Executive Training Migration in the EU and its Neighbourhood Florence, 21 January 2013 by Olga Kupets

1. Impact of labour migration
on the countries of Eastern
neighbourhood
Olga Kupets
Department of Economics,
National University of Kyiv-Mohyla Academy (Ukraine)
Executive Training
Migration in the EU and its Neighbourhood
Florence, 22 January 2013

2. Outline
Recommended literature
Potential economic, demographic and social
effects of labour migration on:
sending (origin, source) countries
receiving (destination, host) countries
Impact of labour migration
on the countries of Eastern neighbourhood:
discussion in groups
Conclusion
2

3. Recommended literature:
Impact of migration in the world
• Bauer T. K., J. P. Haisken-DeNew and C. M. Schmidt (2005) “Chapter 7.
International Labour Migration, Economic Growth and Labour Markets: the Current
State of Affairs”, in: M. Macura, A.L. MacDonald and W. Haug, eds., The New
Demographic Regime: Population Challenges and Policy Responses (New York and
Geneva, United Nations), pp. 111–135.
• Chappell L. and D. Sriskandarajah (2007) “Mapping the development impacts of
migration”, Global Development Network and Institute for Public Policy Research,
Development on the Move Working Paper 1.
• de Haas H. (2010) “Migration and Development: A Theoretical Perspective”,
International Migration Review, Volume 44 (1), pp. 227–264.
• Ellerman D. (2005) “Labour Migration: A Developmental Path or a Low-Level
Trap?”, Development in Practice, Vol. 15 (5), pp. 617–630.
• IOM (2005) World Migration Report 2005: Costs and Benefits of International
Migration, Geneva, International Organization for Migration.
• Katseli, L. T., R. Lucas and T. Xenogiani (2006) “Effects of migration on sending
countries: what do we know?” OECD Development Centre Working Paper No. 250.
• World Bank (2006) Global Economic Prospects 2006: Economic Implications of
Remittances and Migration, Washington D.C., World Bank. 3

4. Recommended literature:
Impact of migration in the ECA region
• Ivakhnyuk I. (2006) “Migration in the CIS Region: Common Problems and Mutual
Benefits”, a paper prepared for International Symposium “International Migration
and Development”, United Nations Secretariat, June 28-30, 2006, Turin, Italy.
• Kupets O. (2012a) The Development and the Side Effects of Remittances in the
CIS countries: The Case of Ukraine, CARIM-East Research Report 2012/02, RSCAS,
European University Institute, Florence.
• Kupets O. (2012b) The Economic and Demographic Effects of Labour Migration in
the EU Eastern Partners and Russia: A Synthesis Report, CARIM-East Research
Report 2012/26, RSCAS, European University Institute, Florence.
• Mansoor A. M. and B. Quillin (2006) Migration and Remittances: Eastern Europe
and the Former Soviet Union, Washington D.C., World Bank.
• Tishkov V., Z. Zayinchkovskaya and G. Vitkovskaya (2005) “Migration in the
Countries of the Former Soviet Union”, a paper prepared for the Policy Analysis
and Research Programme of the Global Commission on International Migration.
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5. Outline
Recommended literature
Potential economic, demographic and social
effects of labour migration on:
sending (origin, source) countries
receiving (destination, host) countries
Impact of labour migration
on the countries of Eastern neighbourhood:
discussion in groups
Conclusion
5

6. Potential economic, demographic and
social effects of labour migration:
sending countries
Three main channels of the effects of international
labour migration on the development of sending
countries:
 Remittances
 Return migration
 Diaspora
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7. Potential economic, demographic and
social effects of labour migration:
sending countries
I. Labour market
 Emigration can provide some temporary relief from
unemployment by reducing the number of job-seekers and thus
alleviating the situation of economic hardship and limited number of
jobs in high emigration areas in the short-term.
 However, it can create temporary labour shortages in certain
industries or high emigration areas. This, in turn, can lead to a
substitution of capital for labour in the production process, reducing
job opportunities in the longer term.
 If large-scale emigration leads to temporary labour shortages in
specific industries or high emigration areas, it can, at least
temporarily, lead to a rise in domestic wages.
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8. Potential economic, demographic and
social effects of labour migration:
sending countries
I. Labour market (cont.)
 Returnees or household members receiving remittances can set up
entrepreneurial activities that produce a job-creation effect.
 Returnees may bring new skills, values and attitudes (‘brain gain’)
that contributes to higher labour productivity.
 On the other hand, (return) migration may reduce the present stock
of human capital in the origin country through ‘brain waste’.
 Emigration may also result in a dependency of household
members on remittances and reduced labour efforts (moral
hazard problem).
 The selection of migrants tends to cream off some of the most
enterprising and innovative workers of the sending country (‘brain
drain’). This tends to have a negative effect on labour
productivity and human capital base.
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9. Potential economic, demographic and
social effects of labour migration:
sending countries
II. Demographic and social effects
 Large-scale emigration of workers from depressed regions and sectors
depletes population and changes its age structure, further
undermining economic viability of these regions.
 Labour migration may affect marriage/divorce behaviour and
fertility rates by separating couples across international boundaries,
by altering the incentives of those who might have children, or by
reducing the number of individuals of reproductive age.
 Labour migration may also affect morbidity and mortality rates
in the origin countries through its adverse effect on health of migrant
workers, increased disease transmission, and ‘brain drain’ of health
workers.
 (Long-term) labour migration of one or two parents can detrimentally
affect educational outcomes, health performance and
economic activity of the children left behind.
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10. Potential economic, demographic and
social effects of labour migration:
sending countries
III. Economic growth and development
 Remittances coupled with increased technology transfer from migrants
abroad (including Diaspora) may provide resources for
investment in innovative production activities. This, in turn, can
stimulate exports and economic growth.
 Remittances may boost investment in education and health thus
contributing to human capital formation and promoting the
social basis for economic development.
 Remittances and extra income from migration may increase the
propensity of households to consume that can increase overall
output through multiplier effects.
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11. Potential economic, demographic and
social effects of labour migration:
sending countries
III. Economic growth and development
 Remittances-induced demand for non-tradable goods such as housing
and services may result in expanding local employment
opportunities and the development of the financial system.
 However, such remittances-induced demand may provoke inflation.
 Remittances-driven conspicuous consumption of foreign goods may
cause a psychological downgrading of domestic goods and a further
increase in imports and worsening of the balance of payments.
 Remittances in foreign currency may cause an appreciation of the
real exchange rate and therefore may undermine a country’s price
competitiveness (the so-called ‘Dutch disease’ which most often
refers to the damaging effect of the exploitation and export of natural
resources on an economy and takes its name from the crisis in the
Netherlands in the 1960s).
 Emigration can have negative impact on economic growth in the
long run because of demographic, education and health impacts. 11

12. Potential economic, demographic and
social effects of labour migration:
sending countries
IV. Living standards
 Labour migration provides opportunities for household members to
finance essential human needs (including nutrition and housing), to
have a better access to under-provided public goods (health care and
education), to ease liquidity constraints and to smooth household
consumption in case of adverse shocks, e.g. flood, crop failure, job
loss, etc. (insurance function of remittances). Therefore labour
migration is likely to improve living standards of households.
 Labour migration can reduce the incidence of poverty in migrant-
sending areas.
 Remittances may be an effective means to redistribute income and
thus reduce income inequality.
 But remittances may sharpen income inequality in the case of the
underrepresentation of the poor among migrants.
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13. Potential economic, demographic and
social effects of labour migration:
sending countries
V. Public budget and public policy
 As labour migration and remittances provide temporary relief from
unemployment and poverty, they release resources from social
funds and provide government with an extra degree of fiscal
freedom.
 But remittances and emigration may reduce government’s
incentives to implement the necessary structural reforms
(public moral hazard problem), while increasing the exposure of
the domestic economy to external shocks.
 The opportunity cost of emigration (the possible earnings forgone by
the migrant and the output loss to the economy) may be significant
compared to its benefits. It adversely affects tax revenues.
 Temporary migrants as well as returnees after long period of stay
abroad may undermine the pension and social welfare system
in the home country if their contributions made abroad (if any) are
not portable. 13

14. Potential economic, demographic and
social effects of labour migration:
sending countries
Opposing views on migration and development
Migration optimists Migration pessimists
Neo-classical Neo-Marxist
Modernization Disintegration
Brain gain Brain drain
More equality More inequality
Balanced growth of regions Asymmetric development of regions
Remittance investment Remittance consumption
Development Dependency/ underdevelopment
Less migration More migration
Source: de Haas (2010), Table 1
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15. Potential economic, demographic and
social effects of labour migration:
receiving countries
I. Labour market
 Immigration may lead to wage gains and/or improvements in
the employment prospects of those natives who are
complements to the immigrants. For example, female immigrants
employed in outpatient and home care of the elderly exert positive
effects on the labor supply of native highly skilled females.
 Immigration may lead to a reduction in the wages and/or
employment prospects of those natives, who are substituted
by the immigrants, or of former immigrants from other regions,
with whom they compete for similar niches in the labour market.
Empirical studies based on the different approaches conclude that the
labor-market effects of immigration on natives are negligible
or statistically insignificant, while there are often large and
significant effects in terms of former immigrants.
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16. Potential economic, demographic and
social effects of labour migration:
receiving countries
II. Demographic effects
 Increased immigration flows of working age population into ageing
societies can have a significant impact on the demography of
the receiving countries which are assumed to have a labour
shortage. Therefore, immigration can remove labour scarcity
and reduce wage-push inflationary pressure.
 Even the temporary immigration of low-skilled workers may be
beneficial, given the demographic situation in the receiving
countries
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17. Potential economic, demographic and
social effects of labour migration:
receiving countries
III. Productivity and economic growth
 Immigration may reinforce specialization and complementarities and
induce organizational changes, which, in turn, increases competition
and may help to reduce protectionist measures on the labor market
and hence may ultimately lead to productivity-increasing
efficiency gains.
 Immigration may also foster technological progress, since
immigrants bring new ideas and knowledge with them, potentially
increasing the transfer of technologies between countries.
 However, if immigration increases the availability of low-skilled
labor, incentives of firms to invest in R&D may be reduced,
leading to lower technological progress.
The existing empirical evidence on the effects of immigration on
productivity and economic growth in OECD countries is rather
mixed.
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18. Potential economic, demographic and
social effects of labour migration:
receiving countries
IV. Public budget
 Immigration may affect the public budget of destination country
through the ensuing increase in the tax base.
 Temporary migrants with a formal job contract are also likely to
experience serious limits on the portability of their pension rights,
which could represent a gain for social welfare systems at
destination.
 However, immigration may negatively affect the public budget of
destination country through the expanded demand for public
services and receipts of public transfers.
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19. Potential economic, demographic and
social effects of labour migration:
receiving countries
Widespread concerns (often myths) that contribute
to a negative perception of the effects of
immigration in the receiving countries:
1) migrants take away jobs from the local population;
2) immigration is driving down wages;
3) immigrants are a heavy burden on the country’s social welfare
system;
4) immigrants take money out of the host countries;
5) immigration contributes to higher crime rate.
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20. Outline
Recommended literature
Potential economic, demographic and social
effects of labour migration on:
sending (origin, source) countries
receiving (destination, host) countries
Impact of labour migration
on the countries of Eastern neighbourhood:
discussion in groups
Conclusion
20

21. Similar problems in FSU countries (except
the Baltic countries) in economic migration
research:
 lack of reliable statistical data on labour migration and remittances with
long time series that hampers a rigorous empirical analysis of the
effects of labour migration (including its illegal component) on the
economy and labour market;
 existence of various myths about the magnitude and composition of
migration flows and the effects of migration on a given country which
are often not supported by facts;
 prevailing negative perception of emigration among the experts and
policymakers, with focus only on its certain negative effects (e.g.
outflows of working-age population and human capital depletion) and
without considering possible benefits for economic development;
 the development role of Diaspora and return migration is largely
neglected;
 emigration usually receives more attention than immigration and
internal migration (except for Russia) despite an increasing importance
of ‘replacement’ immigration in view of shrinking and ageing population
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in most countries.

22. Impact of labour migration
on the countries of Eastern
neighbourhood: discussion in groups
Please put for each country and each entry:
“+” if a positive effect is observed;
“—” if a negative effect is observed;
“DS” if an effect is ambiguous;
empty cell if an effect is not observed (or not studied).
For example,
UA
Labour market
Unemployment rate +
Labour shortages in certain sectors —
Domestic wages DS
Entrepreneurship +
Reduced labour supply (moral hazard) DS
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23. Impact of labour migration
on the countries of Eastern neighbourhood
Group 1: Sending countries
AM AZ BY GE MD RU UA
Labour market
Unemployment rate
Labour shortages in certain sectors
Domestic wages
Entrepreneurship and job creation
Reduced labour supply (moral hazard)
‘Brain drain’ (emigration of the highly
skilled)
‘Brain waste’ (skill waste)
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24. Impact of labour migration
on the countries of Eastern neighbourhood
Group 2: Sending countries
AM AZ BY GE MD RU UA
Demographic and social effects
Total population (number)
Age structure of population
Gender structure of population
Marriage/ divorce and fertility
Morbidity and mortality
Education outcomes of those children
left behind
‘Care’ drain (old parents left behind)
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25. Impact of labour migration
on the countries of Eastern neighbourhood
Group 3: Sending countries
AM AZ BY GE MD RU UA
Macroeconomic effects
Investment and innovation
Human capital formation
Consumption
Economic growth
Development of financial system
‘Dutch’ disease
Inflation
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26. Impact of labour migration
on the countries of Eastern neighbourhood
Group 4: Sending countries
AM AZ BY GE MD RU UA
Living standards
Poverty
Income inequality
Social protection
Access to public goods and
utilities
Public budget and policy
Contributions to the public
budget, pension fund and other
social funds
Public moral hazard and policy
trap
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27. Labour migration from the countries of
Eastern neighbourhood: A developmental
path or a low-level trap?
A low-level trap in Ukraine
A fiscal-policy-driven
Deviant behavior and exit consumption boom,
to the shadow economy reinforced by rapidly
or to economic inactivity expanding household credit
Inefficient public
services and
social protection Delayed transition reforms; rent-seeking
system and state capture; weak rule of law,
widespread corruption and poor Limited
investment climate financial
intermediation
Source: Kupets (2012a)
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28. Impact of labour migration
on the countries of Eastern neighbourhood
Group 5: Receiving countries
AM AZ BY GE MD RU UA
Labour market
Employment prospects for natives
Wages for natives
Female labour supply (natives)
Demographic and social effects
Working-age population and labour
scarcity
Age structure of population
Gender structure of population
Crime rate
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29. Impact of labour migration
on the countries of Eastern neighbourhood
Group 6: Receiving countries
AM AZ BY GE MD RU UA
Productivity and economic
growth
Investment and innovation
Flexibility and competitiveness of
local employers
Public budget and social
welfare system
Contributions to the public
budget, pension fund and other
social funds
Demand for public services and
receipts of public transfers
29

30. Outline
Recommended literature
Potential economic, demographic and social
effects of labour migration on:
sending (origin, source) countries
receiving (destination, host) countries
Impact of labour migration
on the countries of Eastern neighbourhood:
discussion in groups
Conclusion
30

31. Conclusion
• Labour migration may contribute to economic development of countries
at both ends of the migration spectrum IF migrants find the
enabling conditions to develop and then successfully apply their
skills, to make productive investments and to enhance supply
chain relations.
• The benefits of labour migration in the Eastern neigbourhood are of
limited scale so far.
• The major reason is that labour migration is not mainstreamed into the
national employment, poverty reduction and development strategies.
• The governments of sending countries in the region tend to address
labour migration as a problem rather than take it as an
opportunity.
• And receiving countries try to take advantage of large inflows of
desperate migrant workers for their benefit only.
• As a result, there are still no enabling conditions for human capital
formation, brain circulation and productive investments by migrants.
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32. Thank you for attention!
Contact info:
Olga Kupets
Associate Professor
Department of Economics
National University of Kyiv-Mohyla Academy
10 Voloska Str., office 6-203
04070 Kyiv, Ukraine
Tel. (+38-067) 7398708
E-mail: kupets@kse.org.ua
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