International migration happens because individuals want to increase their personal welfare by moving to a new country. In addition, it has effects on the welfare of those who decide not to migrate and remain in their origin countries. This dissertation looks at the overall topic of international migration from three very different angles: 1) who the migrants are or the study of the productive characteristics of migrating individuals with respect to nonmigrants, 2) what the long run effect of migration is and specifically whether it can contribute to Social Security sustainability, and 3) why countries sign bilateral migration agreements to try to regulate migration flows

Fernández-Huertas Moraga, Jesús

English

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Dissertation Awards 1-1-2008 Essays on International Migration: Dissertation Summary Jesús Fernández-Huertas Moraga Columbia University Follow this and additional works at: https://research.upjohn.org/dissertation_awards 2008 Dissertation Summaries 11Essays on International MigrationJesús Fernández-Huertas MoragaInternational migration happens because individuals want to increase their personal welfare by moving to a new country. In addition, it has effects on the welfare of those who decide not to migrate and remain in their origin coun-tries. This dissertation looks at the overall topic of interna-tional migration from three very different angles: 1) who the migrants are or the study of the productive characteristics of migrating individuals with respect to nonmigrants, 2) what the long run effect of migration is and specifi cally whether it can contribute to Social Security sustainability, and 3) why countries sign bilateral migration agreements to try to regu-late migration fl ows.In Chapter 1, “New Evidence on Emigrant Selection,” I examine the extent to which Mexican emigrants to the United States are negatively selected; that is, they have lower skills than individuals who remain in Mexico. Previous stud-ies have been limited by the lack of nationally representative longitudinal data. This one uses a newly available household survey, which identifi es emigrants before they leave and al-lows a direct comparison to nonmigrants. I fi nd that, on aver-age, U.S.-bound Mexican emigrants from 2000 to 2004 earn a lower wage and have fewer schooling years than individu-als who remain in Mexico, evidence of negative selection. This supports the original hypothesis of Borjas (1987) and argues against recent fi ndings, notably those of Chiquiar and Hanson (2005). The discrepancy with the latter is primarily due to an undercount of unskilled migrants in U.S. sources and secondarily to the omission of unobservables in their methodology.Studying emigrant selection is relevant because it affects welfare and its distribution both in immigrant-receiving and in emigrant-sending countries. Thus, economists have long tried to explain how emigrants self-select. On the theory side, Borjas (1987) stated that most immigrants should be low skilled when the reward to skills or earnings inequality in their home country is higher than the reward to skill or earn-ings inequality in the receiving country. This is the case be-tween Mexico and the United States (2006) so that negative selection, meaning that emigrants are on average less skilled or productive than those who do not migrate, should charac-terize migration fl ows between the two countries. However, Chiquiar and Hanson (2005) found that Mexican immigrants in the United States originated in the medium-high range of the Mexican wage distribution, which is interpreted as evidence of positive selection. Their data on Mexican im-migrants came mainly from the U.S. census, which is known to suffer from undercounting immigrants, especially if they are undocumented. Other studies fi nding positive selection were mainly based on the Mexican Migration Project, which provides detailed information about a particular region in Mexico but is not representative of the whole country.This chapter addresses these data problems by using the Encuesta Nacional de Empleo Trimestral (ENET) and the Quarterly National Labor Survey (INEGI). This household survey is representative at a national level and it follows households for fi ve quarters so that it allows recovering the wage income and other characteristics (like education) of Mexican emigrants (both documented and undocumented) in the previous quarter to that in which they decided to leave the country. The wage distribution of Mexican emigrants is shifted to the left of the wage distribution of Mexican nonmigrants for both men and women. As long as the wage is a valid measure of the marginal product of labor, this implies that Mexican emigrants to the United States are on average less productive than those who remain at home. In conclusion, the main result of this chapter is the existence of negative selection in the emigration fl ows from Mexico to the United States for the period 2000–2004.The procedure to test the selectivity of emigrants from Mexico to the United States is similar to Chiquiar and Hanson’s (2005) methodology. They compare the 1990 and 2000 distribution of wages from individuals in the Mexi-can census with the counterfactual wage densities Mexican immigrants to the United States would obtain were they to return to Mexico according to their characteristics in the corresponding U.S. census. Chiquiar and Hanson follow the DiNardo et al. (1996) approach to build counterfactual wage densities and fi nd they lie to the right of the actual resident wage distribution, interpreting this as evidence of positive to intermediate selection in terms of observable skills refl ected in the wage. The ENET does not require the construction of counterfactual wage densities since actual wages of future emigrants can be observed directly. The only exercise is to estimate wage densities for migrants and nonmigrants based on the direct observation of their wages at the same period and to compare them. Contrary to Chiquiar and Hanson, I fi nd evidence of negative selection in terms of skills (both observable and unobservable) refl ected in the wage levels. The comparison of the schooling distributions of migrants and nonmigrants also displays negative selection.The discrepancy between this chapter and Chiquiar and Hanson could be related to three factors. First, their results refl ect selection in the stock of migrants in the United States, obtained from the U.S. census, whereas the information in the ENET corresponds to selection on the fl ow of migrants. Second, their methodology cannot take potentially relevant unobservable characteristics into consideration in the estima-tion of counterfactual wages. Third, U.S. sources are known to undercount Mexican immigrants. All three explanations can be explored with the ENET data.In order to address the fi rst point, stock versus fl ows, whenever I replicate Chiquiar and Hanson’s result, I use information only on recently arrived Mexican immigrants. 12 2008 Dissertation SummariesRecently arrived migrants are those who have only been in the United States for less than a year, the closest possible concept to measuring fl ows in U.S. sources. To investigate which of the two other factors is responsible for the differ-ences in results, I fi rst ignore the information on emigrant wages from the ENET and use only the emigrants’ observ-able characteristics to counterfactually estimate their wage levels. I fi nd that negative selection still characterizes the emigration fl ows, although the degree of selection is lower than the one obtained when actual wages are employed. This is evidence that there is negative selection on both observa-bles and unobservables. It follows that the methodology biases the result toward fi nding positive selection, although not enough to overturn the negative selection outcome. I then ignore all the information on emigrants available in the ENET and use data on recently arrived Mexican immigrants from U.S. sources instead. In this case, I fi nd that the results are consistent with those of Chiquiar and Hanson (2005), and positive selection is obtained. These results suggest that the undercount of low-skilled immigrants in U.S. data sources is the main reason why this chapter fi nds negative selection whereas Chiquiar and Hanson fi nd positive selection.In the case of the other group of studies fi nding posi-tive emigrant selection from Mexico to the United States, their main drawback is that the data sources used are either incomplete (the U.S. census undercounts Mexican undocu-mented immigrants and the Mexican census does not record the education level of emigrants) or nonrepresentative at a national level (MMP), which forced researchers to impose strong assumptions on the data. For example, I show that us-ing the MMP as representative of Mexico is misleading since the ENET shows that rural Mexico is actually characterized by positive selection and the general negative selection result is driven by urban Mexico. In fact, it can be said that this chapter does not contradict any previous work but rather complements their main inconveniences.Chapter 2, “Fiscal Sustainability and Public Debt in an Endogenous Growth Model,” coauthored with Jean-Pierre Vidal, investigates fi scal sustainability in an overlapping generations economy with endogenous growth coming from human capital formation through educational spending. We assess how budgetary imbalances affect economic dynamics and the outlook for economic growth, thereby providing a rationale for fi scal rules ensuring sustainability. Our results show that the appropriate response of fi scal policy to tempo-rary shocks is not trivial in the absence of fi scal rules. Fiscal rules allow for a timely reaction, thereby avoiding possibly disruptive fi scal adjustment in the future: the more adjust-ment is delayed, the larger its necessary scale is. We perform a rough calibration of the model to simulate the effects of a demographic shock (change in the population growth rate) under different fi scal policy scenarios. The demographic shock can also be interpreted as a change in the immigra-tion rate so that the model can be used to study the effects of immigration on key macroeconomic variables in a partial equilibrium setting. It is partial equilibrium in the sense that immigrants do not respond to wage differential but are mod-elled as an exogenous shock instead.The tax and transfer system examined in this chapter is fairly rich. Pension benefi ts are assumed to be paid in a lump-sum manner. Individuals pay a proportional tax on labor income and at the same time they either pay a lump-sum tax or receive a lump-sum transfer. Labor income taxation is characterized by high top marginal tax rates and relatively lower average effective tax rates, refl ecting the progressiveness of income taxation. This is well captured in our model by combining a proportional income tax with a lump-sum transfer. In addition to the tax-benefi t system, the government fi nances general public spending, which benefi ts individuals but does not distort their economic decisions, and issues bonds. As individuals maximize utility and therefore react to fi scal policy, the model provides a suitable frame-work to inquire about fi scal sustainability.Overlapping generations’ models are suitable theoreti-cal tools to address fi scal sustainability issues. Since the Ricardian equivalence does not apply in these models and debt dynamics are in general unstable, fi scal rules are needed to maintain fi scal sustainability. There are two sources of economic growth in our model: the accumulation of physi-cal capital and the formation of human capital. The accu-mulation of physical capital stems from individual savings. Endogenous growth results from the formation of human capital, which is assumed to result from parental education and educational spending, fi nanced out of altruism. The human capital part of the model includes another channel through which government debt affects the economy. Not only is physical capital crowded out by government debt, but human capital is as well so that the growth potential of the economy is affected. In other words, not only the steady state level of capital is altered, as it is in existing exogenous growth models, but also the growth rate.The main fi ndings are the following. First, the existence of steady states is not suffi cient to ensure fi scal sustainability. Second, in the presence of multiple steady states, the initial conditions in the economy matter for the long-run equilib-rium that will result from economic dynamics. Third, the stability properties of the economy depend on the set of fi scal instruments, that is, on the adopted fi scal rules. Fiscal policy rules are generally needed to ensure the stability of equilibria that are dynamically effi cient.The appropriate response of fi scal policy to exogenous temporary shocks is not trivial in the absence of fi scal rules. If temporary small shocks occur in the neighborhood of a stable steady state, there is no strong case for adjustments to fi scal policy, as the economy can come back to its initial position by itself. However, when temporary shocks occur in the neighborhood of an unstable steady state, which is the standard case in an economy with public debt, they endanger 2008 Dissertation Summaries 13fi scal sustainability. Without timely reaction to such shocks, ensuring fi scal sustainability would require adjustments, pos-sibly of a disruptive nature, in the future: the more the adjust-ment is delayed, the larger its necessary scale is. Fiscal rules preserving fi scal sustainability seem more appropriate to deal with small shocks, as they timely maintain the economy on a sustainable path and do not lead to disruptive adjustments.We illustrate this point by performing a rough simulation in which a baseline version of our model, parameterized to fi t the values of economic variables in the pre-enlargement European Union, is exposed to a demographic shock. To be precise, we assume that the projected decrease in population happens in the next 50 years and show how this can lead to unsustainable debt unless a fi scal rule is introduced.Chapter 3, “The Case for International Cooperation in Migration Policies,” explains how unilateral migration policies impose externalities on other countries. In order to try to internalize these externalities, countries sign bilateral migration agreements. One element of these agreements is the emphasis on enforcing migration policies: immigrant-re-ceiving countries agree to allow more immigrants from their emigrant-sending partner if they cooperate in enforcing their migration policy at the border. I present a simple theoretical model that justifi es this behavior by combining a two-coun-try, two-good classical Ricardian model with welfare-maxi-mizing governments. These governments establish migration quotas that need to be enforced at a cost (modeled according to Ethier [1986]). I prove that Nash unilateral migration policies are ineffi cient whereas both countries can improve welfare by exchanging a more “generous” migration quota or terms of trade advantages for expenditure on enforcement policy. Contrary to what could be expected, this result does not depend on the enforcement technology that both coun-tries employ. The Ricardian assumption is not crucial either and a generalization of the model is introduced.The World Trade Organization (WTO) is an institution where countries can get together and negotiate mutually ben-efi cial trade agreements. When countries set their tariffs uni-laterally, they hurt other countries because they improve their own terms of trade at the expense of others’ terms of trade. This creates a Prisoner’s Dilemma where countries would be better off if they all lowered their tariffs, but in fact they do not have the incentive to do so unilaterally. In order to re-move this ineffi ciency, international cooperation is required and is obtained through the WTO. A key element why inter-national cooperation enhances effi ciency is the assumption that freer trade increases world output. This chapter shows that a similar reasoning can be applied to migration policy. Most theoretical models of migration coincide in conclud-ing that the free movement of factors contributes to better allocation of resources at the world level. In most cases, the upper estimate of these effi ciency gains is notably superior to the effi ciency gains that can be expected from, for example, free trade. The typical explanation about why these immense effi ciency gains are not obtained through international coop-eration is that the movement of people has opposing effects on immigrant receiving and emigrant-sending countries. Immigrant-receiving countries tend to ask for lower migra-tion whereas emigrant-sending countries tend to ask for freer migration, at least in terms of low-skill migrants.However, as of 2004, there were at least 176 bilateral agreements on migration issues. One useful starting point to address the economic justifi cation behind all of these is to incorporate the arguments that are currently given for signing bilateral migration agreements. According to the background paper for the joint IOM/World Bank/WTO Trade and Migra-tion Seminar (2004), the reasons why migrant-receiving countries sign these agreements are combating irregular migration, responding to labor market needs of temporary or permanent nature, and promoting economic links with send-ing countries. On the other hand, the reasons why sending states agree to sign these bilateral agreements are reliev-ing labor surpluses, protecting the rights of their nationals abroad, and limiting the effects of brain drain by ensuring the return of their nationals.The models presented in this chapter concentrate on the fi rst point of both sets of objectives, that is, the reason for immigrant-receiving countries to sign an agreement will be the will to combat irregular migration. For some reason, they will consider that additional immigration is welfare-reduc-ing. On the contrary, emigrant sending countries will want to relieve their labor market surplus, that is, they will consider that additional emigration is welfare-improving for them.ReferencesBorjas, G.J. 1987. “Self-Selection and the Earnings of Immi-grants.” American Economic Review 77(4): 531–553.Chiquiar, D., and G.H. Hanson. 2005. “International Mi-gration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States.” Journal of Political Economy 113(2): 239–281.DiNardo, J., N.M. Fortin, and T. Lemieux. 1996. “Labor Mar-ket Institutions and the Distribution of Wages. 1973–1992: A Semiparametric Approach.” Econometrica 64: 1001–1044.Ethier, W.J. 1986. “Illegal Immigration: The Host-Country Problem.” American Economic Review 76(1): 56–71.Hanson, G.H. 2006. “Illegal Migration from Mexico to the United States.” Journal of Economic Literature 44(4): 869–924.INEGI. 2005. Encuesta Nacional de Empleo Trimestral (2000-2004). Aguascalientes, México: Instituto Nacional de Estadística, Geografía e Informática. International Organization for Migration/World Bank/World Trade Organization (IOM/World Bank/WTO). 2004. “Trade and Migration Seminar Background.” Paper presented at the IOM/World Bank/WTO Seminar on Trade and Migration, held in Geneva, Switzerland, October 4–5, 2004.

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