The migration dilemma.
The economic perspective and its limits
Mass migration represents one of the most important social dynamics of our times. The incredible and sudden change in politics of the last years, in the US as well as in Europe, make us realize how much important is the topic of migration in the current political discourse. Of course, the tendency which could not be ignored is for a harder line, one of the main reasons the politically inexperienced Donald Trump managed to win 2016 presidential elections.
The discourse on migration has been perceived as not sufficiently comprehensive in the last years and people started to ask for more and more extreme reactions. Politicians and bureaucrats were excessively confident in what general economics theory says about migration: a general trust in liberal ideas have caused to greatly underestimated not only the problem but also the perception of the problem, although there were some significant differences between administrations in their migration policy.
To better understand the relevance of migration in our contemporary society, it is worth dealing with such issue in economics terms and avoiding to enter into long and complex cultural and sociological discussions, which, by the way, represent a considerable aspect of the phenomenon.
International labour mobility
From a purely economic point of view goods and people are not too different: labour represents one of the most important factors of production and its cost directly affects profits. So, in the same way economic theories predict that protectionist barriers to international trade are harmful, since they reduce total surplus (producer and consumer surpluses aggregated), preventing the market to reach its equilibrium, also restrictions to labour mobility across borders hinder the possible gains from migration. In other words, inflows of workers in a country increased total surplus by augmenting labour force, employment and production. However, while capitalists and consumers may be quite happy with this situation since their surpluses are better off and price of their goods decreases, an increase in the labour supply makes wages shrink, leaving workers of the industry affected with less money and more competition. As in the case of international competition, economists recognize that, although economy in the whole benefits from migration, some groups could be disadvantaged from such situations. To correct these negative effects, economic theories command the usual formula of redistribution and direct transfer to damaged workers, since it always preferable to compensate rather than distort market equilibrium. In addition, in the long run it could be possible that the income received by new workers sustains consumption and led to an increase in the labour demand capable of balancing the increase in labour supply.
This argument about economic effects of migration is the most straightforward and the most intuitive one, although there are other important specifications: the phenomenon affects mostly low-skilled migrants which consequently put pressure on the labour market of low-skilled workers in the domestic country. In addition, in recent times concerns about the impact of migrants on work productivity have raised new questions about the final effects of migration, mitigating the certainties of established economic theories.
However, for the sake of this humble article, we started from established and generally agreed assumptions of economic theories about potential gains from international labour mobility
The problematic definition of social welfare
Public economics has the difficult task to put together efficiency and equity in a society. Beyond dealing with market inefficiencies, failures and externalities, the decision of certain welfare policies must necessarily be evaluated with some moral principles. The main difficulty of such policies stands in the fact that economics is substantially individualistic while a public welfare must necessarily have a social and collective point of view. One of the instruments employed by economists is to construct a social welfare function that could represent utility choices for society, basically collective choice is reduced in an individualistic form to better estimate valuable options. However, there is no great consensus about what kind of function could better represent the utility of a society.
The utilitarian welfare function, derived from principles of utilitarianism laid down by Jeremy Bentham, described the overall society’s utility as the sum of all individual utilities, a view that is coherent with traditional economic view on trade; under this function a public policy must be concerned only with increasing total welfare and so, economy in its whole, treating all individual utilities as the same, even if they are different.
A totally opposite stance is embodied in the Rawlsian welfare function( also called Max-Min function), inspired by American political philosopher John Rawls, which argue that utilitarian welfare function failed to achieve equity: the basic objection is that individual utilities cannot be considered in the same way, otherwise it would be possible to affirm that society’s welfare has increased only because a rich person has increased his utility. For this reason, Rawlsian utility function increased only if the individuals with the least utility increased. Describing social welfare with this function completely reverse the basic logic behind most of economic models, since no increase in economic pie could be automatically translated into a benefit for a society unless the most disadvantaged people are better off.
These two functions represent two extreme interpretations of social welfare. In general, an intermediate position between utilitarian and Rawlsian functions is regarded as desirable, which does not deny the benefits obtained from utilitarian approach, but it argues that, when inequality grows, a larger increase in the utility of rich individuals is necessary for compensating the loss of poor individuals. From a graphical point of view, these functions are converted into different social indifference curves.
The unbalanced impact of migration
It is always important to make a firm distinction between economics and politics, since economic efficient outcomes may not be socially desirable. As shown above, a public policy is strongly influenced by the concept of social welfare and, beyond ideologic positions, public policies must necessarily confront with the practical difficulties of the issue in question. Economic models are not perfect and reality could be much more complex than expected by policymakers.
In this sense it is clear that migration experienced by developed countries involves an disproportionate effect on low-skilled workers in domestic country, due to the worker nature of migrants. Moreover, it is worth recalling that current labour market demand for low-skilled workers has significantly decreased in the last decades, as advanced economies had moved away from the industrial phase, and the increasing automation carried out by technologies could only reinforced this trend.
Therefore, from a purely Rawlsian point of view, public policy about immigration should be tight in order to avoid the worsening of utilities of native low-skilled workers, usually the group with the smallest well-being in a society, given the fact that a government is only concerned about the welfare of its citizens, even if such migration policy means a significant cost for the economy: Rawlsian principles simply does not recognize that such economic growth is a welfare improvement for society. Yet, a strict adoption of Rawlsian ideas is not able to take into account the beneficial effects of migration over future additional growth and the whole discourse about the challenges posed by a large aging population.
On the other hand, a purely utilitarian approach may suggest that immigration is desirable and beneficial to society in its whole and the additional tax revenues could finance social programs and direct transfers to those groups hurt by immigration, although such compensation policies may be difficult to implement: native and foreign workers’ wages are equalized by market equilibrium and it would be discriminatory to distinguish between those who have faced a worsening of their income and new workers who experienced an improvement of their welfare, compared to country of origin. Minimum wage could seem a practical solution, but it seems in contrast with utilitarian ideas, since it prevents market to reach an equilibrium and reduce total economic potential, and in any case its effects largely depends, obviously, by its value: if it is lower than previous wages, the welfare of low-skilled workers has anyway worsen, apart from the fact that it is difficult to understand the real cause of this worsening, migration or technological change? However, an utilitarian approach tends to be not so much worried about these questions, since it treats identically the utilities of evetry individuals in society and it always views economic growth as an improvement of society’s welfare.
Among these two extreme positions, a mixed approach appears to be more appropriate to manage a complex issue like migration. Common sense should suggest that trying to balanced low-skilled migrants with more high-skilled migrants may be the best way to hand back some equity and to distribute fairly the side effects of migration between society members, keeping in mind that such effects have anyway a burdensome impact on low-skilled workers, due to their initial lower utilities. The intermediate solution appears to be the preferable one because it recognizes the impractical nature of a complete abandonment to market forces, being at the same time aware of risks related to excessive restrictions, however, where such intermediate approach should exactly be placed and how such principles should be translated into actual public policies remain an open question to which governments have the responsibility to answer.
Finally, economics cannot take into consideration all those costs that are not quantifiable. Social and political costs (as recent history has illustrated) cannot be forecasted precisely: cultural identities, social tensions and the spreading of xenophobic sentiments could produce a lot of unintended results, which no economic model could estimate. This article has been based on economic notions but it is clear that to comprehensively discuss a vast issue like migration philosophy, sociology and other social sciences are needed. However, this broader approach will be employed in another article.
