"How Well Does Economic Theory Explain International Migration?"

by Kevin Lee Coll

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International migration is a salient feature of inter-state economic relations among developed and lesser-developed countries. In the past three decades the primary sources of migratory labor have shifted from European countries towards developing countries in Asia, Africa, and Latin America. Moreover, the former --including the United States-- has gone from being a predominant sender to a dominant recipient of the latter’s burgeoning migratory population. While international migration is recognized as a major policy issue in most industrialized countries, the theoretical frameworks for studying, modeling, and conceptualizing transnational flows are largely disjointed. As Douglas S. Massey has observed, "there is no single, coherent theory of international migration, only a fragmented set of theories that have developed largely in isolation from each other, sometimes but not always segmented by disciplinary boundaries."

Indeed, the study of transnational flows by economists, anthropologists and sociologists has yielded fundamentally different models and conceptualizations, each with varying emphasis on levels of analysis (individual, household, national, international), time (diachronic versus synchronic), and whether individual or structural forces have the greatest effect on migratory decisions. Though each level of analysis or paradigm may exhibit its own explanatory potency, the multi-leveled and multi-disciplinary nature of migration necessitates a "theory that incorporates a variety of perspectives, levels, and assumptions." As such, the object of this paper is to examine the main competing paradigms of international migration with a view towards understanding how they complement each other. In particular, this paper examines: (1) Neoclassical economics; (2) New economics of migration; (3) Segmented labor market theory; (4) World systems theory; (5) Cumulative causation. The first four examine forces that initiate migration while the last one examine factors that reinforce migratory flows.

Neoclassical economics

The neoclassical economic theory (related human capital theory and also known as the cost-benefit model) is a combination of macro and micro theory that understands international migration as an rational individual decision based on wage differentials between two countries, migration costs, and the probability of employment in the receiving country (illegal immigrants must also include the probability of being deported). As such, the individual cost-benefit decision to maximize income by migrating from one locale to another is measured as the expected net gain from movement, whereby migration is undertaken only whey he/she expects a positive net return. In particular, higher levels of individual human capital– education experience, training, language skills- increases the expected net gain (expected income and probability of employment) and thus the probability of migration. Migratory flows tend to go from countries with a low equilibrium market wage (large supply of labor) to countries with a high equilibrium wage (low supply of labor). As labor flows from the latter to the former, it puts downward wage pressure in the destination countries while simultaneously exerting upward pressure in the sending country, thus resulting in an equilibrium where the interstate wage gap is equal to the cost of migration. Migration stops only when the individual expected net earnings and costs are equalized.

Many studies of emigration from the Caribbean and Latin America to the United States uphold the neoclassical assumption that wage rate differentials between countries affects immigration. This is especially the case in studies of Puerto Rico and Mexico, which generally find a significant relationship between the quantity of emigration and their wage rates vis-à-vis the U.S. However, wage rates are not the only factor; whereas wage rates are sometimes found to be insignificant in migration models, employment factors are always significant. Also, as Massey observes, countries with the greatest wage-rate differentials versus the U.S. are not always the biggest sender-countries. These models also show that, "even after wage differentials are controlled, significant variation in the aggregate volume or individual likelihood of emigration remains unexplained."

The new economics of migration

Although the neoclassical and new economics of migration are both essentially micro-level models, they differ in the decision-making unit (individual versus household); the feature being maximized or minimized (income versus risk); assumptions of the economic environment (well-functioning versus absent or imperfect); and the social context in which income is perceived (absolute versus relative terms).

A major criticism of the neoclassical school is that it assumes an individual actor acting in a "social and economic vacuum without institutions, traditions, history, or community." While the wage rate differentials may partially influence the individual decision to migrate, the "new economics of migration school" posits that the decision to migrate is not an entirely individual decision, but a collective household decision to maximize expected income and minimize risk by diversifying household resources (i.e. labor). The reduction in risk only requires that expected income at the destination country is uncorrelated, or even better, inversely related with earnings at home. Unlike the neoclassical school, it does not assume complete and well-functioning markets; rather, immigration is a response to market failures where the capital, futures, and insurance markets can be absent, faulty, or inaccessible. This is usually the case in the rural areas of lesser-developed countries where Families diversify risk to their income, production, and property, or overcome investment capital constraints by having some family members find employment abroad.

The new economics of migration school, however, does not preclude a combination of domestic and international employment strategies undertaken by families to overcome capital and risk constraints. In this case, the neoclassical assumption that income is a homogenous good is not applicable. Households also send members abroad to increase their income relative to other households to alleviate relative deprivation in the form of remittances. Thus immigration depends on a household’s relative position within the income distribution; households lower on the scale are thus more likely to send family member abroad and vice versa. This is a self-perpetuating system (i.e. "keeping up with the Joneses"). Studies have shown that remittances not only increase the consumption of goods and services, but are also directed towards productive capital-generating activities. For example, some families in rural Mexico show that remittances have been used to increase the productive use of farm machinery, land, and labor. The notion of remittances as capital-generating income in the sender country also stands in contrast to the neoclassical model.

Dual Labor Market Theory

As opposed to the micro-level decision-making processes of the neoclassical and new economics of migration paradigms, the "Dual Labor Market Theory" posits that labor migration is demand-based, and stems from the labor needs of advanced, industrialized countries. According to Massey, the demand-drive behind Dual Labor Market Theory is underpinned by four key factors: (1) Structural inflation; (2) Motivational problems; (3) Economic dualism; and (4) the demography of labor supply. Together, these forces create a primary and secondary market that is inherent within the industrialized economy; the former consists of secure, high paying jobs under good working conditions, while the latter is characterized by unstable, low paying jobs under less safe working conditions.

Structural inflation assumes that wages are reflective not only of the forces of labor supply and demand, but also of social status. Under this imperfectly functioning system, wages can only be increased proportionately on all levels to avoid disrupting societal expectations. Since there are low returns to education, skill, and experience in the secondary sector, there is a shortage of native workers willing to work in that sector. Though women and teenagers usually met the demand for the secondary sector, improvements in female labor participation and the relatively small cohorts of teenagers have made immigrants the main pool of these labor needs. The alternative to increasing wages when labor is scarce is to import immigrant workers who generally exhibit fewer motivational problems working under low-paying and unsafe working conditions. The precariousness of their disposition is such that wages in the secondary sector may fall as a result of an increase in the supply of immigrant labor (flexible downwards), but an decrease in labor does not lead to higher wages as a result of structural societal and institutional restraints (inflexible upwards). This is particularly reinforced by immigration policies in the U.S. and Canada, which create formidable administrative and legal barriers to employment mobility for illegal immigrants beyond the secondary sector.

The efficacy of dual labor market theory is generally held in less regard than the two preceding paradigms. Studies of dual labor market theories are generally difficult to replicate empirically because of definition of "primary" and "secondary" markets is arbitrary in the literature and also because "a high degree of dependency of results on the decision rule chosen to allocate jobs to sectors." Though some studies indicate that U.S. labor markets maybe be segmented into primary and secondary markets, and that immigrants constitute a significant part of the latter with low returns to education, experience and skill, it is extremely difficult to prove that immigration is demand-driven. Studies of the Mexican agrarian economy, for example, have shown that wages and agricultural productivity were more significant than similar indices in the U.S. Also, they showed that push factors in Mexico were greater than pull factors in the U.S.

World systems theory

World systems theorists argue that international migration is an inevitable extension of the globalization of the market economy. Core colonial states in Europe, North America, Oceania and Japan fueled capitalist expansion in search new of land, raw materials, labor and consumer markets into peripheral, non-capitalist nations. The expansion disrupted the traditional social and economic organization in these peripheral regions, thereby creating an uprooted, migratory population of former peasant farmers, craftsmen, and employees of state-owned businesses. Wage and unemployment rate differentials are relatively unimportant to world systems theorists. According to this view, the requirements of globalization in "global cities" (hubs of banking, finance, administration, high-end production, and professional services) created employment opportunities for highly educated migrants to satiate demand. This also created labor demands for immigrants in secondary and service sectors where natives were generally unwilling to work in.

A fundamental part of these migratory flows is facilitated by preexisting modes of transportation and communication that connect global cities with peripheral production and market sites. As such, these migratory population flows are directed in the opposite direction of the investment capital and goods from the global cities. In this vein, migratory flows are expected to be especially likely between old colonial powers and their former colonies because of their preexisting transportation, communication, linguistic, and administrative, cultural and investment links. Sectarian and ethnic conflict, foreign policies and military interventions, and other political events that disrupt domestic social and economic environments also drive migratory flows to global cities. Though many studies related to world systems theory have used empirical data to support their hypothesis, Massey observes that most of their data is "illustrative rather than analytic…[and] key propositions have not been subject to systematic tests against competing hypotheses."

Cumulative Causation

While the previous four theories may each partially account for the initiation of migratory movements –individual maximization of income, diversification of risks and income, demand for low-wage workers, and globalization-- Massey posits that as migration continues along time and space, new independent variables also emerge to reinforce this phenomenon: ‘migrant networks’, institutions that facilitate migration, and changing social attitudes towards work in destination countries. These variables are summed up by what Gunnar Myrdal called ‘cumulative causation.’ That is, "each act of migration alters the social context within which subsequent migration decisions are made, typically in ways that make additional movement more likely."

It rests on the feedback assumption that individual or household decisions are based upon the contemporaneous socioeconomic context, and that this context positively changes with each successful migration. As new economists of migration theorists posit, households seek to minimize their risks, maximize their income, and improve their financial disposition relative to others in their community. Remittances affect the distribution of income in the community by increasing the relative deprivation of others, thus increasing the probability of further migration. This feedback loop perpetuates itself as remittances allow an increasing number of families to increase their wealth relative to others.

Migrant networks are "sets of interpersonal ties that connect migrants, former migrants, and non migrants in origin and destination areas through ties of kinship, friendship, and shared community origin." Once in place, these self-perpetuating migrant networks facilitate further migration by lowering the cost and risks or migration, increasing the net returns to migration, and assist new migrants in gaining employment in foreign countries. Though decision to migrate can be made on either an individual or household level, the context of future migration is improved with each successive migration. This is evident from studies of U.S. states of destination from 11 Caribbean and Latin American countries. It showed that the size of migrant population in these states was the most significant factor in determining the final destination state. The implication of this self-perpetuating system is such that as migratory networks expand, the correlation between wage differentials, probability of employment, and the size of migratory population declines. The differential between the number of people who desire to migrate and those are actually able to gain entry into developed countries, leads to the rise of private and voluntary organizations that supplement migratory networks by resorting to legal (and illegal) means of meeting this demand.

Conclusion

The foregoing examination of theories of international migration shows that migratory flows are the product of the self-perpetuating interplay among factors operating at a variety of levels (individual, household, community, and national). Indeed, no single level of analysis can claim to accurately explain the multidimensional nature of this phenomenon. As of yet, there does not appear to be a unifying theory of international migration that has been generally adopted by economists. The upshot of this disjunction is that it not only hinders a more balanced understanding of international migration, but also significantly affects the policy-making alternatives towards dealing with this major issue. If one were to abide by the new economics of migration theory, for example, one would advocate a policy to affect insurance, capital, and futures markets. Policies directed at reducing relative deprivation would also be suggested in this case. On the other hand, if one were to adopt the neoclassical view, the policy prescription would center on affecting the labor markets in the sender/receiver countries. Nevertheless, it is apparent that all these theories exert some explanatory potency, yet as Douglas S. Massey observes, they are in of themselves insufficient. His promulgation of a theory that incorporates all of these factors is entirely valid, but at the same time, is constrained by the availability of accurate information by which to empirically examine and combine these salient individual, household, community, and national factors.