Thursday, February 9, 2017

Empirical and ethical considerations about high human capital immigration

Give Me Your Caffeinated, Your Well-Off, Your Above Average Yearning to Get Ahead from Spotted Toad. Toad is alluding to an empirical and moral issue with which I have been wrestling ever since earning my degree in International Economic Development nearly forty years ago. The issue had more currency back then and was referred to as Brain-Drain. We don't talk about it so much anymore but it remains real.

Brain-drain, also known as Human Capital Flight, is the departure from one country to another of highly educated, skilled, innovative or otherwise net contributive individuals (and their families).

As long as there is basic cultural compatibility between the originating and the destination country, on average there is a material net benefit that accrues to the destination country. Since WWII, brain-drain has been primarily one-way from developing countries and from post-communist countries to OECD countries in general and to North America/Europe in particular. For Anglophone countries (USA, Canada, UK, Australia, New Zealand) with their Classical Liberal cultures of openness and trust, such movements of talent have been very positive for the societies as a whole (though not necessarily for all individual affected by such migration.)

The US receives some 500,000 new citizens via authorized emigration each year. To the extent that these migrants pass through the regular process that examines their potential contribution to the country, the US almost certainly benefits (though, from a sociological integration point of view, there is a whole raft of issues in terms of absolute levels of migration, immigrant clustering, etc.)

There has always been, for me, two unanswered questions. The first is empirical. What is the degree of contribution and does the net benefit to the whole outweigh the cost to the immediately impacted? If you let in 100,000 AI engineers, the US in general and the tech industry in particular are likely to be first order beneficiaries, and consumers a second order, longer term, set of beneficiaries.

But if you are an American AI engineer, flooding the market with 100,000 additional AI engineers dramatically suppresses your income potential. It is basic Supply and Demand. Immigration policy becomes Labor Market policy becomes a means of directing societal benefits to preferred recipients. That is potentially dangerous (centralizes power within government policy over citizen needs/desires) and it is potentially corrosive (undermines trust in the system of governance.)

There have been a number of correlational studies over the years but I have not seen any really strong, robust empirical studies that do a good job of empirically measuring all the pros and cons. Almost all of the studies I have seen are small sample sizes, involve self-reporting, usually have non-representative sample groups, and almost always omit important benefits or costs. I believe the benefit to be net contribution positive but I do not have solid empirical evidence to support that belief.

The second question is more philosophical and is the one that always made me the most uncomfortable. Are we, the developed countries, inappropriately harvesting the best and brightest from developing countries? Each one of those above average immigrants to the US represents an incredible human capital investment on the part of the originating country. This was most dramatically on display two or three years ago with the outbreak of Ebola in West Africa. It was revealed at that time that Liberia, one of the harder hit countries, only had less than 300 medical doctors for a population of some 4.5 million.

Every one of those doctors would make more money and probably each achieve more security and more status in any developed country. But if they leave, not only does Liberia lose that human capital capacity, but they also lose a societal investment. How much does it cost to train a doctor in Liberia? No idea, but let's say its $100,000. If that doctor then decides to emigrate to Canada, Canada gains an educated and experience doctor at no cost and immediately begins benefiting from income tax revenues. Liberia, on the other hand, loses that $100,000 investment and has to double down with further investments to make up the headcount shortfall.

There are four different balance sheets. For the Liberian doctor, the benefit from immigration, as measured in dollars, is almost entirely upside. Same for the receiving government (added tax revenues and low or no costs.) For Liberia, this is a double whammy - lost investment and lost capability. For Canadian doctors, this is a minor (as long as the immigration numbers stay low) income loss due to labor supply increase.

I don't know the answer to this and over the decades have run through the arguments pro and con multiple times. The libertarian in me says this is good, people should be free to choose. The communitarian in me says this should on balance be good though acknowledging that there are some real minor costs and long term costs as well. The citizen-of-the-world in me leads me to think that this is a pernicious trend benefitting the best off countries while harming the least developed. The Good Governance advocate in me frets about the power centralized in policy. The rationalist in me wishes I could get to a single defendable position. I can defend many positions but I can't see the best outcome.

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