HIGH‐SKILLED MIGRATION AND THE EXERTION OF EFFORT BY THE LOCAL POPULATION
| Author | Gil S. Epstein,Astrid Kunze,Melanie E. Ward |
| Published date | 01 July 2009 |
| Date | 01 July 2009 |
| DOI | http://doi.org/10.1111/j.1467-9485.2009.00487.x |
HIGH-SKILLED MIGRATION AND THE
EXERTION OF EFFORT BY THE LOCAL
POPULATION
Gil S. Epstein
n
, Astrid Kunze
nn
and Melanie E. Ward
nnn
Abstract
The optimal design of immigration policy is a topical issue, both in the policy
debate and the economic literature. In this paper, we present empirical evidence
from a firm level dataset collected in 2000 on the demand for high-skilled workers,
including foreign workers, in Europe and its determinants. Our major findings are
that the fraction of high-skilled workers recruited from the international labour
market is very small, and that foreign and domestic workers are very similar in
terms of their formal education (measured by specialization subject) and their job
characteristics. We suggest an efficiency wage model to explain why firms recruit
foreign workers in small numbers, and why they are willing to pay immigrants the
same wage as local workers, whilst at the same time also paying for their moving
costs, despite the similar human capital profile of immigrants to domestic workers.
I Intro ductio n
Most of the empirical literature on migration has focused on the description and
explanation of individual behaviour. Much less attention has been paid to firms’
demand for foreign workers in general, and in particular to firms’ demand for
high-skilled foreign workers. An increasing demand for high-skilled labour
poses a challenge to both policy makers and firms in many nations. However,
there is lack of knowledge about the economic mechanisms explaining why, and
which, firms recruit high-skilled workers. This knowledge gap is a consequence
of the lack of empirical data and research. Major difficulties facing the potential
researcher include tracking foreign high-skilled workers in representative
samples of firms and their moves between countries.
1
The main analysis for this paper was undertaken while Melanie Ward was a Research Associate
at the IZA. She is now Principal Economist at the European Central Bank and Research Fellow
at IZA.
n
Bar-Ilan University and IZA
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Norwegian School of Economics and Business Administration and IZA
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IZA
1
We are only aware of three studies collecting firm level data on high-skilled workers: Lowell
(2000) for the United States, List (1996) for Germany and a report by The Central Services
Scottish Journal of Political Economy, Vol. 56, No. 3, July 2009
r2009 The Authors
Journal compilation r2009 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
332
In this paper, we focus on the recruitment of foreign high-skilled workers,
which we define as workers with foreign citizenship and a degree from abroad.
Using firm level data on five sectors for Germany, France, Great Britain and the
Netherlands in 2000, we find that only a small fraction of the high-skilled
workers are foreign; on average 4%. From the theoretical literature we can
derive several explanations for why firms recruit high-skilled workers from
abroad. Among these explanations are rationing and skill advantage motiva-
tions.
2
Nevertheless these hypotheses do not match the general patterns
observed in our data. As an alternative we therefore propose an argument
based on efficiency wage theory, which can also explain why the fraction of
foreign high-skilled workers is significant but small. We present some evidence
to validate our theory.
Under the efficiency wage framework, unemployment is a substitute for
supervision and decreases shirking at the work place. In this framework,
the unemployed can be thought of as the ‘reserve army’ of the capital owners.
Epstein and Hillman (2003) consider the case of the migration of low-skilled
workers. They show conditions under which it is optimal – for capital owners,
the local workers and the government – for the reserve army to consist of
immigrants, provoking the local population to invest effort at the workplace.
In this paper we consider the efficiency wage argument under which firms
recruit a small number of foreign high-skilled workers to create a threat
to the jobs of the local workers. These foreign workers are recruited at
the local competitive equilibrium wage and are even compensated for their costs
of migration, including moving costs and language training. The threat of
replacement seeks to boost the effort exerted by domestic workers.
Hence an empirical test of this hypothesis is to show that workers are perfect
substitutes. Nevertheless, there may be other hypotheses to explain the
recruitment of foreign high-skilled workers and we will need to control for
these simultaneously. The standard approach analysing efficiency wage
models is to use individual data and test whether wage differentials are
significant for similar workers due to the efficiency argument. We take a very
different approach and hypothesise that efficiency wages are paid by some firms
through other specialized cost components, such as language courses or moving
costs.
We use data on the international recruitment experiences of 850 firms
in France, Germany, Great Britain and the Netherlands from the IZA
Unit-CSU (1992). Most relevant for the purpose of our analysis is the latter report, which finds
the recruitment rates of graduates to be highest in large organizations in Germany and France
and in the engineering and chemical sectors. All three studies however suffer from low response
rates and small sample sizes. The conclusions of the report by CSU (1992), for example, are
based on 286 observations from 12 EU countries. Such studies also suffer from difficulties of
how to define ‘high-skilled’ in a coherent way in order to facilitate a meaningful comparison
across countries and how to define the firm unit in order to enable a meaningful comparison
across countries and sectors.
2
We abstract from wage arguments, which one may argue are unlikely to persist under
general conditions. No empirical evidence exists, to our knowledge, that shows significant wage
differentials between similar foreign and domestic high-skilled workers.
HIGH-SKILLED MIGRATION AND THE EXERTION OF EFFORT 333
r2009 The Authors
Journal compilation r2009 Scottish Economic Society
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