Welfare Magnet Hypothesis

Welfare generosity is seen by many as a magnet for immigration. Yet, the effect of the welfare state on immigration and its composition depends on whether the adopted migration policy regime is free or controlled. In a recent article in the Journal of Scandinavian Economics (2015, 177/2), Assaf Razin and Jackline Wahba argue that welfare-state benefits attract unskilled migrants because they contribute to tax revenues less than what they gain from benefits; and this generosity deters skilled immigrants, because they contribute more in taxes than they receive in benefits. In sharp contrast, the effect of an increase in the generosity of the welfare state on the skill composition of migrants is positive, if migration is controlled by policy. Being net contributors to the welfare state, skilled migrants can help finance a more generous welfare-state system. Thus they are preferred by policy-makers to unskilled migrants. Their findings also highlight the importance of controlling for educational quality when studying high skilled migration from lesser developed countries. In addition, it is clear from the analysis that immigration policies favouring high-skilled migrants do not take into account educational quality. Their findings also indicate that other immigration policies such as family reunion and asylum seekers also affect the skill composition of migrants from developing countries.

Assaf Razin is Friedman Professor of International Economics, Cornell University and Bernard Schwartz Professor (Emeritus), Tel Aviv University. He is a Research Professor in the Ifo Center for International Economics where he cooperates in the CEMIR project (Center of Excellence for Migration and Integration Research), a Fellow of the CESifo Research Network and has served as chairman of the Ifo Scientific Advisory Council. He is also NBER Research Associate and CEPR Research Fellow as well as Fellow of the Econometrics Society. Assaf Razin's PhD in Economics is from the University of Chicago. He is the coauthor of Fiscal Policies and Growth in the World Economy, International Taxation in an Integrated World and Migration and the Welfare State: Political-Economy Policy Formation, all published by MIT Press.