Migrant and Host Country Workers: Substitutes or Complements?

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Migrant and Host Country Workers Substitutes or
Complements?

• Kiriya Kulkolkarn
• Faculty of Economics, Thammasat University
• Tanapong Potipiti
• Faculty of Economics, Chulalongkorn University

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Map of Migration Flows
Source http//pstalker.com/migration/mg_map.htm
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How many immigrants are there?

• World 191 million (6 of labor force in 2005)
• Luxembourg (62 of labor force in 2001)
• Switzerland (18 of labor force in 2001)
• Source United Nations
• USA
• 1970 5.3 of labor force
• 2005 14.7 of labor force
• 2000-2005 4.1 million new immigrants (1.4-2.7
  million were undocumented )
• 86 of net increase in employment
• Source Ottaviano and Peri, 2006, Sum et al.,
  2006
• Thailand
• 1987 38,000
• 1995 700,000
• 2007 2-2.5 millions (6 of labor force)
• Source Ministry of Labor, Thailand

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Debates on Immigration

• Bad
• Immigrants steal jobs of local workers.
• 1.7 million fewer young (16-34) American men were
  employed in 2005 than 5 yrs earlier
• Immigrants depress native wages.
• Real annual wages of U.S. natives with less than
  high school education fell by 11.5 during
  1990-2004
• Fiscal cost, crime, racism

• Good
• Immigrants allow the economy to work more
  smoothly by filling vacancies across the jobs
  spectrum, at both the top and the bottom
• 3D jobs
• Professionals
• Sunset industries
• Immigrants help smooth the peaks and troughs.
  (Ethier, 1985)
• Immigrants make better use of native workers.

Source Ottaviano and Peri, 2006, Sum et al., 2006
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Does the statistical evidence support public
concerns?

• There is surprisingly little evidence to support
  this Most research finds that a 10 percent
  increase in the fraction of immigrants in the
  population reduces the wages of even the least
  skilled native-born workers by at most 1 percent
  Evidence of immigrants reducing employment or
  labor-force participation rates or increasing the
  unemployment rate is even harder to find
  (Friedberg and Hunt,1999, p. 358).

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Why do Burmese migrate to Thailand?

• economic motives
• Income and wage disparities
• HDI disparities
• unemployment and forced labor
• inflation, shortages, rationing
• political motives (1988, 1990 and beyond)

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Some rough comparisons
Indicator Burma Thailand Ratio Source
Per cap. inc. (Rupees, 1954-56, COL adj) 300 400 1.33 Myrdal 1967 Table 11-1
Per cap. income 1978 (, official exch rate) 150 490 3.27 World Dev. Report 1980
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What do migrants typically experience in Thailand?

• Occupations
• Dirty, difficult (degrading) and dangerous.
  Fisheries, farming, construction, personal
  services factory work
• Among registered workers 24 in fisheries 18
  in farming 14 in domestic services others in
  manufacturing, mining, quarrying, construction
• Unregistered workers in these occptns and also
  market/trade hotels, restaurants, prostitution
• Wages and conditions job security
• Wages frequently reported as 2/3 - 3/4 Thai
  equivalents
• Few rights none for unregistered workers
• Regulatory and legal environment
• Thailand introduced permit system 1996
• Registration and legal status
• Registration costs (equiv to 1 mo. income)

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Impact of migrant workers on the Thai economy

• Opposition to admission of more workers
• 59 of Thais surveyed by ABAC thought no more
  workers should be admitted 83 believed that
  immigration reduces native wages only 10 were
  in favor of increased migration (Economist, Jan
  18 2007)
• Migrant workers delay the sunset for
  labor-intensive industries these are still
  important contributors to Thai merchandise
  exports
• Over time, movement of foreign workers to
  industries w/ fixed locations (agriculture,
  fisheries, construction etc) -- and of
  investments in footloose industries to where
  migrant workers are clustered

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Impact of migrant workers on Thai wages

• Sussangkarn (1996) Wages of Thai workers
• with less than a primary education rise by 3.5
• with more than a primary education fall
• Kulkolkarn and Potipiti (2007) no evidence of
  the impact of immigration on Thai wages
• Bryant and Rukumnuaykit (2007) immigration
  reduces the wages of Thai workers

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What does the economic theories say?

• Standard Model
• Same skill Perfect substitute
• Immigrants lower native wages
• Different skill Imperfect substitutes
• Immigrants may lower or increases native wages
• Efficiency Wage Model
• Small numbers of immigrants increases native
  wages
• Large numbers of immigrants decreases native wages

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Stylized Facts

• 1. Immigrants have lower education.
• 2. Natives are more versatile.
• 3. Immigrants release native workers to do higher
  wage jobs.
• The existing models has not yet captured all
  these facts in one model.
• In our model, natives possess 1 unit of type-1
  skill and 1 unit of type-2 skill. Migrants own 1
  unit type-2 skill but ? (lt 1) unit of type-1
  skill.

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My model

• Production function of the output of the economy
• Full employment
• Production function of the intermediate goods h
  and b

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3 possible outcomes

• 1. Migrants work in sector h. Natives work in
  sectors h and b.
• Wages are equal in both sectors.
• Some natives move to sector b after immigration.
• Immigration decreases the wage of natives.

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3 possible outcomes

• 2. Migrants work in sector h. Natives work in
  sector b.
• Natives and migrants receive different wages.
• Immigration can increase the wages of natives
  above the pre-immigration level.
• Additional migrants decreases their own wages.

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3 possible outcomes

• 3. Migrants work in sectors h and b. Natives work
  in sector b.
• Natives and migrants receive different wages.
• Additional migrants decreases native wage and
  their own wages.

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Migrant and Host-Country Workers Substitutes or
Complements

• 3 stages as of immigrants increases
• 1. Migrants enter into one labor submarket while
  natives work in both submarkets
• 2. Migrants work in one labor submarket while
  natives work in another.
• 3. Migrants work in both submarkets while
  natives work in one submarket.
• The results depends also on
• Skill similarity
• Production technology

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Impacts of Immigration

• Native wage can be higher

• Native wage cannot be higher

Stage 1
Stage 3
Stage 2
m
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Implications

• The relationship between immigrants and wage is
  not monotonic.
• Not a bell curve but an S curve
• of immigrants, skill similarity, production
  technology
• Policy that helps native workers
• Number of immigrants must be large enough
• Allow immigrants who are very different from
  natives
• Limit immigrants to work only in some sectors