Labor Mobility
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Box 13.2. Quantitative Estimates of Overall Gains from Greater Labor Mobility Complete liberalization of mode 4 would result in very large gains. Hamilton and Whalley (1984) use a partial equilibrium (PE) model and 1977 data to estimate the benefits from the complete elimination of all immigration restrictions, for skilled and unskilled labor alike. The potential gains are enormous, ranging from 60 to almost 205 percent of world gross domestic product (GDP). Millions of workers would move from low-productivity to highproductivity jobs in countries with high salaries, until wages in labor-sending and labor-receiving countries equalized. Iregui (1999) revisits the question using a computable general equilibrium (CGE) model and more precise measures of elasticities and population characteristics. Here again, the gains are large, ranging from 15 to 67 percent of world GDP. Moses and Letnes (2004), using more precise values for productivities, confirm large gains, ranging from 4.3 to about 112 percent of world GDP in 1977. According to these authors, the ‘’most reasonable’’ gain would be 7.5 percent of world GDP. The large differences between these estimates, both within and between studies, can be explained by the differences in modeling frameworks (partial versus general equilibrium) and assumed parameters. Some estimates assume that migrants can achieve the average productivity of workers in the destination country; others assume that additional education and training will be needed. Gains from less than complete liberalization of mode 4 are still large. Because full liberalization is politically unacceptable, some economists have estimated the potential outcome of more modest liberalization of mode 4. Moses and Letnes (2004) estimate the gains from eliminating 10 percent of the wage inequality between countries and find that potential gains would still be large, corresponding to around 2.2 percent of world GDP. Walmsley and Winters (2002) estimate the potential gain from a 3 percent increase in the workforce in developed countries, a movement of 14.2 million workers, and a 50 percent increase in the current number of immigrants in developed countries at US$156 billion in 2002, representing 0.6 percent of world GDP. World Bank (2006) reaches a very similar result. Most of the gains come from the movement of unskilled labor. According to Iregui (1999), the potential gains from the migration of skilled labor only are much smaller: 3 to 11 percent of world GDP, in comparison with 13 to 59 percent for all skills. Walmsley and Winters (2002) show that the potential gain from the movement of unskilled workers would account for US$110 billion, or 70 percent of the total. This reflects the fact that inequality in wages worldwide is larger for unskilled than for skilled workers. Source: Annex table 13A.1.
Figure 13.2. Theoretical Effect on Developed Countries of Liberalization of Mode 4
Figure 13.3. Theoretical Effect on Developing Countries of Liberalization of Mode 4 wages
wages
supply (with restrictions)
supply (liberalization)
supply (liberalization)
supply (with restrictions)
A
A
E loss for native workers D C
E
overall gain for natives
gain for nonmigrant workers
overall loss for nonmigrants
D B
C
B
demand
number of hours worked
According to the theoretical model, the liberalization of mode 4 has the following distributional consequences: • In developed countries, most of the gains for capitalists are balanced by losses to native workers.
demand
number of hours worked
• In developing countries, most of the losses to capitalists are mirrored by gains to nonmigrant workers. • In developed countries, the gains for capitalists are larger than the losses for native workers. Therefore, total income in developed countries rises.