Migration: Another side, another story

By | 16.10.2016

The debate about the effects of migration on economy and society in Central, Eastern, and Southeastern Europe (CESEE) is uninformed and emotional, but it also misses a phenomenon that has economically influenced the CESEE region more than both the civil war in Syria and dire socioeconomic conditions in Maghreb. A recent IMF study shows that the post-communist countries have been affected by emigration more than it was previously thought and that the associated brain drain had significant negative effects on their economies.

The data clearly shows that the emigrants are more educated than the average population, and thus may be taking the economic potential of their home countries with them. The researchers estimate that an increase of 1 percentage point of immigrants’ share on indigenous population can be associated with 2 percent of GDP per capita growth. On the other hand, the adverse effect of skilled labor migration in the original countries translates itself to lower labor productivity. That in turn results in the convergence gap between Western Europe and CESEE region being 7 percentage points higher than it would have been without the massive emigration.

The standard economic theory suggests that such migration pushes wages of skilled labor in CESEE up and thus motivates the unskilled labor to move up in the labor hierarchy which results in higher GDP per capita. Although the wages had been pushed up by the migration, the output per capita had not grown due to that. The authors turn to endogenous growth models putting more emphasis on agglomeration effects of skilled labor: its abundance only increases its returns. Clearly, as educated people leave the economic hubs of the post-communist countries, they hardly make them more performing.

It would be foolish though to consider only the economic effects. Exodus of educated people surely influences also the domestic institutions and the quality of public life in general. Although it is difficult to quantify this effect, it should be taken into account in the analysis and in the plans of how to counter this issue. The authors suggest to improve the rule of law and other institutions in order to cut the vicious circle. Moreover, they cite Ireland’s success of engaging with diasporas all over the world and bringing back workforce that obtained its qualification elsewhere.

Such paper is a refreshing read in the world where only the issues of unskilled immigration are considered. True, the effects seem negative for the CESEE region, which can hardly improve the case for free movement of labor. However, since both the respective migrants and Europe as a whole are better off thanks to the migration, the report ends on a cheerful note after all.

Reference: Atoyan, M. R., Christiansen, L. E., Dizioli, A., Ebeke, M. C., Ilahi, M. N., Ilyina, M. A., … Raei, M. F. (2016). Emigration and Its Economic Impact on Eastern Europe. International Monetary Fund. Available here.

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