increasing migrants' education when considering endogenous individual schooling choices
and optimal education subsidies at origin. Though a greater selectivity increases the average
level of schooling of the stayers, it unambiguously reduces social welfare in migrants' sending
countries. The predicted divergence suggests that the inuence exerted by the prospect to
9Docquier, Faye, and Pestieau (2008) argue that origin countries react to a higher probability of migration
for their workers by cutting down education subsidies to such an extent that migrants' average level of
education actually declines, so that \the benecial brain drain hypothesis hardly resists a normative analysis".
8migrate upon stayers' average education, which represents the focus of the benecial brain
drain literature, might not be informative about its impact on welfare at origin.
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A brain gain with a brain drain,&quot;

A New Data Set of Educational Attainment in the World, 1950-2010,&quot; mimeo,

Brain Drain and Brain Return: Theory and Application to Eastern-Western Europe,&quot; The B.E.

Brain drain and economic growth: theory and evidence,&quot;

Can a brain drain be good for growth in the source economy?,&quot;

Growth Theory Through the Lens of Development Economics,&quot;

Implications of the mobility of skilled labor force for local public funding of higher education,&quot;

Inducing human capital formation: migration as a substitute for subsidies,&quot;

International migration of the highly skilled: economics, ethics and taxes,&quot;

International Migration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States,&quot;

Is migration a good substitute for education subsidies?,&quot;

Patrinos (2004): \Returns to investment in education: a further update,&quot;

Self-selection patterns in Mexico-U.S. migration: The role of migration networks,&quot;

The Future of International Migration to OECD countries.

The informational structure of migration decision and migrants' selfselection,&quot;

ucker (2010): \Extending the case for a bene brain drain,&quot;

Selective Immigration Policies, Migrants' Education and Welfare at Origin

Selective Immigration Policies, Migrants' Education and Welfare at Origin

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