Measuring the Impact of the Movement of Labour Using a Model of Bilateral Migration Flows

The economics literature increasingly recognizes the importance of migration and its ties with many other aspects of development and policy. Examples include the role of international remittances (Harrison et al 2003) or those immigrant-links underpinning the migration-trade nexus (Gould 1994). More recently Walmsley and Winters (2005) demonstrated utilising their Global Migration model (GMig) that lifting restrictions on the movement of natural persons would significantly increase global welfare with the majority of benefits accruing to developing countries. Although an important result, the lack of bilateral labour migration data forced Walmsley and Winters (2005) to make approximations in important areas and naturally precluded their tracking bilateral migration agreements. In this paper we incorporate bilateral labour flows into the GMig model developed by Walmsley and Winters (2005) to examine the impact of liberalizing the temporary movement of natural persons. Quotas on both skilled and unskilled temporary labour in the developed economies are increased by 3% of their labour forces. This additional labour is supplied by the developing economies. The results confirm that restrictions on the movement of natural persons impose significant costs on nearly all countries, and that those on unskilled labour are more burdensome than those on skilled labour. Developed economies increasing their skilled and unskilled labour forces by 3% would raise the welfare of their permanent residents by an average $US382 per person. Most of those gains ($US227 per person) arise from the lifting of quotas on unskilled labour. On average the permanent residents of developing countries also gain $US4.60 per person in welfare from sending unskilled labour, but lose $US1.35 per person from skilled labour. While results differ across developing economies, most gain as a result of the higher remittances sent home. The new skilled and unskilled migrants gain in real terms by $US8K and $US6.5K per worker, respectively. Existing migrants in the developed economies lose in terms of real income as real wages fall with the increased labour supply, while those in developing countries gain as real wages rise.