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Migration and the Welfare State

Migration and the Welfare State: Political-Economy Policy Formation

Assaf Razin
Efraim Sadka
Benjarong Suwankiri
Copyright Date: 2011
Published by: MIT Press
Pages: 184
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  • Book Info
    Migration and the Welfare State
    Book Description:

    Nobel laureate economist Milton Friedman once noted that free immigration cannot coexist with a welfare state. A welfare state with open borders might turn into a haven for poor immigrants, which would place such a fiscal burden on the state that native-born voters would support less-generous benefits or restricted immigration, or both. And yet a welfare state with an aging population might welcome young skilled immigrants. The preferences of the native-born population toward migration depend on the skill and age composition of the immigrants, and migration policies in a political-economy framework may be tailored accordingly. This book examines how social benefits-immigrations political economy conflicts are resolved, with an empirical application to data from Europe and the developed countries, integrating elements from population, international, public, and political economics into a unified static and dynamic framework. Using a static analytical framework to examine intra-generational distribution, the authors first focus on the skill composition of migrants in both free and restricted immigration policy regimes, drawing on empirical research from EU-15 and non-EU-15 states. The authors then offer theoretical analyses of similar issues in dynamic overlapping generations settings, studying not only intragenerational but also intergenerational aspects, including old-young dependency ratios and skilled-unskilled conflicts. Finally, they examine overall gains from or costs of migration in both host and source countries and the race to the bottom argument of tax competition between states in the presence of free migration.

    eISBN: 978-0-262-29837-7
    Subjects: Economics, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Preface
    (pp. xi-xii)
  4. 1 Issues and Scope
    (pp. 1-10)

    Give me your tired, your poor,

    Your huddled masses yearning to breathe free,

    The wretched refuse of your teeming shore.

    Send these, the homeless, tempest-tost to me,

    I lift my lamp beside the golden door!

    These words from the sonnet by Emma Lazarus (1883), and engraved in bronze at the base of the Statue of Liberty, capture the spirit of the free-migration era in the nineteenth-century United States. The welfare state idea, still in embryonic form in Europe, had yet to be brought to U.S. shores.

    Free migration has been the subject of extensive theoretical investigation, dating back to Adam...

  5. I Migration and the Welfare State:: Basic Theory and Cross-Country Evidence

    • 2 Key Implications of the Generosity of the Welfare State for the Skill Composition of Migration
      (pp. 13-42)

      This chapter addresses the effect of the generosity of the welfare state on the skill composition of migrants. Free migration has been one of the important qualities of the integration of Europe into the European Union. Freedom of movement and the ability to reside and work anywhere within the EU are fundamental rights that member states of the EU are obligated to extend toward one another.¹ In contrast, labor mobility into the EU states from non-EU states is still restricted by national policies.

      This difference in policy regimes across EU and non-EU states provides an opportunity to test theory predictions...

    • 3 Implications of the Skill Composition of Migration for the Generosity of the Welfare State
      (pp. 43-52)

      Chapter 2 described hour voters tend to make decisions on migration policy. Specifically, in the policy-controlled-migration regime, they choose which skill type of migrants to admit to the host country. That is, they choose the skill composition of migration. We can then ask how the generosity of the welfare state, taken as an exogenous variable, affects their decisions. In this chapter we investigate, in essence, the inverse causality. Specifically, we let voters choose how generous the welfare state will be, and we investigate how the skill composition of migration affects their decisions, taking the migration flows as an exogenous variable.¹...

    • 4 Joint Determination of the Generosity of the Welfare State and Migration
      (pp. 53-64)

      In chapter 2 we investigated how the generosity of the welfare state affects the skill composition of migration. This was done first for the case of policy-controlled migration. That is, we studied how the generosity of the welfare state affects the politico-economic determination (through majority voting) of the welfare state. We then investigated how the generosity of the welfare state affects the skill composition of migration when the latter is not chosen by the native-born in a politico-economic equilibrium but is determined by the migrants themselves via free migration. In chapter 3 we investigated essentially the reverse causality, that is,...

  6. II Migration and the Welfare State:: Dynamic Politico-Economic Theory

    • 5 Migration and Intergenerational Distribution Policy
      (pp. 67-88)

      So far we have dealt only with intragenerational issues associated with migration, and the analytic frameworks were static. We now turn to the study of intergenerational redistributions (from young to old, and vice versa). In doing so, we highlight the role of demography in shaping migration and intergenerational distribution policies (such as social security).

      Indeed, we plausibly assume that migrants have higher birth rates than the native-born. As we aim to highlight this demographic difference, we assume this is the only feature by which migrants differ from the native-born. The native-born determine in a political process both the migration policy...

    • 6 Elements of Strategic Voting with Multiple Groups
      (pp. 89-94)

      Chapter 5, presented a dynamic politico-economic model. It featured a political conflict between two groups: young and old voters. For many settings, particularly with dynamic macroeconomic politico-economic models, a political conflict between two groups suffices to demonstrate the underlying nature and features of politically determined policies. However, for the case of the welfare state, which typically engages in both inter- and intragenerational redistribution, there is no longer just one-dimensional conflict, such as young versus old. Therefore, in this chapter we take a small digression to lay down the theoretical foundations on which we build a dynamic politico-economic model featuring two...

    • 7 Migration and Inter- and Intragenerational Distribution Policy
      (pp. 95-114)

      In part I we considered the basic elements of intragenerational redistribution, with no regard to intergenerational conflicts. In chapters 2 and 3 we dealt exclusively with intragenerational redistribution, whereas in chapter 5 we dealt exclusively with intergenerational redistribution. A welfare state is typically engaged in both inter- and intragenerational redistribution. Therefore, in this chapter we introduce an elaborate and explicit feature of intragenerational redistribution and analyze the interactions between inter- and intragenerational conflicts. As we have pointed out, not only the native-born contribute to, and benefit from, the welfare state; migrants also contribute and benefit. The political process selects both...

  7. III Gains from Migration and Tax Competition and Coordination

    • 8 Is the Net Fiscal Burden a Good Measure of the Gains from Migration?
      (pp. 117-122)

      Following its recent enlargements from fifteen to twenty-five countries, and later to twenty-seven countries, the European Union is likely to face a rise in welfare migration. The expansion increases the EU population from 380 million to 450 million, ahead of the U.S. 300 million. But by 2050 the U.S. will have almost caught up, according to current forecasts. The main reasons are that European women have fewer children, and U.S. migration policy is less restrictive.

      We demonstrated in chapter 2, that the generosity of the welfare state by itself drives out skilled migration and drives in unskilled migration.

      Europe, both...

    • 9 Tax-Transfer and Migration Policies: Competition between Host and Source Countries
      (pp. 123-136)

      So far, the source country has played a passive role. It has served merely as a reservoir of migrants for the host (destination) country. That is, it has provided exogenously given, upward-sloping supply curves of unskilled and skilled would-be migrants to the host country. In this chapter we address the issue of whether tax competition leads to a race to the bottom. In a basic tax-competition model, competition may lead to such a downward race because of three mutually reinforcing factors. First, in order to attract mobile factors or prevent their flight, tax rates on them are reduced. Second, the...

    • 10 Tax-Transfer: Competition and Coordination among Host Countries
      (pp. 137-146)

      So far the host country did not face any competition from other potential host countries as a destination for migrants. In this chapter we extend our analysis to allow competition (through the tax-transfer system) among several host countries. Specifically, there is a large enough number of competing host countries to allow us to treat each host country as a “perfect competitor.” The rest of the world serves as a reservoir of migrants for the competing host countries—that is, the rest of the world provides exogenously given, upward-sloping supply curves of unskilled and skilled would-be migrants to the host countries....

  8. Epilogue
    (pp. 147-152)

    In the nineteenth century, the words of Emma Lazarus’s sonnet expressed so well the spirit of the free-immigration era in the United States that they were engraved in bronze at the base of the Statue of Liberty. These words might not be so popular if they were written today.

    In 1883 the idea of the welfare state and the doubts it would raise about free immigration were still in an embryonic state in Europe and had not yet reached U.S. shores. From the eighteenth century to the twentieth, economists argued in favor of the free movement of peoples. In 1776,...

  9. Notes
    (pp. 153-158)
  10. References
    (pp. 159-164)
  11. Index
    (pp. 165-168)