Labor mobility

Aggregate labor productivity is a central indicator of an economy’s economic development and a wellspring of living standards. Somewhat controversially, many macroeconomists see productivity as a primary driver of fluctuations in economic activity along the business cycle. In some countries, the cyclical behavior of labor productivity seems to have changed. In the past 20–30 years, the US has become markedly less procyclical, while the rest of the OECD has not changed or productivity has become even more procyclical. Finding a cogent and coherent explanation of these developments is challenging.

In the popular immigration narrative, migrants leave one country and establish themselves permanently in another, creating a “brain drain” in the sending country. In reality, migration is typically temporary: Workers migrate, find employment, and then return home or move on, often multiple times. Sending countries benefit from remittances while workers are abroad and from enhanced human capital when they return, while receiving countries fill labor shortages. Policies impeding circular migration can be costly to both sending and receiving countries.

The relationship between climatic shocks, climate related disasters, and migration has received increasing attention in recent years and is quite controversial. One view suggests that climate change and its associated natural disasters increase migration. An alternative view suggests that climate change may only have marginal effects on migration. Knowing whether climate change and natural disasters lead to more migration is crucial to better understand the different channels of transmission between climatic shocks and migration and to formulate evidence-based policy recommendations for the efficient management of the consequences of natural disasters.

The ongoing relationships between emigrants and their families, friends, and business contacts in their home countries can increase outbound and inbound cross-border travel, while cross-border tourism and business and study trips can trigger migration. New communication technologies, such as social media and video chat, only partially substitute for face-to-face meetings. In fact, the greater use of such technologies boosts demand for in-person meetings. Short- and long-term cross-border movements are becoming more complex, creating challenges for measuring immigration and for defining target populations for legislation and public policy.

Guest worker programs allow migrants to work abroad legally, and offer benefits to workers, firms, and nations. Guest workers are typically authorized to work only in specific labor markets, and are sponsored by, and must work for, a specific firm, making it difficult for guest workers to switch employers. Critics argue that the programs harm host country citizens and permanent residents (“existing workers”), and allow employers to exploit and abuse vulnerable foreign-born workers. Labor market institutions, competitive pressures, and firm strategy contribute to the effects of migration that occur through guest worker programs.

An increase in the minimum wage in immigrant destination countries raises the earnings that low-skilled migrants could expect to attain if they were to migrate. While some studies for the US indicate that a higher minimum wage induces immigration, contrasting evidence shows that immigrants are less likely to move into areas with higher or more frequent increases in the minimum wage. These different findings seem to reflect different relocation decisions by immigrants who have lived in the US for several years, who are more likely to move in response to higher minimum wages, and by new immigrants, who are less likely to move.

Knowing whether corruption leads to higher emigration rates—and among which groups—is important because most labor emigration is from developing to developed countries. If corruption leads highly-skilled and highly-educated workers to leave developing countries, it can result in a shortage of skilled labor and slower economic growth. In turn, this leads to higher unemployment, lowering the returns to human capital and encouraging further emigration. Corruption also shifts public spending from health and education to sectors with less transparency in spending, disadvantaging lower-skilled workers and encouraging them to emigrate.

Immigrants can initially face significant difficulties integrating into the economy of the host country, due to information gaps about the local labor market, limited language proficiency, and unfamiliarity with the local culture. Settlement in a region where economic and social networks based on familiar cultural or language factors (“ethnic capital”) exist provides an effective strategy for economic integration. As international migration into culturally diverse countries increases, ethnic networks will be important considerations in managing immigration selection, language proficiency requirements, and regional economic policies.

Recent research has tried to quantify how firms contribute to the immigrant–native earnings gap. Findings from several countries show that around 20% of the gap is due to firm policies that lead to a systematic underrepresentation of immigrants at higher-paying firms. Results also show that some of the closing of the gap over time is attributable to the reallocation of immigrants toward higher-paying employers. This pattern is especially pronounced for immigrants coming from disadvantaged countries, who face several barriers at initial entry, including language difficulties and lack of recognition of their educational credentials.