Resisting Migration: The Problems of Wage Rigidity and the Social Burden

Assaf Razin, Efraim Sadka

NBER Working Paper No. 4903 (Also Reprint No. r1974)
Issued in October 1994
NBER Program(s):International Finance and Macroeconomics, Labor Studies

Just like any trade activity in well-functioning markets, migration tends to enhance the efficiency of the allocation of resources. With non-distortionary income distribution policy instruments which can compensate losers, migration generates income gains. But the gains tend to be typically rather small. However, when the labor market is malfunctioning and wages are rigid, migration exacerbates imperfections in the market. Consequently, it may lead to losses to the established population which can be quite sizable. Another problem raised by migration is the toll it imposes on the welfare state. Being unable to perfectly exclude migrants from various entitlement programs and public services, the modern welfare state finds it more and more costly to run its various programs. These two economic considerations may help explain why there is strong resistance to migration. Consequently, improvements in functioning of the labor markets (with a possible compensation to wage earners that compete with unskilled migrants) and more selectivity in the scope of and the eligibility for the state entitlement programs may potentially ease, to a large extent, the resistance to migration from the established population.

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Document Object Identifier (DOI): 10.3386/w4903

Published: American Economic Review, Papers and Proceedings, vol. 85, no. 2, pp. 312- 316, May 1995

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