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Ability Drain: Size, Impact, and Comparison with Brain Drain Under Alternative Immigration Policies

AbstractImmigrants or their children founded over 40% of the Fortune 500 US companies. This suggests that ‘ability drain’ is economically significant. While brain drain associated with migration also induces a brain gain, this cannot occur with ability drain. This paper examines migration’s impact on ability, education, and productive human capital or ‘skill’ (which includes both ability and education) for source country residents and migrants, under three different regimes: (i) a points system that accounts for educational attainment; (ii) a ‘vetting’ system that accounts for both ability and education or skill (e.g., the US H1-B visa program); and (iii) a points system that combines the points and vetting systems (as in Canada since 2015). It finds that migration reduces (raises) source country residents’ (migrants’) average ability and has an ambiguous (positive) impact on their average education and skill, with a net skill drain more likely than a net brain drain. These effects increase the more unequal is ability, i.e., the higher the variance in ability. The average ability drain for highly educated US immigrants from 42 developing source countries is 84 percent of the brain drain, a ratio that increases with source countries’ income and is greater than one for most Latin American and Caribbean countries. Heterogeneity in ability is the ultimate cause of both ability and brain drain (as they are equal to zero under homogeneous ability). Policy implications are provided.

Summary (3 min read)

1. Introduction*

  • A large number of theoretical and empirical studies have examined the international migration of educated labor or brain drain, its determinants, its impact on human capital in migrants’ source and host countries, growth (Mountford 1997; Beine et al. 2001, 2008) and institutions (Docquier et al., 2011), as well as brain gain (e.g., Mountford 1997; Vidal 1998; Beine et al.
  • In fact, one of the model’s results is that the ability drain is larger than or equal to the brain drain, while a comparison based on existing analysis for 42 developing source countries suggests that it is equal to 84 percent of the brain drain, with greater brain and ability drains under the vetting than under the points system.
  • Piracha et al. (2012) similarly look at migrants’ education-occupation mismatch but they also include the mismatch that prevailed in the migrant’s country of origin.
  • Section 5 briefly looks at the new points system, while Section 6 provides a comparison of the size of the ability and brain drains.

2. Model

  • Assume that individuals’ productive human capital or skill can be observed and valued properly by employers in both countries.
  • This makes sense as employers obtain the benefit of good hiring decisions and bear the burden of bad ones, and are therefore likely to thoroughly vet prospective employees in order to assess their skill level.
  • (1) Individuals are risk-neutral, i.e., utility, 𝑢𝑖, is a linear function of consumption, 𝑐𝑖.
  • Note, however, that the analysis applies to any utility function 𝑣𝑖 that increases monotonically with 𝑐𝑖, as the same value of ℎ𝑖 maximizes both 𝑐𝑖 and 𝑣𝑖.
  • The migration probability rises with an individual’s education under the points system, and with both education and ability – or skill – under the vetting system.

2.1. Closed Economy

  • Before turning to the points and vetting systems, results are provided for the ‘closed economy’ immigration policy.
  • Thus, investment in education exhibits diminishing returns, which is consistent with empirical findings.
  • Thus, average education and skill levels are higher for migrants than for residents, i.e., migrants are positively selected for both ability 𝑎𝑖 and education ℎ𝑖.
  • As Docquier and Marfouk (2006) show for education, the share of the highly educated in South-North migrants is three times that among the South’s residents, and larger for poor, landlocked and island countries (e.g., the ratio is fifteen for Sub-Saharan Africa and larger for the Caribbean).

3. Points System

  • Under the points system (e.g., Canada’s pre-2015 policy), applicants receive points for education but not for ability.
  • Thus, the points system raises the variance of individual skills or skill inequality, relative to the closed economy case.
  • Another result from (7) is that residents’ (migrants’) average ability, education and skill levels fall (rise) with inequality in the source country’s ability distribution, as measured by the variance of 𝑎𝑖.
  • And, as shown above, the policy itself also raises inequality in migrants’ source country.

4. Vetting System

  • I refer to an immigration policy that takes both ability and education into account as a “vetting system,” with variables designated by subscript ‘v’. 11 This assumes a well-functioning visa program, which is not necessarily the case.
  • Similarly, the brain drain under the vetting system, 2𝜋𝜆 𝜙(1−𝑃) 𝑉(𝑎𝑖), is greater than the brain drain under the points system, 𝜋𝜆2 1−𝑃 .
  • And migrants’ education, ability and skill gains are greater under the vetting than under the points system.

6.1. Average for the 42 sample countries

  • Clemens, Montenegro and Pritchett (CMP, 2009) use data on 42 developing source countries to estimate the impact of migration on an individual’s income.
  • The corresponding values for 𝐴𝐷/𝐵𝐷 are presented in Table 3.
  • Third, on average for the nine values shown, the ability drain is 97.9 percent of the brain drain.
  • The derivation of these results is available from the author upon request.

6.2. Comparing country groupings

  • The results above are average values for the 42 source countries examined, and country results differ dramatically.
  • 13 For instance, migrants’ income (corrected for selection on observables) relative to that of source country residents varies from about 2 in the Dominican Republic and Morocco to around 15 in Nigeria and Yemen.
  • Each country can be classified into one of three categories, namely 𝐴𝐷/𝐵𝐷 > (=)(<).
  • Ability’s heterogeneity is the ultimate cause of both the ability drain and the brain drain (since they are equal to zero under homogeneous ability).

7. Policy implications

  • Studies of the brain drain have found that a number of countries, particularly the larger ones, experience a net brain gain (e.g., Beine et al. 2008).
  • So, countries might exhibit a net brain gain together with a 13 As shown in equation (15) in Section 4, the vetting system, such as the US H1-B visa program, generates a larger ability drain and a larger net brain drain (or a smaller net brain gain) than the points system, thereby raising the likelihood of a net skill drain.
  • The North has so far restricted access to this mode of trading services.

8. Conclusion

  • A large number of studies have examined the impact of migration on education in source and host countries (including selectivity, brain drain and brain gain, and other related issues) but have not done so in the case of ability.
  • Thus, countries that exhibit a net brain gain experience a net skill change that may be negative or, if positive, is smaller than the net brain gain.
  • On the other hand, migrants experience an ability, brain and skill gain. ii).
  • These effects are larger under the vetting than under the points system, with the effects of the new points system being equal to a weighted average of the other two.

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RSCAS 2016/22
Robert Schuman Centre for Advanced Studies
Global Governance Programme-215
Ability Drain: Size, Impact, and Comparison with Brain
Drain under Alternative Immigration Policies
Maurice Schiff


European University Institute
Robert Schuman Centre for Advanced Studies
Global Governance Programme
Ability Drain: Size, Impact, and Comparison with Brain Drain
under Alternative Immigration Policies
Maurice Schiff
EUI Working Paper RSCAS 2016/22

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ISSN 1028-3625
© Maurice Schiff, 2016
Printed in Italy, April 2016
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Abstract: Though a net brain gain has tended to be seen as a benefit and referred to as a 'beneficial brain drain' in the literature, its welfare impact for source country residents – or non-migrants – is at best ambiguous. Increased educational investment in response to a brain drain is equivalent to a bet where migrants (M) win and where the impact on residents (R) – whose well-being is a concern for the government – is ambiguous or negative. I compare residents' welfare a) for an open vs. a closed economy, b) under the presence or absence of education externality, c) with vs. without government intervention, and d) with government's concern equal for R and M (R = M) or greater for R (R > M). Main findings are: i) residents lose under an open economy in four of the five scenarios considered, with an ambiguous result under an externality and no intervention; ii) optimal education policy has a positive or ambiguous impact on residents' welfare (and a positive impact under a closed economy); and iii) welfare is higher under intervention when R > M than when R = M. It is worth noting that, though the standard developing country policy of subsidizing higher education is optimal under an education externality in the case of a closed economy, this result need not hold under an open economy.

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Cites background from "Ability Drain: Size, Impact, and Co..."

  • ...Schiff (2017) shows that, though a 𝐵𝐵𝐵𝐵 raises the incentive to acquire h (a 𝐵𝐵𝐵𝐵), the 𝐵𝐵𝐵𝐵 itself reduces average h since high-ability individuals acquire more h and thus migrate at a higher rate than low-ability ones....

    [...]

  • ...On the other hand, accounting for observable (education) and unobservable (ability) selection effects, it was found that 𝛼𝛼𝑑𝑑 = 2𝛼𝛼0 on average for migration from 42 developing source countries to the US (Schiff 2017)....

    [...]


Posted Content
Abstract: Based on a welfare-maximization model of skilled migration where education generates a positive externality, this paper examines whether the early view regarding brain drain’s (BD) negative impact on source countries – and the Bhagwati tax (𝐵𝑇) associated with it – is compatible with the recent more optimistic BD-induced brain gain view. I derive BD’s impact on education, welfare, the optimal education subsidy (𝑠), and a combination of 𝑠 and (the optimal) 𝐵𝑇, when residents’ (emigrants’) weight in the government’s objective function is 1 (1−𝛽), with 𝛽 𝜖 [0,1]. I find that: i) education, welfare and 𝑠 levels are higher (lower) under an open than under a closed economy for 1−𝛽>(<) 𝑦0/𝑦𝑑, the ratio of origin-country to destination-country income; ii) 𝑠 and 𝐵𝑇 are ‘policy complements,’ i.e., they are positively related; and iii) 𝐵𝑇 increases with 𝛽, reaching a maximum at 𝛽=1 (where government only care about residents). Two implications and a proposal are: a) The early literature focused on resident – rather than on migrant – welfare (the 𝛽=1 case), which is precisely the case where 𝐵𝑇 is largest; b) A second policy instrument should be useful, especially if constraints exist on making changes in the other. Thus, as opening up the economy implies a lower 𝑠, raising 𝐵𝑇 should be beneficial if, say, parents’ and teachers’ organizations make it politically difficult if not impossible to reduce 𝑠; c) A proposal for collecting the tax is presented.

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Additional excerpts

  • ...For an analysis of brain (and ability) drain under heterogeneity, see Schiff (2017)....

    [...]


Journal ArticleDOI
18 Aug 2021
Abstract: Un investissement plus important dans l’education (h) est une reponse optimale ex ante a une « fuite des cerveaux » ou « brain drain » (BD). Cependant, les gouvernements des pays d’origine doivent faire face a la situation ex post des residents ayant un niveau d’education (h) plus eleve mais qui n’ont pas migre. Bien qu’un gain net de cerveaux ou « brain gain » (BG) ait ete considere comme un avantage et appele « fuite benefique des cerveaux » dans la litterature, son impact sur le bien-etre des residents du pays d’origine est au mieux ambigu. L’augmentation des investissements dans l’education en reponse a une BD equivaut a un pari ou les migrants (M) gagnent et ou l’impact sur les residents (R) – dont le bien-etre est une preoccupation pour le gouvernement – est ambigu ou negatif. Je compare le bien-etre des residents pour une economie ouverte et une economie fermee a) en presence ou en l’absence d’une externalite de l’education, b) avec ou sans intervention du gouvernement, et c) avec une preoccupation du gouvernement egale pour R et M (R = M) ou superieure pour R (R > M). Les principales conclusions sont les suivantes : i) les residents sont moins bien lotis dans une economie ouverte dans la plupart des scenarios, avec un resultat ambigu en cas d’externalite et d’absence d’intervention ; ii) la politique d’education optimale en cas d’externalite a un impact positif (ambigu) sur le bien-etre des residents dans une economie fermee (ouverte) ; iii) le bien-etre des residents est plus eleve en cas d’intervention pour R > M que pour R = M ; iv) une augmentation du degre de selectivite des competences de la politique d’immigration reduit le bien-etre des residents. Une implication politique est que la subvention de l’enseignement superieur, qui est optimale en cas d’externalite de l’education dans une economie fermee, n’est pas necessairement valable dans le cas d’une economie ouverte.Codes JEL : F22, I20, J61.

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References
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Abstract: The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of cognitive skills in promoting economic well-being, with a particular focus on the role of school quality and quantity. It concludes that there is strong evidence that the cognitive skills of the population – rather than mere school attainment – are powerfully related to individual earnings, to the distribution of income, and to economic growth. New empirical results show the importance of both minimal and high level skills, the complementarity of skills and quality of economic institutions, and robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing countries than generally derived from just school enrollment and attainment. The magnitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.

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