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The Skill Composition of Immigrants and the Generosity of the Welfare State: Free vs. Policy-Controlled Migration

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  • Razin, Assaf
  • Cohen, Alon

Abstract

The paper analyzes the effect of the generosity of the welfare state on the skill composition of immigrants. We develop a parsimonious model in which the effect of an increase in the generosity (and taxes) of the welfare state on the skill composition of immigrants under free migration is negative. The reason is that welfare state benefits attract unskilled migrants because they contribute to tax revenues less than what they gain from benefits; and this generosity works to deter skilled immigrants, because they contribute in taxes more than in benefits. In sharp contrast, the effect of an increase in the generosity (and taxes) of the welfare state on the skill composition of migrants is positive if migration is controlled by policy. Being net contributors to the welfare state, skilled migrants can help finance a more generous welfare-state system; thus, they are preferred by the policy maker over unskilled migrants. We take the prediction of the model to cross-sectional data on source-host, OECD-EU country pairs in the year 2000. The identification strategy is to use the decomposition the source-host country pairs into two groups: one group, a "free migration" group, source-host country pairs within the EU, and another group, "policy-controlled migration" group, the pairs from non-EU countries into the EU. We find evidence in support of the predictions of the parsimonious model, that the generosity of the welfare state adversely affects the skill-composition of migrants under free migration; but it exerts a more positive effect under controlled migration, relative to the free migration regime.

Suggested Citation

  • Razin, Assaf & Cohen, Alon, 2008. "The Skill Composition of Immigrants and the Generosity of the Welfare State: Free vs. Policy-Controlled Migration," CEPR Discussion Papers 7034, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7034
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    Cited by:

    1. Assaf Razin & Efraim Sadka, 2010. "Fiscal and Migration Competition," NBER Working Papers 16224, National Bureau of Economic Research, Inc.
    2. Assaf Razin, 2013. "MIGRATION into the WELFARE STATE: tax and migration competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(4), pages 548-563, August.
    3. Slobodan Djaji, 2011. "Reforming the System of International Migration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 8, Edward Elgar Publishing.
    4. Beine, Michel & Docquier, Frédéric & Özden, Çaglar, 2011. "Diasporas," Journal of Development Economics, Elsevier, vol. 95(1), pages 30-41, May.
    5. Giuranno Michele G. & Biswas Rongili, 2019. "Internal Migration and Public Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-16, October.
    6. Razin, Assaf & Sand, Edith, 2009. "Migration-Regime Liberalization and Social Security: Political-Economy Effect," CEPR Discussion Papers 7310, C.E.P.R. Discussion Papers.
    7. Giuranno, Michele G. & Rongili, Biswas, 2012. "Inter-jurisdictional migration and the size of government," MPRA Paper 42604, University Library of Munich, Germany.
    8. Joxhe, Majlinda & Scaramozzino, Pasquale & Zanaj, Skerdilajda, 2021. "Fiscal Position of Immigrants in Europe: A Quantile Regression Approach," GLO Discussion Paper Series 758, Global Labor Organization (GLO).
    9. Michel Beine & Frédéric Docquier & Çağlar Özden, 2010. "Diaspora Effects in International Migration: Key Questions and Methodological Issues," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(IV), pages 639-659, December.
    10. Łukasz Byra, 2023. "Two possible reasons behind the reluctance of low-skilled workers to migrate to generous welfare states," Working Papers 2023-24, Faculty of Economic Sciences, University of Warsaw.
    11. Efraim Sadka & Ben Suwankiri & Assaf Razin, 2010. "The Welfare State and the Skill Mix of Migration: Dynamic Policy Formation," 2010 Meeting Papers 13, Society for Economic Dynamics.
    12. Paolo E Giordani & Michele Ruta, 2008. "Prejudice and Immigration," Levine's Working Paper Archive 122247000000002276, David K. Levine.
    13. Assaf Razin & Efraim Sadka & Benjarong Suwankiri, 2009. "Migration and the welfare state: Dynamic Political-Economy Theory," NBER Working Papers 14784, National Bureau of Economic Research, Inc.
    14. Paolo E. Giordani & Michele Ruta, 2016. "Self-confirming immigration policy," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 361-378.
    15. Una Okonkwo Osili & Jia Xie, 2009. "Do Immigrants and Their Children Free Ride More Than Natives?," American Economic Review, American Economic Association, vol. 99(2), pages 28-34, May.
    16. Alon Cohen & Assaf Razin & Efraim Sadka, 2009. "The Skill Composition of Migration and the Generosity of the Welfare State," NBER Working Papers 14738, National Bureau of Economic Research, Inc.
    17. Veronika Nagy, 2018. "The Janus face of precarity – Securitisation of Roma mobility in the UK," Local Economy, London South Bank University, vol. 33(2), pages 127-146, March.
    18. Björn NILSSON, 2019. "Education and migration: insights for policymakers," Working Paper 23ca9c54-061a-4d60-967c-f, Agence française de développement.
    19. K. Burggraeve & C. Piton, 2016. "The economic consequences of the flow of refugees into Belgium," Economic Review, National Bank of Belgium, issue i, pages 43-61, June.
    20. Alexander Tatarko & Tomas Jurcik, 2021. "Migrant Integration Policies, Perceived Group Threat and Generalized trust: a Case of European Countries," Journal of International Migration and Integration, Springer, vol. 22(2), pages 705-727, June.
    21. Petra W. Jong & Kim Caarls & Helga A. G. Valk, 2022. "The Welfare State as Safety Net in Migration Preferences: Empirical Evidence from an Experiment Among Dutch Master Students," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 41(2), pages 671-694, April.

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    More about this item

    Keywords

    Eu and non-eu countries; Free migration; Policy-controlled migration;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H1 - Public Economics - - Structure and Scope of Government

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