Brain Drain and Brain Wastegfa.hof.uni-frankfurt.de/arno/ArnoXI/Presentations/Garcia...Brain Drain...

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Brain Drain and Brain Waste Armando J. Garcia Pires Institute for Research in Economics and Business Administration (SNF) Arnoldshain Seminar XI, June 25 28, 2013, University of Antwerp Armando Garcia Pires (SNF) 25-28/06/2013 1 / 24

Transcript of Brain Drain and Brain Wastegfa.hof.uni-frankfurt.de/arno/ArnoXI/Presentations/Garcia...Brain Drain...

  • Brain Drain and Brain Waste

    Armando J. Garcia Pires

    Institute for Research in Economics and Business Administration (SNF)

    Arnoldshain Seminar XI, June 25 28, 2013, University of Antwerp

    Armando Garcia Pires (SNF) 25-28/06/2013 1 / 24

  • Introduction: Denitions and Aim of the Paper

    Positive self-selection of migrants:

    When skilled workers have higher propensity to migrate than theunskilled

    Brain drain:

    When a country su¤ers a decrease in the human capital stock due tointernational emigration

    Brain gain:

    When a country experiences an increase in the human capital stock dueto international emigration

    Brain waste:

    When an individual works in a job that requires lowereducation/qualications than the ones he/she has acquired

    Aim of the paper: analyze how brain waste a¤ects the self-selection ofmigrants and brain drain/gain

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  • Migration: Brain Drain or Brain Gain?

    Background:

    Higher wages in rich countries ) migration from poor to rich countries

    Traditional view (Bhagwati and Hamada, 1974)

    Positive self-selection of skilled migrants, since they have higher returnsfrom migration than the unskilledDeveloping countries lose skilled workers to developed countries, i.e.:Brain drain

    New view (Stark et al., 1997)

    Positive self-selection of skilled migrants, BUT...Migration increases the incentives of natives to acquire education, sinceit raises the returns to educationUnder certain conditions: Brain drain < Brain gainChannels: return migration, remittances, uncertain migration

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  • This Paper: Brain Waste

    Brain waste:

    Arises when a skilled individual incurs in the costs of acquiringeducation but he/she does not reap the benets of human capitalinvestmentEx.: Migrant with university degree driving a taxiRationale: Low international transferability of human capital

    Empirical evidence on brain waste: Coniglio et al. (2006); Mattoo etal. (2007); Özden (2006)

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  • Sources of Brain Waste

    Illegal migration (Hanson, 2006)

    Illegal migrants are paid lower wages, have poor working conditions andare more subject to violations of the protections a¤orded by thedestination country labor laws

    Low international transferability of human capital (Chiswick andMiller, 2007)

    A¤ected by working experience or education acquired in the destinationmigration country, language skills and the country of origin

    Both result from strict migration policies in developed countries(Hanson, 2006)

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  • Migration Policies

    The migration policies of the US and the EU in the last decade havechanged focus to (World Bank, 2006):

    International transferability of skillsSelective migration policiesIllegal migration

    Rationale for these policies: attract skilled workers, deter unskilledmigration

    Are these policies e¤ective?

    See evidence for Canada (Borjas, 1993; Barret, 1998)

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  • This paper

    Objective: Check the robustness of the positive self-selection and thebrain gain arguments to brain waste

    We show that, brain waste:

    Weakens the chances of a positive self-selection of skilled migrantsReduces the possibility of a brain gainDampens the e¤ectiveness of education policies

    Rationale:

    Brain waste reduces the returns to human capital from education andinternational migration

    Implications for migration policies:

    Strict migration policies might not be optimal for both sending andreceiving countries of migration

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  • Empirical Evidence

    Chiquiar and Hanson (2005); Hanson (2006); Mckenzie and Rapoport(2007); Orrenius and Zavodny (2005):

    Self-selection of migrants: Inverted U-shaped curveReason: illegal migration and low international transferability of humancapital

    Mckenzie and Rapoport (2006); de Brauw and Giles (2006):

    Negative e¤ect of illegal migration on schooling attendance andattainments in rural Mexico and in rural ChinaReason: illegal migration lowers the returns from education

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  • The Model

    Base set-up: Docquier and Rapoports (2007) model of self-selectionand brain drain

    We add: the possibility that skilled workers face brain waste whenthey migrate

    World economy: the origin and the destination migration country

    Focus in the origin migration country: small developing open economyThe destination migration country (exogenous): developed economy

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  • The Model

    Labor supply (L), unskilled (U) + skilled (S):

    Lt = Ut + St (1)

    2-period lived individuals: t = 1, 2

    1st period: education decision (Take education versus Not takeeducation)2nd period: migration decision (Migrate versus Not migrate)

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  • Production, Human Capital and Wages

    Production Function:

    Yt = wtEt (2)

    w : wage rate per e¢ ciency units of laborE : labor in e¢ ciency units

    Et = Ut + hSt (3)

    h: Skilled productivity premium, with h > 1H: stock of human capital

    Ht =EtLt= Ut+hStUt+St = 1+ Pt (h� 1) (4)

    P: proportion of skilled workers in the economy

    Pt = StUt+St (5)Armando Garcia Pires (SNF) 25-28/06/2013 11 / 24

  • Individual Education Choices: Autarchy

    1st period: work only or work and acquire education

    Wage rate: w1Cost of education: cw1, with 0 < c < 1

    2nd period: work

    Unskilled workerswage: w2Skilled workerswage: hw2

    Condition to acquire education (steady state: w1 = w2 = w):

    c < cAut � h� 1 (6)

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  • Individual Migration Choices: Open Economy

    Channel for brain gain: temporary migration

    0 < γ � 1: share of a migrants second period working life in thedestination country (i.e.: 1� γ as a returnee)

    Migration costs: kw �, with 0 < k < 1

    Scenario 1: No-brain waste

    With no-brain waste all migrants receive the destination countryswages (w�):Unskilled: w� > w versus Skilled: hw� > hw

    Scenario 2: Brain waste

    With brain waste a skilled individual is employed as unskilled in thedestination countryi.e.: With brain waste a skilled individual earns w� instead of hw�

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  • No-Brain Waste versus Brain Waste Scenarios

    Brain waste:

    pS : probability of a skilled worker to work as skilled

    Brain waste scenario: pS 2 (0, 1)No-brain waste scenario: pS = 1

    Interpretation for pS : Migration policies

    Selection of migrants, international transferability of human capital,illegal migration

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  • Individual Migration Choices

    Lifetime income for alternative migration decisions:

    I (U,NM) = w1 + w2I (U,MI ) = w1 + w � (γ� k) + (1� γ)w2

    I (S ,NM) = (1� c)w1 + hw2I (S ,MI ) = (1� c)w1 + w � (γ (1+ pS (h� 1))� k) + (1� γ) hw2 (7)

    NM: No-migration

    MI : Migration

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  • Brain Waste Scenario

    Migration if:

    SpS2(0,1) : γ (h (pSω� 1) +ω (1� pS )) > kωUpS2(0,1) : γ (ω� 1) > kω (8)

    Where ω = w�w (Relative wage destination-origin)

    Migration incentives skilled versus unskilled:

    SpS2(0,1) � UpS2(0,1) = γ (h� 1) (pSω� 1) (9)

    With no-brain waste, pS = 1: SpS=1 > UpS=1Skilled always have more incentives to migrate than the unskilled

    With no-brain waste, pS < 1: SpS2(0,1) 7 UpS2(0,1)Skilled not necessarily have more incentives to migrateSkilled workersincentives to migrate reduced for: low pS and low ω

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  • Brain Waste Scenario: Self-Selection

    Positive self-selection if:

    ω (γ� k) + (1� γ) < 1 < pSω�γ� kh

    �+ (1� pS ) ωh (γ� k) + (1� γ)

    (10)

    Negative self-selection for: low pSPossibility of positive self-selection reduced relatively to the no-brainwaste scenario

    Implication:

    Selective migration policies or very strict skills equivalence policiesmight not be very e¤ective for attracting skilled workersSee evidence for Canada (Borjas, 1993; Barret, 1998)

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  • Brain Waste Scenario: Education Incentives

    Education incentives:

    c < cpS2(0,1) � ω (pS (γh� k) + (1� pS ) (γ� k)) + (1� γ) h� 1(11)

    Brain waste versus no-brain waste scenarios:

    cpS=1 � cpS2(0,1) = (1� pS )ω (γ (h� 1)) > 0 (12)

    Higher incentives to education under the no-brain waste scenario

    Brain waste reduces the returns to education resulting from migration

    See empirical evidence: Mckenzie and Rapoport (2006); Brauw andGiles (2006)

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  • Brain Waste Scenario: Brain Drain or Gain?

    Brain drain or gain:

    hdPpS 2(0,1)

    iγ(ω(pS h+(1�pS ))�h)=kω

    =

    (h�1)(h�2)+h(pSω�1)+ω(1�pS )�kω(pS+(1�pS ))�1� γ(h�1)pS+(1�pS )

    �2 (13)

    Brain gain less likely for: High k and low pSSee empirical evidence of Beine et al. (2008)

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  • Brain Waste Scenario: Brain Drain or Gain?

    Brain waste versus no-brain waste scenarios:

    hdPpS=1dγ

    ihγ(ω�1)=kω

    �hdPpS 2(0,1)

    iγ(ω(pS h+(1�pS )τ)�h)=kω

    = ω(1�pS )(h�1)(1�γ(h�1))2 > 0

    (14)

    A brain gain is less likely under the brain waste scenario than underthe no-brain waste scenario

    Brain waste depresses the incentives to take education brought byinternational migration

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  • Education Policy

    Income tax on the unskilled and the skilled workers that remain in thecountry: Twh

    Education subsidy: Zw

    Zero migration costs: k = 0

    Reason for this assumption: In order to always have a brain gain

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  • Education Policy, Brain Waste and Brain Gain

    Education subsidy versus no-education subsidy:

    �dPTpS 2(0,1)

    �ω=

    h(1�T )pS (h�1)+1

    ��dPT=0pS 2(0,1)

    �ω=

    hpS (h�1)+1

    =

    (1� γ) (pS (h� 1) + 1)γ(Z (γ(2�Z )+2)+γ2(h�1)2+2h(1�γZ )�γ(h2�1)�1)�1

    (1�γ(h+Z�1))2(1�γ(h�1))2

    (15)

    With no-brain waste (pS = 1), subsidizing education always increasethe brain gain relatively to the no-subsidy case

    With brain waste (pS < 1), subsidizing education do not alwaysincreases the brain gain relatively to the no-subsidy case

    Education subsidy ine¢ cient for: high γ, h and Z

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  • Education Policy: Brain Waste versus No-Brain Waste

    Brain waste versus no-brain waste:

    �dPTpS 2(0,1)

    �ω=

    h(1�T )pS (h�1)+1

    ��dPTpS=1dω

    �ω=1�T

    = � (1�γ)γ(1�pS )(h�1)(1�γ(h+Z�1))2 < 0

    (16)

    The education subsidy is more ine¢ cient under the brain wastescenario than under the no-brain waste scenario

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  • Discussion

    Brain waste:

    Reduces the incentives of individuals to acquire educationUndermines the chances of a positive self-selectionIt weakens the possibility of a brain gain to ariseIt dampens the success of education policies

    Results are robust to:

    Other brain gain channels: uncertain migration and remittancesAmnesties for the illegalMulti-country world

    Policy issues:

    Selective migration policies and restrictive skill equivalence policiesEducation policies in developing countries

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    Brain Drain and Brain WasteIntroductionMigration: Brain Drain or Brain Gain?This Paper: Brain WasteSources of Brain WasteMigration PoliciesThis paperEmpirical EvidenceThe ModelThe ModelProduction, Human Capital and WagesIndividual Education Choices: AutarchyIndividual Migration Choices: Open EconomyNo-Brain Waste versus Brain Waste ScenariosIndividual Migration ChoicesBrain Waste ScenarioBrain Waste Scenario: Self-SelectionBrain Waste Scenario: Education IncentivesBrain Waste Scenario: Brain Drain or Gain?Brain Waste Scenario: Brain Drain or Gain?Education PolicyEducation Policy, Brain Waste and Brain GainEducation Policy: Brain Waste versus No-Brain WasteDiscussion