A Spoonful of Sugar

• Author: Florence Jaumotte, Ksenia Koloskova, and Sweta Saxena

A Spoonful of Sugar Finance & Development, December 2016, Vol. 53, No. 4

Florence Jaumotte, Ksenia Koloskova, and Sweta Saxena

High- and low-skill immigration both raise incomes and confer broad benefits on advanced economies

The legend: Around the eighth century A.D., Parsis fleeing Iran after the Arab conquest sought refuge in India. When they arrived the local ruler presented them with a cup of milk filled to the brim, to signify that the land couldn’t possibly accommodate more people. The Parsi leader responded by slipping sugar into the milk to show that strangers could enrich the local community without displacing it. They would dissolve into society like sugar into milk, sweetening but not unsettling it (NPR).

Today’s reality: Migration has become a hot-button issue around the world, not least because of the recent surge in refugees. While newspapers are filled with photos of people fleeing their homelands, a large and growing population of migrants is already living in advanced economies (see Chart 1). Adult migrants make up 15 to 20 percent of the working-age population in many advanced economies, and 25 percent or more in some Anglo-Saxon countries, such as Australia, Canada, and New Zealand. They accounted for half the growth in the working-age population of advanced economies between 1990 and 2015, and the United Nations projects that without further migration, aging will further reduce the share of workers in most of those economies over the next decade.

After so many centuries, the question remains, do migrants sweeten the milk or unsettle it?

Costs versus benefitsPublic sentiment in advanced economies is much more negative when it comes to immigration than to trade for two main reasons. First, people often perceive migration as a zero-sum game: they fear losing their job or having to accept lower wages. Most studies, however, find that the impact of migration on average wages or employment of native workers is very limited (for a survey, see Peri, 2014). Some studies, though, find that the wages of low-skilled workers do suffer (for example, Borjas, 2003; Card, 2001). Second, natives fear losing their cultural identity when migrants find it difficult to integrate. Surveys show that in Europe personal concerns over the compositional effects of migration—such as language and culture—matter much more to people than economic concerns such as jobs (Card, Dustmann, and Preston, 2012). Linguistic and cultural obstacles, combined with failure to recognize foreign education and experience—and in some cases implicit discrimination—can prevent the integration of migrants. Thus, there is no denying that in the short term there can be negative effects associated with migration—and sometimes the short term can be quite long.

In a new study, however, we show that migrants can bring significant long-term benefits to host...