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Modelling the Effects of Labour Migration on Regional Economic Performance Pouliakas, K, Roberts, D, Balamou, E and Psal

Modelling the Effects of Labour Migration on Regional Economic Performance Pouliakas, K, Roberts, D, Balamou, E and Psaltopoulos, D. University of Aberdeen Business School, UK & University of Patras, GR TERA Final Conference as a pre-Congress Symposium of EAAE

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Modelling the Effects of Labour Migration on Regional Economic Performance Pouliakas, K, Roberts, D, Balamou, E and Psal

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  1. Modelling the Effects of Labour Migration on Regional Economic Performance Pouliakas, K, Roberts, D, Balamou, E and Psaltopoulos, D. University of Aberdeen Business School, UK & University of Patras, GR TERA Final Conference as a pre-Congress Symposium of EAAE Gent (Belgium) – August 26-29, 2008

  2. Structure Migration as a regional phenomenon. Theoretical foundation & Lit. Review:  The Economic Impact of Immigration. Description of migration patterns in case study areas. Description of Labour Supply Simulations: The ‘basic’ labour supply simulation. The ‘skills’ labour supply simulation. Findings from the migration simulations. Sensitivity analysis. Conclusions. Layout of Presentation Aim: To estimate on the basis of a CGE model the impact of different scales and skill types of immigration on remote regions of the EU.

  3. In the last 45 years the number of persons across the globe who were living abroad more than doubled from 75 million to 191 million (UN, 2006). Most research on migration has focused at national level. Immigration is likely to exert its most significant impact on local communities. Important regional element in the decision where to migrate (predominantly urban centres). Survival of rural economies dependent on migrant labour (e.g. Scottish Highlands). Yet data restrictions have inhibited the study of small geographical units in the past. Migration as a regional phenomenon

  4. The standard economic paradigm predicts that more workers into an economy is expected to reduce wages, ceteris paribus. If wages are rigid, unemployment should arise if migrants and natives are substitutes. More realistic models (e.g. wage bargaining, trade H-O models) predict an ambiguous effect of immigration on an economy. In small and homogenous regional economies expect large effects due to the inflexibility of the output mix in the traded goods sector. “A meaningful exploration of immigration and wages requires a clear understanding and treatment of the general equilibrium mechanisms at play”(Lee, 2007). Theory & Lit. Review

  5. The weight of the empirical evidence suggests that immigrants are complements. “The impacts of immigration on non-immigrant employment and unemployment outcomes are minimal, but there is some evidence of wage effects” (Blanchflower et al., 2007; Dustman et al., 2005). Meta-analysis of 348 estimates: “A 1% increase in the proportion of immigrants in the labour force lowers wages across the investigated studies by only 0.119%” (Longhi et al., 2005). Positive impact on GDP as skill bottlenecks are alleviated and domestic productivity rate raised. Ambiguous effect on prices as immigrants affect both AS as workers/producers and AD as consumers. Theory & Lit. Review

  6. CGE Model Estimation Data - SAM plus other elasticity estimates. Procedure - calibrate CGE models so each CGE replicates Case study SAM. CGE Model Usefulness Full Picture of case-study economic transactions. Controlled experiments – what if? Example Simple Scenario – labour migration How different are the effects of large labour inflow/outflows in case study areas? CGE Estimation

  7. The Scottish, Greek and Italian areas have been experiencing population growth driven primarily by in-migration of foreign labour in the past decade. Although often highly skilled, migrants have tended to work in low-skilled/low-paid sectors such as agriculture and tourism. A negative migration balance has predominated in Latvia, Czech Republic and Finland. Primarily high-skilled labour (‘brain-drain’). Migration flows in case study areas

  8. Scenario 1 +- 10% change in total labour supply in all areas. Scenario 2 -20% skilled labour category – LV, CZ, FIN +20% unskilled labour category – GR, IT, UK Key Assumptions Each case study area separate labour market. Urban-rural labour market integrated within case study area. Capital fixed by sector; Investment savings-driven; Government savings flexible; ER fixed. Neoclassical labour market; Labour mobile, wages flexible. CGE Findings

  9. Scenario 1 Basic analysis

  10. Scenario 1 Basic analysis

  11. Scenario 1 Basic analysis

  12. Scenario 2 Skills analysis

  13. Scenario 2 Skills analysis

  14. Scenario 2 Skills analysis

  15. Aggregate effect on GDP broadly similar across case study areas  +10% in LS positive impact on GDP of 4-8%  -10% approximately same negative effect. The urban centres are mostly affected (#IT). An increase (decrease) in LS is associated with a fall (rise) in the region-wide wage of labour. The magnitude of the shock is driven by a combination of initial factor endowments and the degree of substitution between factors of production. The link between migration and prices is not clear-cut. CGE FindingsScenario 1

  16. Areas losing skilled labour Big overall losses in GDP of 5-12% depending on the country Urban areas worst hit A skill deficiency leads to marked rise in wages of remaining skilled workers Areas gaining unskilled labour Smaller overall gains in GDP 2-6% No clear pattern whether urban or rural areas gain most Wages of unskilled workers fall CGE FindingsScenario 2

  17. Changing elasticity of factor substitution - Key macro aggregates affected marginally. - Smaller wage effects. Allowing for mobility and accumulation of capital - The long-term positive effect of migration on GDP is 1-4% higher depending on the degree of capital accumulation. - Smaller wage effects. - Greater divergence in the GDP levels of the rural and the urban areas of each region. Increased substitutability between Sk/Usk labour - Interviews with local policymakers/managers: productivity of migrants equal/higher than that of locals. - Modelled as skilled and unskilled labour becoming more “substitutable” (e.g. σ~ 1). - Slight increase in GDP. - Smaller impact on wages of unskilled workers. Sensitivity Analysis

  18. Migration & Capital accumulation

  19. Modelling Approach: SAMs and CGE 1% rise in immigration:  0.4-0.8% rise in GDP. 0.4-1.5% fall in wages. ambiguous effect on prices. Skilled/unskilled wage gap widens – is immigration of unskilled workers significant contributor to earnings inequality? ‘Brain-drain’ is a potentially serious barrier to economic growth and development of regions. Conclusions

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