Monday 7 February 2022

Michael Clemens vs. the Roy model of migration

In a new working paper, Michael Clemens (Center for Global Development) presents a convincing case against the Roy model of migration. Summarising the implications of the Roy model, he notes that:

As workers in the Roy (1951) model choose an occupation, so they are assumed to choose a country of residence, where they swell a labor aggregate in a fixed production function with diminishing returns. These assumptions usefully predict some facts at partial equilibrium (Ariu 2018): poor countries tend to experience net emigration while rich countries experience net immigration, but not everyone migrates and not all at once...

The model predicts causes: Rising trade and capital flows should substitute for migration, and vice versa, via factor price equalization... Migration today should reduce migration tomorrow, as the gain is arbitraged away.

The model also predicts effects: Typical migrants from poor, unequal countries should be the least productive workers, as they have the most to gain. Native workers should be directly harmed, through labor-market competition and fiscal redistribution—until capital accumulation merely leaves them where they started (but leaves capital owners even wealthier). Skill-selective immigration restrictions should simply shift the harm to the world’s most vulnerable, impoverishing poor countries by ‘brain drain’.

Clemens notes the substantial rise in global migration over the last fifty years, then summarises the evidence against the Roy model:

Did the advance of migration result from a retreat of its theoretical substitutes—trade and capital flows? Just the opposite. Global flows of goods and capital exploded during the same years...

Did migration arise from failed economic development in poor countries? Just the opposite. Global migration surged from the European Core in the mid-19th century, the European Periphery around the turn of the 20th century, and from Latin America and Asia in the second half of the 20th... These surges coincided with the arrival of modern economic growth and each region’s ascent out of poverty.

Did initial waves of migration reduce the incentive for further migration, by spatially equilibrating the labor market? Just the opposite. Migration tends to beget even more migration, for generations. Prior migrants raise the net benefits and incidence of new migration by providing information, capital, and inspiration...

Did the large rise in migration from the developing world broadly substitute for workers in the destinations? No. As several prior reviews have found, Edo et al. (2020, 1367) conclude that “the impact of immigration on the average wage and employment of native-born workers is zero or slightly positive in the medium to long term”...

Did more migration broadly substitute for other forms of globalization, through factor-price equalization? Certainly not. More migration has raised the volume and scope of trade... and flows of capital and technology...

In other words, Clemens argues that it is time to retire the Roy model of migration. The need to make this argument was a little bit of a surprise to me. Most of the literature on migration I have read since completing my PhD, including much of the literature that I have cited in my own work on migration (including with my PhD students), actually relies on the neoclassical (and arguably more realistic) model of Larry Sjaastad (see here). The seminal paper by Sjaastad dates from the 1960s, so this model is not a new insight! The Sjaastad model relates migration flows to the global supply and demand for labour. Individual migration decisions in the model are likened to an investment in human capital, where a person migrates if the benefits from migration outweigh the costs.

Anyway, it's not clear to me that the Roy model is much used any more. To my mind, the Roy model has seen more extensive use in labour economics, but its failures in explaining migration flows might give us cause to question its continued use there as well.

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