A Long Commute

• Author: Çağlar Özden
• Position: a Lead Economist in the World Bank’s Development Research Group.

John, a Wall Street hedge fund manager, and Juan, a Nicaraguan construction worker, have an important trait in common: they are both global arbitrageurs.

John looks for small differences in interest rates across the globe, moves billions of dollars with a keystroke, and presumably contributes to more efficient allocation of capital.

Juan moved from Masaya to California to take advantage of a different but significantly larger price gap—average construction wages 11 times higher than in Nicaragua. He used his family’s life savings to pay the smugglers’ fees and lives in constant fear of getting caught and deported. Yet he is the envy of the 30 percent of Nicaraguans surveyed by a 2012 Gallup poll who said they would migrate if they had the chance.

John has benefited from the recent swift integration of financial and product markets. And Juan is a success story in his own right. He is one of the few to overcome the geographic, cultural, linguistic, and policy-induced barriers facing most migrants who aspire to move to higher-paying jobs in other countries.

The halting integration of labor markets is the single most important exception to the globalization process, leading to persistent wage differentials. It is the reason why the share of immigrants has been quite stable at about 3 percent of the world population since 1960. There are large wage gaps not only in low-skill sectors like construction and agriculture but also in many higher-skill occupations (ILO, 2012/3). Nurses make seven times more in Australia than in the Philippines; accountants six times more in the United Kingdom than in Sri Lanka; and doctors five times more in the United States than in Egypt—in purchasing power parity terms.

Public perception

The low levels of global migration and large wage gaps between migrant-sending and -receiving countries suggest relative insulation of domestic labor markets and a minimal impact of migration on wages.

But that’s not the public perception. Many people in high-income Organisation for Economic Co-operation and Development (OECD) countries consider immigration the most important challenge their countries currently face and blame migrants like Juan for declining wages and high unemployment.

How justified are these sentiments? A key theme of the migration debate is misperception and ignorance. Opinion polls by IPSOS Mori (Duffy and Frere-Smith, 2014) indicate that British people think immigrants make up 24 percent of the population, but the actual number is 13 percent. The gap is even wider in the United States (32 percent versus 13 percent), France (28 percent versus 10 percent), and Spain (24 percent versus 12 percent). Such perception bias affects sentiments about migration.

Patterns of migration

We should look at actual migration patterns before discussing their impact on jobs. Between 1960 and 2010, the number of global migrants increased from 90 million to 215 million—stable at about 3 percent of the world population. Two-thirds of the growth came from migration to western Europe and the United States. The rest represents increased mobility between the countries of the former Soviet Union, the emergence of the oil-rich Persian Gulf countries as key destinations, greater intra-Africa migration, and migration to Australia, Canada, and New Zealand. Several fast-growing middle-income countries, such as Malaysia, South Africa, and Turkey, became regional magnets for both refugees and job seekers.

Higher south-north migration is the defining feature of the past five decades. Newly released data by the OECD and the World Bank reveal interesting patterns of migration to OECD countries, the focus of most debate over links between migration and job markets. The 113 million migrants in OECD countries as of 2010 represent a 38 percent increase from the previous decade. Migrants make up 11 percent of the OECD population, significantly above the global average, which may explain public anxiety in these countries. Intra-OECD migration is about 40 percent of the total, while the rest of the migrants come from Latin America (26 percent), Asia (24 percent), and Africa (10 percent).

The most critical...