The migration myth
Timothy Hatton, Jeffrey Williamson
Business Spectator
May 2, 2009
Todays global economic crisis has turned a media spotlight on immigration. Sagging labour markets have led to calls for even tougher restrictions on potential competition from immigrant workers, and ballooning fiscal deficits have heightened fears about the added burden to welfare states. Will immigration pressure increase or decline during the slump? Will we see a policy backlash? What can history tell us?
Slumps and migration reversals
International migration has always responded to the ebb and flow of the business cycle. While long-run trends in migration are influenced by economic and demographic fundamentals like income gaps between host and sending country, trends in the number of young adults in the sending country, the costs of the move, and cumulative chain migration effects, short-run variations around the trend are driven by temporary labour market conditions in both countries. In the great European migrations of the late nineteenth century, when immigration policies were vastly less restrictive than today, migration flows were very volatile more volatile than economic conditions in either host or sending country.
Historical research has shown that emigration is negatively related to unemployment at the destination (pull) and positively related to unemployment at the source (push). But what happens when economic conditions deteriorate at both source and destination? History yields an unambiguous answer host country conditions dominate. For example, the rise in unemployment abroad had nearly three times the effect on emigration from the UK between 1870 and 1913 as a rise in unemployment at home.
During the slump of the early 1890s, gross immigration to the US fell by half and net migration to Australia evaporated. During the Great Depression, net immigration to the US, Canada, Australia and Argentina turned negative as new immigration virtually ceased and as previous immigrants headed home. For countries of emigration, the result was just the opposite as the global depression deepened, their labour markets became even more glutted as fewer left and more returned.
The 10% rule
Thus, the migration response to global recessions tends to soften labour market slumps in destination countries and intensify them in source countries. But how big are these effects? Where immigration policies are not too restrictive, history tells us that every 100 jobs lost in a high-immigration country results in 10 fewer immigrants. This 10 per cent rule described countries like Canada and Australia in the Great Depression, and it worked pretty well for other periods too. During the severe 1890s depression in the US, net immigrant exits reduced the unemployment rate by about 1.6 percentage points.
Does the 10 per cent rule apply today? On the one hand, migration should be less responsive to business cycle conditions when tough immigration policies are in place. On the other hand, those moving under family reunification (around half of US immigration) are much freer to move, and most recent migrants have the option to return home. It goes without saying that illegal immigrants are particularly sensitive to employment conditions.
The relationship between the unemployment and the net immigration rate per thousand of the population (including illegal immigrants) for the US shows a striking inverse correlation. If the relationship between net immigration and employment is estimated voila! the 10 per cent rule reappears.
Immigration policy: What if 10% is not enough?
Some observers view immigration as a safety valve which mitigates the labour market effects of host country recessions and mutes the rise of anti-immigrant sentiment. But 10% is a modest amount, and not all immigrants are workers. And while protracted recessions lead to cumulative reductions in the immigrant stock, they also provide more opportunity for anti-immigrant forces to gather strength. Indeed, anti-immigrant sentiment typically rises in recessions despite falling immigration.
Recessions have sometimes been occasions for an immigration policy backlash, but not always. Policy backlash is more likely and when it occurs is more draconian when it follows an extended period of high immigration. As the stock of immigrants mounts, popular attitudes become more negative the more so the greater the cultural and socioeconomic differences between immigrants and non-immigrants. Thus, a recession can be a trigger that converts growing anti-immigrant sentiment into a decisive tightening of immigration policy.
History provides case studies. Anti-immigrant sentiment was on the rise in the US from the 1880s onwards, as their numbers mounted and as more of them came from poor countries. After several unsuccessful attempts starting in the deep 1890s depression, Congress finally introduced a literacy test in 1917. But the decisive change came with the Emergency Quota Act in 1921, which became the basis of US immigration policy until the 1960s. Notably, that decisive shift in policy occurred just as the unemployment rate rose from 5.2 per cent in 1920 to 11.7 per cent in 1921. A decade later, almost all immigrant-receiving countries toughened their immigration policies as the Great Depression deepened.
A more recent example is the termination of guest-worker programmes that were developed in Western Europe in the 1950s. With the arrival of the global economic crisis of the early 1970s, these programmes came to an abrupt halt. Weakening European labour markets and deteriorating public opinion provided the background to a sharp policy reversal with the global oil shock.
Is the global crisis an opportunity for tighter immigrant restrictions?
Immigration to the rich countries of the OECD has been on the rise for more than three decades. And now we have a global recession that looks much like the beginning of the Great Depression of the 1930s. Public opinion across the OECD was, on balance, in favour of tighter restrictions on immigration even before the recession arrived. And in contrast to trade policy, which is regulated by international WTO agreements, there are no impediments to unilateral action on immigration policy.
Could the global recession provide just the political impetus needed to convert this latent anti-immigrant sentiment into much more restrictive immigration laws? If the average host country voter wants tighter immigration policies, politicians might seize the opportunity to insulate the country from future immigration threats. The longer and deeper is the recession, the more likely is a worldwide immigration policy backlash.
Perhaps, but there are reasons to think that the backlash will not be as sharp as in the past, and they relate to the long-run forces that drive international migration. One mitigating factor is that anti-immigrant sentiment in the OECD has not increased as much as might have been predicted. And one reason for that is the growing gap between the skills of the average immigrant and the average non-immigrant. As a result, the median voter is less threatened by direct labour market competition than would have been true thirty or one hundred years ago.
More importantly, the long-run demographic and economic forces that ratcheted up immigration pressure for most of the post-war period are now in decline. In Latin America, Asia, the Middle East, and North Africa, economic growth has improved conditions at home, while a sharp decline in fertility has dramatically reduced migration-age cohorts. These and other forces will continue to weaken emigration pressures in the Third World. Perhaps this is why there is evidence of a decline in US anti-immigrant sentiment since the mid-1990s.
Policy lessons from history
History leads us to expect rising anti-immigrant sentiment in a global recession, and a deep recession would seem to provide the ingredients for a sharp immigration policy backlash. For some it would seem like the perfect opportunity to erect higher fences to insulate workers in the developed world from ever mounting flood of immigrants once the recession is over. But that flood is not ever-mounting. The current world crisis will reduce immigration, and the long-run pressure to immigrate will continue to ease after it is over.
Timothy Hatton is a Professor of Economics at the Australian National University and at the University of Essex and a CEPR Research Fellow. Jeffrey G. Williamson is Laird Bell Professor of Economics, Harvard University and is also a CEPR Research Fellow
