Does immigration reduce the wages of domestic workers? Are immigrants a substitute for a country’s labour force, thereby pushing up unemployment rates for native-born workers? Are they net beneficiaries of the welfare state?
Controversy surrounding the economic effects of immigration shows no sign of subsiding. The debate is particularly lively at the moment in OECD countries with large immigrant populations from Latin America and the Caribbean (notably in the US and Spain). During an economic downturn, the tone turns markedly more acerbic – as do public attitudes towards migrants (see Hamilton and Williamson 2009).
How do these debates differ when the subject is immigration in Latin American countries or other examples of so-called "South-South" migration? We explore two issues in particular. Are foreign-born and native-born workers complements or substitutes in Latin American labour markets? And to what degree are Latin American migrants beset by "brain waste" – the under-use of their human capital?
New data: The Latin American and Caribbean Immigration Database
We have built and made available for researchers an original database on the main demographic and labour-market variables of native and immigrant populations for Latin American countries, labelled the Latin American and Caribbean Immigration Database.1 The database includes 16 Latin American destination countries2 – accounting for around 80% of total immigrants in the region. The database uses information from the 2000 round of censuses to incorporate the following variables on a stock basis: country of birth, educational attainment (primary, secondary and tertiary level), sex, age, labour-force status (employed, unemployed and inactive) and, for employed individuals, occupation and sector of activity.3
What a rough first analysis shows: Complements or substitutes?
The empirical research for industrialised countries finds little or no evidence of negative effects of immigration in labour markets. Immigrant workers tend not to compete with natives. Instead, they can fill labour-market gaps, for example, responding to seasonal labour shortages or unmet demand for skilled labour in knowledge-intensive industries. At the same time, immigration spurs labour-force participation rates directly and indirectly. For example, many female migrants are hired in domestic service sectors, boosting educated female labour supply.
Much of this discussion is based on the assumption that people move from emerging to industrialised economies: from ‘South to North’. This assumption is reasonable in the Latin American context. As shown in OECD (2009), 86% of Latin American and Caribbean migrants are in OECD countries. Nevertheless, for a small but growing number of Latin American and Caribbean countries (notably in Costa Rica, Venezuela and Argentina), immigration is a major public-policy concern. Moreover, two OECD countries are also Latin American countries – Mexico and Chile – in which immigration is an increasingly visible phenomenon. The 2000 round of population censuses estimates than nearly three million Latin American and Caribbean migrants are living in Latin American and Caribbean countries.
Figure 1 compares the sectoral distribution of Latin American and Caribbean immigrants to that of the native-born labour force, differentiating by sex. Each point in the figure represents the share of the male or female immigrant and native populations working in a given sector. If a point lies on the 45-degree line, it indicates that the relative proportion of immigrants and native populations working in that sector is the same. The further the observation departs from this line, the more probable that immigrant and native workers do not compete for the same jobs...
Figure 1. Intraregional flows in Latin America: Sector of activity of natives and Latin American and Caribbean workers (Percentages, circa 2000)
Notes: Sectors where the number of foreign workers is significant and the difference among the two groups exceeds the total mean by one standard deviation are highlighted with blue circles. Population over 15 years. Sectors of activity are recorded according to the International Standard Industrial Classification, Rev. 3 (ISIC, cf. UN, 1989). Public sector administration activities, education, health assistance and extra-territorial organisations are excluded. The following abbreviations are used CONT: Construction; HOUS: Employment in private households; MANU: Manufacturing and TRAD: Wholesale and retail trade, repair of motor vehicles, motorcycles and personal and household goods.
This suggests that, in Latin America as in OECD economies, migrants often fill gaps in the host country’s labour market. Most male immigrants in these countries are concentrated in the construction sector, while the participation of natives in this activity is significantly lower. This complementary effect is higher in the case of female immigrants in Costa Rica and Argentina. Female immigrants are concentrated in household services – more than three times the percentage of Costa Rican and Argentinean women who perform these tasks. This result is in line with that of Gindling (2009), who found no evidence that Nicaraguan inflows had affected total average earnings in Costa Rica. On the other hand, female immigrants are under-represented in trade and manufacturing in Argentina and Costa Rica, respectively (dots below the 45-degree line). Immigrants in Venezuela, by way of contrast, resemble natives. This probably reflects public policies adopted in the 1970s that attracted mainly skilled immigrants. The exception is household services, one of the major sources of employment for female migrant workers (32%), notably Colombians.
Figure 2 shows that complementarities in South-North flows tend to be lower (especially when comparing Argentina and Costa Rica with Canada and the US). This suggest that negative employment and wage effects on Southern host countries may be lower than those found in the South-North literature, which are themselves already weak (as shown in Borjas 1999, Jean et al. 2007, and Longui et al. 2008, among others).
Figure 2. Overseas Latin American flows: Sector of activity of natives and Latin American and Caribbean workers (Percentages, circa 2000)
Brain drain plus brain waste: A lose-lose-lose situation
Most research on migration assumes that workers are employed in activities that correspond to their skill level. In practice workers may be employed in sectors characterised by skill requirements different from their educational or training background. In particular, migrants may be overqualified for the work they do. As Mattoo et al. (2005) show, this is the case for Mexicans, Central Americans and Andean university-educated migrants working in the US. Despite their tertiary degrees, these groups rarely hold highly skilled jobs. Worse, they may even be at the lower rungs of the skill ladder; 44% of tertiary-educated Mexicans migrants in the US are working in unskilled jobs. This equilibrium represents a lose-lose-lose situation. The home country loses human capital (brain drain), the host country and the migrant him/herself are not fully employed (brain waste), and the low skilled workers in host countries (both earlier migrants and natives) can be pushed out of the market (given that they compete with these higher-educated workers for jobs).
To illustrate this phenomenon for South-South flows, we follow OECD (2007) and compare the education level (primary, secondary and tertiary) of migrants in Argentina, Costa Rica and Venezuela with their category of job qualification (low, intermediate and high skilled). Figure 3 shows the share of over-qualified migrants and native workers, residing in different countries, and the comparison between foreign-born and natives.
Figure 3. Over-qualification rate of Latin American and Caribbean workers by level of education and country of destination (Circa 2000)
Notes: Population over 15 years. The categories – high, intermediate and low-skilled – comprise major groups 1 to 3, 4 to 8 and 9 of the International Standard Classification of Occupations (ISCO, 1988), respectively. Armed forces are excluded.
Over-qualification rates vary sharply among countries, ranging from 5% in Costa Rica and Venezuela to 14% in Argentina. While lower than in the US, Canada and Spain where the over-qualification rates are above 15%, these results point to a high degree of over-qualification among immigrants compared to the native-born in Latin American countries. While there are possible omitted variables, it is likely that some part of the brain waste observed is because of the non-recognition of foreign qualifications or excessive requalification requirements for foreigners.
The way forward
Preliminary evidence supports the hypothesis that immigrants and native workers are complementary, and this complementary relationship is even more pronounced in Latin America than in OECD countries. In Argentina for example, the relative over-qualification of migrants compared with native-born workers is even higher than in some OECD countries. Nevertheless, these differences across among countries may also reflect specific features of the labour market in Latin America, namely a higher degree of informality, and a different productive structure.
In addition, a number of studies have examined the role of time in correcting over-qualification. Considering that in Latin American countries and in Spain, immigration of Latin Americans is a relatively recent phenomenon, one might expect that over time immigrants will tend gradually to close the gap with natives in terms of both matching jobs to skills, and also rates of labour-force participation and employment.
Beyond the temporal dimension, the fact that a considerable part of South-South migrants are not fully employed poses the question of whether the best use is being made of their skills. Consequently, migration policies based on objective analysis and high quality data can more effectively mobilise the human resources of immigrants. The welfare of 4.6 million migrants in Latin America – as well as their contribution to the economies where they live – depends on it.
1 The LACID database was compiled by the OECD Development Centre for the Latin American Economic Outlook 2010, following the methodology established for the Database of Immigrants in OECD Countries (DIOC) by the OECD Directorate of Employment, Labour and Social Affairs (DELSA). The extension of the DIOC methodology to Latin American countries was a collaborative effort of the OECD Development Centre and DELSA, and is integrated in the Database on Immigrants in OECD and non OECD countries (DIOC extended). The LACID benefits greatly from the on-line platform to process Latin American censuses through REDATAM SP+ and the Project on Investigation of International Migration in Latin America (IMILA), conducted by the United Nations Economic Commission for Latin American and the Caribbean.
2 Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Venezuela.
3 More details on definitions and data sources are provided in the methodological annex of the Latin American Economic Outlook 2010 (OECD, 2009).
Borjas, George J (1999), “The Economic analysis of immigration”, in Orley Ashenfelter and David Card (eds.), Handbook of Labour Economics, 3(1): 1697-1760.
Gindling, Thomas H (2009), “South-South migration: the impact of Nicaraguan immigrants on earnings, inequality and poverty in Costa Rica”, World Development, 37(1):116-129.
Hamilton, Timothy and Jeffrey G Williamson (2009), “Global economic slumps and migration”, VoxEU.org, 29 April.
Jean, Sebastien, Orsetta Causa, Miguel Jimenez and Isabelle Wanner (2007), “Migration in OECD countries: labour market impact and integration issues”, Economics Department Working Papers 562, OECD, Paris.
Longui, Simonetta, Peter Nijkamp and Jacques Foot (2008), “Meta-analysis of empirical evidence on the labour market impacts of immigration”, Région et Développement, 27:161-190.
Mattoo, Aaditya, Ileana Cristina Neagu and Caglar Özden (2005), “Brain waste? Educated immigrants in the US labour market”, World Bank Policy Research Working Paper Series 3581, World Bank, Washington, DC.
OECD (2007), “Matching educational background and employment: A challenge for immigrants in host countries”, International Migration Outlook 2007, OECD, Paris.
OECD (2009), Latin American Economic Outlook 2010, OECD Development Centre, Paris.