How Do Factor Specificity and Emigration Make Income Inequality Worse in Developing Countries?

Immigration policies in most developed countries are increasingly tilted toward skilled labor. Whether such policies hurt the sending countries is somewhat controversial. In this paper, we emphasize one aspect of skilled migrants’ effect, namely whether income inequality increases with migrants’ level of education in sending countries. Using pooled Gini coefficient from 1980 to 2010 data for 110 developing countries, the analysis finds that an emigration of unskilled labor produces an unfavorable effect on the wage inequality. That is, inequality increases with an increase in unskilled labor emigration from the country. However, there appears to be no effect of skilled emigration on inequality. A clearer understanding of the channels through which low-skilled migration will be detrimental for income inequality in developing countries may assist policymakers to craft appropriate policies to curtail low-skilled migration that would serve to improve equality. To the extent that inequality depresses (promotes) economic development, then emigration of low-skilled workers could impede (facilitate) economic growth.