Immigration and welfare states: A survey of 15 years of research

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Abstract

Much of the research on immigration and Western welfare states seems to support the conclusion that immigration flows, with the average characteristics of the last 15 to 20 years’ immigration, have tended not to be to the advantage of natives while advantageous for immigrants. Theory can easily account for the mechanisms underlying various aspects of this asymmetric distribution of gains from immigration but the empirical evidence is mixed in quite some instances. Thus we still face challenges for further research, possibly research giving more weight to the institutional dimensions of the determinants of immigration and of immigrant absorption.

Introduction

Over the last 15 years a substantial body of literature has accumulated on the topic of “immigration and the welfare state”. The high level of research activity in this field most likely mirrors recent empirical, immigration-related, trends in both Europe and the US.

Immigration into the US has been at record high levels beginning from 1990 (Borjas, 1999a: 6–8), even if only legal immigration is considered. In the same period many Western European countries have likewise experienced unprecedented growth in immigrant populations, although net-immigration to Europe generally declined during the 1990s (Brücker et al., 2002: 5–10). The Eastern enlargement of the EU pending since 1992 may have contributed to keeping questions pertaining to various aspects of the welfare state–immigration nexus on the agenda during the last decade.1 The numbers of foreign-born – and the prospect that even more might come in the future – did arouse popular and political concerns about the consequences of immigration for the welfare systems in Western European countries and in the US, which most probably have propelled relevant research activities.

Both immigration and the welfare state are subjects that are normally studied in various social science disciplines, primarily in economics, political science, and sociology. From the outset one might therefore have expected to find all three disciplines eagerly engaged in studying the relationships between immigration and the welfare state and the consequences of the two for each other. This is not the case, however: most of the existing theoretical and empirical literature on the interplay between immigration and the welfare state is in economics and contributions from political scientists or sociologists are surprisingly few.2 The reason for this state of affairs is not absence of research on the welfare state and immigration outside of economics over the last one and a half decades — quite to the contrary. For some reason, social scientists other than economists seem up to now to have been remarkably reluctant to combine the two subjects and to engage in research on the relation between welfare states and immigration.3

According to Boeri et al. (2002), economists enjoy comparative advantages in the study of immigration and its effects: not only are they in general good at problems involving trade-offs and cost–benefit calculations, they are also “notoriously pragmatic” people. Taking the last point a bit further, one might hypothesize that economists enjoy an additional advantage because their discipline seems in general less affected by the scourge of political correctness than some other disciplines in the social sciences.4 Given the present state of affairs – whatever the reasons behind it – the following discussion will of necessity be heavily tilted towards economic contributions to the study of the immigration–welfare state nexus.

The boundaries of the field “immigration and the welfare state” are fuzzy. This is mainly because the term “welfare state” is hard to define in a precise manner (Barr, 1993: 6–8).5 Regardless of the choice of definition, all Western developed countries will normally qualify as welfare states in some sense, albeit of rather different types (Esping-Andersen, 1990). From that perspective, every study of the determinants and the effects of immigration into Western countries could hence be subsumed under the heading “study of immigration and the welfare state”. As a consequence most of the literature on immigration would become relevant in this context.

In order to keep the task manageable, I focus on the relationship between immigration and (national) welfare systems in Western countries. Welfare systems will be defined as systems comprising of income transfers (cash benefits) and of certain benefits in kind (health, education, child care and care for the elderly).6 Thus the main question this essay will try to answer is what we do know about the mutual relationships between immigration into Western countries and the welfare systems of these countries.

One could claim that this question has already received at least two authoritative answers. Milton Friedman is widely quoted for having stated that free immigration is simply incompatible with a welfare state (Borjas, 1999a: 114). But since free immigration does not exist anywhere (except possibly in the mind of certain economists, cf. Rodrik, 2002), this statement does not tell us very much about the real world. Borjas (2005: 1) is more elaborate when stating that “(T)he most important lesson of the research is that the economic impact of immigration will vary by time and place, and that immigration can be either beneficial or harmful”. This statement is undoubtedly true, but that is also its main weakness: the statement is so undoubtedly true that its empirical information content must be approaching nil. It thus seems that there is some room left for discussing the main question of this essay.

In order to delimit the scope of this survey, two additional cuts are made. Mainly immigration into the US and into Western European countries7 is considered. Thus studies of immigration into Australia, Canada and New Zealand are generally omitted. This is a somewhat arbitrary choice based primarily on convenience.8 In the second place, focus will mainly be on the immigration from less developed countries (LDCs) and other peripheral countries, while for instance intra-EU migration will not be considered. The reason for that choice is that migration from LDCs and other peripheral countries into Western welfare states is by far the most important type of migration today, both in terms of its numerical magnitude and in terms of the saliency of the problems raised for receiving countries.

Surveying the relevant literature identifies four main strands of inquiry. There are, needless to say, others, but these four strands will be used to structure the following discussion.

The essay will start by considering the role of welfare systems as potential pull factors in international migration. Here the main question is if and how welfare systems in Western countries influence migration decisions, especially who migrates and where to. More specifically, the question is whether welfare systems in Western countries lead to adverse selection of immigrants and if they have an adverse effect on immigrants' locational decision (i.e., are “welfare magnets”).

Secondly, the essay considers the effect of welfare systems on immigrant behavior in the host country. Since integration can be seen as a public good (Nannestad, 2004), the question is if and how welfare systems create incentives and disincentives for immigrant integration, especially in the labor market.

In the third place, the essay considers the impact of immigration and immigrants on the economies and the welfare systems in host countries. This question is, of course, closely related to the extent of immigrant absorption into labor markets. But immigration may also impact on the welfare systems in the host countries in a more indirect way, for instance by affecting native employment levels or native wages. Thus the focus will be on the distributional and the fiscal effects of immigration.

Fourth, the essay will briefly consider the impact of immigration on popular support for welfare systems and hence on the question how immigration may affect the future of welfare states. Here welfare systems will be endogenous while they are treated as exogenous in most of the preceding discussion.

Section snippets

Immigration into welfare states: negative self-selection?

It is hardly controversial to claim that the effects of immigration into Western welfare states are strongly dependent on who the immigrants turn out to be. From that perspective, understanding the mechanisms of immigrant (self)-selection is a key to understanding the effects of immigration.

Immigration into welfare states: moral hazard?

Moral hazard problems are unavoidable in redistributive welfare states (Okun, 1975). They exist with both natives and immigrants. However, there exists a moral hazard problem that is specific to immigrants: the welfare system may weaken their incentives to take on the cost of integrating into the host society by acculturating to the degree necessary for at least their absorption into the labor market.

Immigrant integration can be considered a public good (much like public security). For

Immigration to Western welfare states: are immigrants an asset or a burden?

In theory, migration and trade between countries with different factor endowments of labor and capital are equivalent and mutually beneficial to those involved. Thus immigrants should normally be considered an asset as long as their factor endowments differ from those of the natives. But in the presence of a welfare state with strong redistribution, gains from migration may become asymmetrically distributed between immigrants and natives (Wellisch and Walz, 1998, Hansen, 2003). Thus it is not

Immigration and the future of Western welfare states

The economic impact of immigrants on Western welfare states appears negative in that natives do not gain because of intended and unintended consequences of welfare systems. Since welfare systems are politically determined, this raises the question whether immigration will eventually lead to a weakening of political support for welfare systems.

If the native born in Western welfare states are dissatisfied with the “fiscal leakage” to immigrants, they have two possible strategies. They can try to

Conclusions

We can bring the discussion of the welfare state–immigration nexus somewhat closer to reality than is implied in Friedman's above-mentioned famous dictum that free immigration is incompatible with a welfare state. Existing research conclusions also allow more precision about the effects of immigration on Western welfare states than Borjas' generalization as quoted above.

At the most general level, most of the existing research supports the conclusion that immigration flows with the average

Acknowledgements

An earlier version of this paper was presented at the conference on “Immigration and the Welfare State” at Sandbjerg Manor, Denmark, September 16–19, 2005. Useful comments and suggestions from the participants are gratefully acknowledged. Remaining errors of fact or judgment are the sole responsibility of the author.

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