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Global Economic Prospects for Increasing Developing Country Migration into Developed Countries

van der Mensbrugghe, Dominique and Roland-Holst, David (2009): Global Economic Prospects for Increasing Developing Country Migration into Developed Countries. Published in: Human Development Research Paper (HDRP) Series , Vol. 50, No. 2009

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Global labor markets have evolved dramatically in the last several decades and will continue to so for some time to come, driven by changing population demographics, economic globalization, dramatic changes in transportation technology, and accelerating institutional change. All these characteristics of migration make it an essential policy issue for the human development agenda. The United Nations Human Development Report for 2009 intends to provide a forward-looking assessment of global labor market dynamics, with particular reference to the effects of increased labor mobility on global patterns of employment and output. To date, the most rigorous analysis of this subject is the World Bank Global Prospect Group’s forecasts with their Global Economic Prospects Linkage model. This report describes how an update of the GEP model captures more detailed information on global labor movements and heterogeneity, and reports new projections on global migration patterns. These results suggest complex market interactions between migrants and resident workers, whether native or migrant, and between labor and other factors of production. For example reducing migration raises the premium on migrant labor in the destination countries, while lowering the relative return to capital. The first effect makes for higher real income, consumption, and remittances for migrants of both types. For native populations in high income countries, the negative capital income effect dominates the wage effect of reduced competition from migrants. It is perhaps ironic that reducing labor competition is more beneficial to migrants, who lack the capital income and thereby gain absolutely from rising relative wages. Of course one of the primary demand drivers for migrants is the desire to profit from using capital resources more fully within high income economies. In OECD economies, pension schemes guarantee that a significant part of these profits accrue indirectly to native workers. Taken together, these results strongly support the argument that migration has beneficial growth effects on global real economic activity, improving the efficiency of international resource allocation for the benefit of both sending and receiving countries. However, these reassuring aggregate results mask more complex interactions in domestic labor markets, and there will inevitably be both winners and losers from the ensuing structural adjustments. Having said this, the existence of substantial aggregate gains, particularly new fiscal resources for the public sector, suggests the prospect of adjustment assistance to offset adverse impacts.

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