Temporary migration entails benefits, but also costs, for sending and receiving countries

Integration

Migrants who expect to stay longer in a host country have a stronger incentive to integrate into that country's society, to acquire host country specific human capital such as language skills, and to build a professional network. These assets affect career progression, productivity, and earnings in the host country, but are potentially less valued in the country of origin. Migrants with return intentions may thus find it optimal to forgo such host country specific investments when integration and skill acquisition is costly.

Beyond their effects on immigrants themselves, human capital investments that depend on migrants’ return intentions also affect the next generation: for example, sons of migrant fathers who plan to stay in Germany permanently have been shown to be more likely to complete upper secondary school. In fact, country-specific investments go beyond education or language: immigrants who plan to stay permanently invest more in broader host country specific human capital that may further both immigrants’ careers and their attachment to the host country [1].

Evidence of higher investment in education, and of higher wages, has been documented in studies that compare outcomes for refugees, who are assumed more likely to stay longer-term in a host country than economic migrants, to those of non-refugees. A stark piece of evidence on the economic benefits of integration comes from a study that exploits a reform-induced quasi-exogenous variation in the waiting time for citizenship applications to show that naturalized immigrants receive a career boost from better integration by investing more in language skills and vocational training. In addition to better language skills, immigrant women who face shorter waiting times before they can apply for citizenship are more likely to work, work full-time, and hold their jobs for longer [2]. Such integration into the labor market supports social cohesion, which may make immigration a less politically controversial topic.

Labor supply

Besides the incentive to accumulate host country specific human capital, a longer-term stay assimilates immigrants’ labor supply behavior to that of natives, whose reservation wage—the minimum wage that the worker requires in order to participate in the labor market—typically is higher. Since most temporary migrants leave their home country for work, this is an important margin.

Migrants who leave their home countries with the aim of accumulating assets, part of which will be spent after return, more often migrate without dependent family members and value leisure in the host country less. Their reservation wages are thus lower than those of permanent immigrants or comparable natives [3]. Possible negative effects of immigrant workers undercutting the wages of natives may partly be mitigated by better integration of longer-term migrants.

Immigration systems in some countries explicitly target low-paid immigrants to provide labor for specific sectors avoided by natives. In many countries in the Persian Gulf, migrant workers are an integral part of the economy: since many natives prefer public sector jobs, foreign contract workers make up most of the private sector labor force. In Western Europe and the US, agricultural harvesting is often performed by temporary workers at wages many natives are unwilling to accept. Given the low number of working-age individuals per retiree in many high-income countries, the benefits of immigration extend to an increase in the working-age population. Particularly, temporary migration can help mitigate the increasing burden on pension systems, counteracting demographic trends that threaten many countries’ fiscal sustainability.

Saving

Whereas better integration and lower labor supply of longer-term immigrants comes at little or no cost to migrant sending countries, a choice that has received more attention in economic migration research is the decision of how much to save and possibly remit. Evidence points toward lower savings and remittances by permanent migrants [4]. While this benefits local demand for goods and services in receiving countries, it comes at the expense of consumption and investment in migrants’ countries of origin. In contrast, temporary migrants remit a larger share of their savings instead of consuming or investing them locally in the receiving country.

Fiscal contributions

The fiscal contributions of temporary immigrants relative to permanent ones are theoretically ambiguous. On the one hand, permanent migration leads to better integration and labor market outcomes, whereas temporary migrants have flatter earnings profiles, resulting in lower income tax payments. Moreover, compared to permanent migrants, temporary migrants save and remit more as consumption is deferred to the country of origin, implying lower payments of indirect taxes such as VAT.

On the other hand, this must be contrasted with temporary migrants’ higher labor supply and limited access to the host country's welfare system. Temporary migrants often spend their most productive and healthy years in the host country and return to their country of origin for retirement, when high health and fiscal expenses are incurred. A model calibrated to the Swedish economy (including its high tax rate and strong welfare state) predicts large fiscal net contributions over their lifetime by individuals aged 20 to 30 on arrival, and net losses for immigrants above the age of 50 [5]. Many temporary migrants leave their host country around retirement age. This implies potentially large gains for countries hosting working-age migrants: in the OECD, social spending on adults above the age of 65 is almost six times as high as that on the working-age population.

The fiscal contributions of immigrants also depend on the type and specific characteristics of migrants deciding to stay longer-term. Empirical evidence points toward an overall negative selection of returnees from the population of immigrants, suggesting that those who remain permanently are the more productive ones. A study on Germany that endogenizes return migration and savings choices estimates the impact of pension and unemployment insurance systems [6]. It finds that the fiscal gains from temporary migration are higher than estimated in models that assume return migration decisions to be exogenous, precisely because of the negative selection of return migrants.

In sum, receiving country governments must trade off the advantages of temporary and permanent immigration. One of the important take-aways is that migrants’ behavior in the host country and economic outcomes crucially depend on whether their stay is anticipated to be temporary or permanent.

Remittances

A key benefit for migrant sending countries is capital repatriation through savings and remittances by emigrants. Remittances from the diaspora make up a large share of financial inflows to many countries. Unlike foreign capital investments, remittances tend to be countercyclical. The scale of both repatriated savings and remittances has been shown to be markedly higher for temporary compared to permanent migrants. Motives for sending money home range from supporting consumption of family members left behind to savings and investments for the time after the return to the home country. Remittances are higher when close family members remain in the country of origin, as often is the case for temporary migrants. A further motive for such remittances is that they serve as a form of insurance, preserving networks and goodwill for after the migrant's return. All these motivations are stronger for migrants expecting to return.

Remittances are an important way to overcome credit constraints in many low-income countries and facilitate, for instance, the education of young family members. Remittances are also an important source of national income, with macroeconomic implications for both inter- and intra-national inequality.

Despite having decreased over time due to new technologies such as mobile money, remittance fees and losses incurred due to below-market exchange rates frequently still exceed 10–15% of the sending value, especially for relatively small amounts. Given the large aggregate volume of remittance flows, lowering this cost would greatly enhance efficiency.

Entrepreneurial investment by returning migrants

In lower- and middle-income countries, self-employment and entrepreneurship are frequent paths out of poorly paid wage employment. For many migrants, temporarily working abroad is a mechanism to accumulate the capital needed to start a business in their home country, where they may face tight credit constraints. In the absence of collateral, bank loans as seed capital are not available to many would-be entrepreneurs, while temporary migration is.

A high propensity for return migrants to start entrepreneurial activity and a tendency to rely on savings accumulated abroad have been documented in many contexts, including Egypt, Turkey, Tunisia, and Bangladesh. Evidence further suggests that enterprises founded by returning migrants are more likely to survive and create employment opportunities for workers beyond the migrants themselves.

Employment upon return to the home country

In many countries, individuals who have been abroad are better educated than non-migrants. Yet causal estimates of the impact of migration experience on labor market outcomes upon return are inconclusive and context dependent. The core challenge is to account for selection into both emigration and return migration. Frequently, emigrants are positively selected from the population in their country of origin, whereas return migrants are negatively selected from the population of migrants, a pattern that has been documented for multiple countries. One example of positive outcomes for returnees is seen in Egypt, where returning migrants have been shown to enjoy a wage premium compared to non-migrants.

Migrants who return to Mexico also earn on average higher wages than non-migrants. Yet, this wage effect appears independent of migration duration, suggesting that migrants do not accumulate skills that are valued at home. Instead, observed wage differentials may be driven by a positive selection of migrants from the sending country's population. Taken together, these insights suggest that the effect of return migration on labor market outcomes in the country of origin depends crucially on context and how experience in host countries is rewarded in the home labor market—if it is valued there, return migrants will likely command a wage premium relative to those who never migrated.

Broader effects of temporary migration on well-being in the sending country

Migration of a household member can raise the remaining family's income and consumption through remittances. However, there are also more indirect channels through which non-migrants are affected; for example, women in families of migrating men are more involved in household decision-making [7]. On the other hand, remittances by temporary migrants may decrease the labor supply of other family members. In addition, the reduced labor supply in local labor markets with many emigrants may raise the wage rate for adults and reduce the need for child labor, as households previously relying on child labor in addition to adults’ earnings may be able to get by only on adults’ (now higher) earnings. Yet, at the same time, the absence of a caregiver and a potentially greater burden of household chores on children may negatively affect their education.

Return migrants can also affect social norms in their home countries. In families of returnees to Jordan from relatively more conservative countries in the Persian Gulf, women have been found to enjoy fewer freedoms [8]. This also extends to adopting the fertility preferences of host countries: return migrants to Egypt who temporarily lived in higher-fertility countries of the Middle East have more children than non-migrants [9]. Fertility assimilation also occurs the other way round, with migrants to low-fertility countries such as Germany adjusting downward their completed fertility relative to the average in their home countries.

Brain circulation

The emigration of highly skilled workers is frequently referred to as “brain drain.” Yet, migration may equally lead to a “brain gain” for the home country. The reasons are twofold: first, the fact that in many destination countries the opportunity to obtain a visa and job offer increases with an applicant's education level creates incentives for educational investments prior to migration, with some of these better-educated individuals ultimately never migrating. Second, the return of migrants, who may have acquired productive skills while abroad or formed valuable networks, may well leave an overall positive effect on a migrant sending country's human capital stock. A prime example for the latter is student migrations: international students go abroad to accumulate skills that are valued in their home country's labor market.

Skill accumulation may also occur “on the job,” that is, for migrants who go abroad to work rather than to study. Again, for the case of Egypt, returnees have been found to experience greater occupational mobility upon return than non-migrants, especially the better-educated. Crucially, the effect is increasing in migration duration, suggesting skill acquisition abroad [10].

Migration promotes innovation: knowledge diffuses faster when skilled workers migrate, as shown by the example of researchers who patent more innovations following migration, with positive spillovers on the patenting of their non-migrant collaborators in the country of origin. The return of skilled migrants, and the transfer of knowledge and technology they bring with them, can also contribute to industrial development in their country of origin through improved export performance, and even help reconstruction in post-conflict situations [11]. Ultimately, the benefit of brain circulation for sending countries depends on the propensity of high-skilled migrants to return.

Migration to mitigate asymmetric shocks in a currency union

Migration inherently links economic outcomes across countries and can even affect countries at similar stages of economic development. One prominent example is that of countries sharing a currency but facing idiosyncratic shocks. In currency unions, exchange rates cannot adjust to help cushion shocks to a specific country's productivity or the demand for its output. In the absence of integrated fiscal policy, an alternative margin of adjustment in response to shocks that affect countries differentially is labor mobility. Temporary migration can attenuate wage and employment effects in countries experiencing negative shocks. A prime example is the Eurozone, a currency union that has left fiscal policy largely unintegrated. In the aftermath of the financial crisis of 2008, southern European countries were disproportionately affected, their economies shrank, and unemployment rose. In response, many working-age individuals moved to northern Europe. Many of these migrations were temporary, with migrants returning as their home countries recovered. The prime reason for temporary work abroad in many of these cases was not asset accumulation, but the avoidance of unemployment spells and the ensuing depreciation of skills.

Empirical evidence supports this: net migration (immigration minus emigration flows) in the EU moves from places with relatively higher unemployment to those with relatively lower unemployment, and the possibility to migrate lowers unemployment and inequality in the Eurozone [12]. Similarly, in a developing country context, migration has been shown to lower inter-regional wage inequality in West Africa [13]. Yet, while migrations in times of economic crises alleviate pressure on social security systems in adversely affected countries, skill-biased migration of well-educated workers may dampen the capacity of labor mobility to dissipate negative shocks: the departure of the most mobile and educated workers may reinforce negative effects on lesser-skilled workers left behind.

Other macroeconomic implications

Migration raises aggregate long-term welfare for both sending and receiving countries, through remittances, productivity increases, and consumption. In addition, migration promotes trade between immigrants’ home and host countries, including after their return home, thanks to a network spanning both countries and knowledge of relative strengths and needs of both economies. Temporary migration is particularly conducive to trade (both to imports and exports), since migrants who plan to return have more to gain from maintaining closer ties with their home country.

Political economy

Clearly specified objectives and correspondingly designed immigration policies may help make immigration a less contentious issue in receiving countries. The example of the US is instructive: while for decades Congress has failed to enact a comprehensive immigration reform, border enforcement and local or state-level immigration legislation have been tightened continuously. The increased difficulty for potential migrants to enter the country, and move back and forth, has contributed to making temporary migration more permanent, risking further erosion of immigration support.