The High Price of Immigration

Aug. 29 (Bloomberg) -- Why are migrants not only the winners but also the big losers from migration?

The answer is that those who have already migrated lose, at least in economic terms, through the subsequent migration of others. Migrants lose because they compete with one another.

Migrants aren’t in close competition with indigenous workers. The advantage the indigenous have may be that they have better command of the language or that their greater tacit knowledge of social conventions makes them more productive.

Or it may be because employers discriminate against immigrant workers. Whatever the explanation, the upshot is that immigrants form a distinct category of worker. Additional immigrants therefore drive down the earnings of existing immigrants. This is the only clearly established substantial effect of immigration on wages.

The effects of immigration on the wages of indigenous workers vary between very small losses and modest gains. If immigration policy were to be set by its effects upon wages, the only interest group to campaign for tighter restrictions should be immigrants.

The individual behavior of immigrants evidently belies this interest: Immigrants typically devote considerable effort to trying to get visas for their relatives. But these two interests aren’t inconsistent.

An immigrant who enables a relative to join her receives benefits such as companionship. The increased competition in the job market generated by the extra migrant is suffered by other immigrants. In effect, a tightening of immigration restrictions would be a public good for the existing immigrant community as a whole.

Heightened Intolerance

There may be further social reasons that the existing stock of immigrants has an interest in tighter restrictions. The size of the immigrant stock also affects attitudes of the indigenous population. Contrary to the hope that exposure increases tolerance, the opposite appears to happen.

Heightened intolerance is a public bad suffered by immigrants as a whole, and is thus inadvertently generated by the individually maximizing migration decisions of each successive migrant. Hence, the paradox of migration. Individual migrants succeed in capturing the huge productivity gains from migration. But migrants collectively have an interest in precisely what individually is most detrimental: entry barriers.

By capturing the lion’s share of the large productivity gain from migration, migrants repay the initial investment of the journey. But are there any continuing costs of being an immigrant in a culturally alien environment? We can use happiness as an integrating measure of economic gains and social costs.

Research finds that above a modest income threshold, increases don’t generate sustained increases in happiness, though they do have transient effects. If you win the lottery, you feel happier. But the warm glow fades after a few months. If we apply this to migration, for the typical migrant from a low-income country to a high-income one, the income gain is overkill. Income increases from well below the threshold to well above it.

According to the economics of happiness, the first few thousand dollars would increase happiness, but the remainder would be slack. Above the threshold, by far the most powerful determinants of happiness appear to be social -- marriage, children and friends count more than the size of a paycheck.

Migration has clear effects on these social characteristics, but they are negative. Families are separated, and the migrant spends his life in a culturally alien environment that, day by day, may tend to make him less happy.

Migration Lottery

However, happiness isn’t the only alternative to income as a measure of well-being. An approach favored by some economists is the “ladder of life,” which asks people to imagine on a 10-point scale the worst possible life and the best, then place themselves on this scale. This produces self-reported estimates of well-being that more consistently increase with the level of income, so we can’t necessarily conclude that migration provides an income gain that is overkill in terms of well-being.

Potentially, both happiness and the ladder of life can be used to address the question of whether migration increases the well-being of migrants. However, the large academic literature that purports to measure these effects applies methods that aren’t up to the demanding requirements for reliable results. For example, several studies show that migrants tend to be less happy than the indigenous host population. But a leap of faith is then required to infer from this that migration has made people less happy than they otherwise would have been had they stayed home.

I have found only two studies that deploy methods that get around such pitfalls. Both are very recent and as yet unpublished.

The first considers migration from Tonga to New Zealand. It takes advantage of an entry program introduced by the government of New Zealand called the Pacific Access Category. Its crucial feature was that it was run as a lottery, granting and refusing access to applicants on a random basis. Because winning is random, the lottery winners shouldn’t differ much from the lottery losers. Hence, following their migration, the lottery winners can be compared with the lottery losers, and any new differences between them can reasonably be attributed to the fact that the winners have migrated.

Tonga is fairly representative of many poor countries -- average income is about $3,700 a head, whereas in New Zealand it’s more than $27,000. So the winners of the migration lottery also metaphorically won a financial lottery. This showed up in the data: Four years after migrating, the lottery winners had increased their incomes by almost 400 percent.

But the study carefully measured the effects both on happiness and on the ladder of life. One year after migrating, there were no significant effects on either. After four years, there were still no effects on the ladder of life, but people had become significantly less happy, by 0.8 points on a five-point scale.

Cultural Dislocation

The other study tracks migrants from villages to cities within India. It, too, investigates how well-being changed relative to an almost identical group of people who had stayed behind. Because its context is migration within India, this research is far from an ideal guide to international migration, where both the income change and the cultural change are much larger. It should, however, provide some indication of what effects are to be expected.

As with migration from Tonga to New Zealand, rural-to-urban migrants in India substantially increased their income. Consumption rose by an average of about 22 percent, very much less than the gain from international migration but enough to increase well-being as measured by the ladder of life. Both types of migration incur a degree of social dislocation, but the migrant moving from a village to a city within India doesn’t suffer the dislocation of an alien culture.

As with the Tongan study, this one finds that migrants place themselves no higher on the ladder of life than their siblings who stayed behind. Their higher income comes at the price of cultural dislocation, manifested by strong nostalgia for their former village life. An implication is that their migration incurs a substantial hidden cost that offsets the readily apparent gain in income.

A tentative inference of these studies is that migrants incur substantial psychological costs that may be broadly commensurate with their large economic gains. The huge productivity gains from migration appear not to translate into additional well-being. Migration doesn’t deliver the anticipated free lunch.

Psychological Costs

Nonetheless, migration might eventually raise well-being.

In the case of rural-to-urban migration within the same country, a reasonable presumption is that the children of migrants grow up without the nostalgia of their parents: For them, the city is home. This second generation and subsequent ones have higher incomes than they would have had their parents remained in the village. And, because they themselves don’t suffer offsetting psychological costs, they are also happier.

Rural-to-urban migration thus conforms to the 19th-century narrative that migrants move for the benefit of their children rather than themselves. The psychological costs may be enormous, wiping out the income gains that accrue to migrants, but they are unavoidable costs of progress and have the status of investments.

But for international migration from poor to rich countries, both the income gain and the cultural dislocation are an order of magnitude greater. Whether the psychological costs last a single generation or persist depends upon whether subsequent generations continue to feel dislocated. Whereas the costs of rural-to-urban migration are highly unlikely to persist beyond the first generation, the descendants of international migrants might continue to feel alien. In the worst-case scenario, continuing psychological costs would offset the gains for several generations. Migration wouldn’t be an investment; it would be a mistake.

(Paul Collier, a professor of economics and public policy at the Blavatnik School of Government at the University of Oxford, is the author of “The Plundered Planet,” “Wars, Guns, and Votes” and “The Bottom Billion.” This is the second in a series of three excerpts from his new book, “Exodus: How Migration Is Changing Our World,” published by Oxford University Press. Read Part 1 and Part 3.)

To contact the writer of this article: Paul Collier at

To contact the editor responsible for this article: Max Berley at