Spillover Effects and Migrant Employment

We build and empirically test a trade in task model that extends the one of Ottaviano et al. (2010) to three countries, to study the effects of immigration and offshoring costs on migrant employment. Tasks, ordered on a continuum according to increasing degree of face-to-face interaction, can be performed by migrants, offshore workers or natives, with sorting along the continuum being determined by cost-minimization. For two alternative specifications of the model – one in which the ordering of low-end and intermediate tasks is pinned down by workers’ characteristics and one in which it is pinned down by countries’ characteristics – we derive testable predictions on ‘direct’, ‘domestic spillover’ and ‘international spillover’ effects of migration and offshoring costs on the number of migrant workers. Direct effects refer to the impact of own migration costs on the number of migrants. Domestic spillovers capture the effect of own offshoring costs on the number of migrants. International spillovers refer to the direct effect of country j’s migration costs to destination country d on country i’s migration to d. Overall, we find empirical support of negative direct effects, positive domestic spillover effects and null international spillover effects, leading to conclude that the second ordering of tasks is a better fit of the data. Two broad policy implications follow. First, host countries can affect the number of migrants by acting both on bilateral migration policies and on bilateral offshoring policies. Second, de jure discriminatory migration policies need not be de facto so.