Halftime for SDGs: Skilled migration

Best Investment Paper

The United Nations Sustainable Development Goals (SDGs) are comprehensive, seeking as much as possible to eliminate extreme poverty and hunger, improve health and education, and reduce gender and economic inequalities, while also increasing economic growth and addressing climate change. There are 17 broad SDGs, with each comprising a series of targets. Many of these targets may be addressed in some fashion through the subject matter of this paper, which is focused on the benefits and costs of higher international mobility of skilled labor. For example, greater labor migration can establish more channels for information flows, directly contributing to faster economic growth (Goal 8) and improved innovation and work (Goal 9). It can also expand international remittances, which can be invested by recipient households in home countries in education (Goal 4), entrepreneurship (Goal 9), and improved and sustainable agricultural technologies (Goal 12). At the same time, increased emigration of medical professionals and technical workers from poor countries can reduce quality of local services, innovation, health status, and productivity. There are numerous economic tradeoffs, making the issue of global migration an important subject for benefit-cost analyses.

Skilled migrants move across borders largely to achieve higher incomes, assuming they get to work in their chosen professions (Grogger and Hanson 2011). Salary increases and improved living standards are the primary benefit to these migrants and their families. Moreover, skilled migration can expand innovation and economic opportunities in destination countries, which is well established by studies of developed economies (Hunt and Gauthier-Loiselle 2010; Kerr 2013). They also relieve critical labor shortages in technical and professional fields. These outcomes, in turn, color the debate in such countries about immigration policy, which tends to favor higher-skilled immigrants over the less skilled. Scholarship about developing countries focuses heavily on the potentially negative economic implications of the brain drain from outward migration (Docquier and Rapoport 2012). Less studied are the effects of skilled migration from poorer to richer nations on reverse productivity gains because emigrants also establish additional channels for trade, investment, and production networks, which can enhance productivity gains in their home countries (Elo 2015).

Such considerations underlie the analysis in this report, which is aimed at answering this question: What would be the economic benefits and costs of permitting an immediate increase in the bilateral migration of skilled workers among the 54 nations of the African Continental Free Trade Area (AfCFTA) and, more broadly, among all regions of the world? The impetus for studying Africa arises from a growing interest in greater labor mobility among African nations. The members of the African Union adopted a Free Movement Protocol in 2018 as a component of Africa Agenda 2063.[1] Its objective is to “provide for the progressive implementation of free movement of persons, right of residence, and right of establishment in Africa.” These rights, along with the market-opening measures of AfCFTA, are seen as essential for the economic integration of the continent and a driver of future economic development.[2] While to date relatively little migration policy reform has happened in national capitals, interest in greater movement of skilled persons remains high, as expressed in a recent framework draft.[3]

While potentially important in Africa, the gains from skilled-labor migration on a global scale are likely magnitudes higher. From the standpoint of economic growth and poverty reduction across the developing world, therefore, an extended analysis of a marginal increase in global labor integration is in order. Moreover, despite some political reservations, pressures are building that will raise the demand for international movement of skilled labor. This is true for several reasons but arises especially due to demographic trends. Richer and higher-income emerging economies continue to experience sharp declines in their fertility rates and are aging rapidly, raising the need for skilled workers from abroad in such advanced occupations as medical care, finance, information technologies, and other knowledge-intensive industries.

Thus, the present analysis builds spreadsheet models of the key impacts of greater international flows of skilled workers in various categories (physicians, engineers or STEM workers, and other persons with an advanced educations), both across Africa and 25 global regions. The benchmark change is a 10% increase in the bilateral migrant stocks of skilled workers, using 2020 data but implemented in 2022, considered to be permanent migration over the workers’ careers abroad of 25 years on average. The computations build on constructed bilateral matrices of 2020 migrant stocks among 12 countries and regions in Africa and 25 regions across the globe. Data on some variables and relationships are scarce, forcing several assumptions to be made to construct these matrices.

Skilled international migrants are defined as movers that have completed an advanced education, using UNESCO’s ISCED categorization. Specifically, the included categories are those with a tertiary education (Groups 5 and 6), an MA degree or equivalent (Group 7) and a doctoral degree or equivalent (Group 8). The analysis deploys separate data inputs for the prevalence of physicians in the population and those with degrees in science, engineering, technology and mathematics (STEM), in order to break out those types of skills. This is important, given the significance of losing their services in source countries while gaining them in destination countries. Quantifiable economic benefits arise for three actors in the model. First, there are higher migrant incomes abroad, which are substantial in the case of migration from low-income to high-income economies. Second, there are welfare gains in destination countries associated with higher economic efficiency, spillover productivity gains, and an improved ability of the younger and more skilled working force to support the needs of the wider population, resulting in higher national production. Benefits in source countries include productivity enhancements from two sources: (a) greater access to knowledge associated with more bilateral trade and investment and (b) the ability of local households to invest remittances in productivity-enhancing activities. Welfare losses in source nations include static efficiency reductions and a worsened demographic support capability. Benefits and costs are discounted at an 8% rate to compute their net present values.

Initial summary of results

Table 1 summarizes the aggregated results for the African and global models. Detailed results broken down by region are presented later in the report. The broader the skill classification, the greater are the volumes of benefits and costs because there are more migrants involved. There are notable variations in the benefit-cost ratios (BCRs) across skill categories. In Africa, the BCRs range from 3.71 for the broadest skill class (labeled “other skilled labor”) to 6.87 for greater migration of physicians and 4.37 for STEM workers. The gains for the latter two highly skilled categories largely arise from higher wages earned by those who migrate, the gains from investing remittances sent back to source countries, and better demographic ratios in the destination nations. STEM migration involves large positive technology spillovers. The origin countries suffer their largest losses in diminished demographic support ratios. Notably, if migration were limited to physicians and STEM workers the benefit-cost ratio would be 4.57, markedly higher than that for other skilled labor categories.

These BCRs are well above unity, suggesting that perhaps four or five dollars would be returned per dollar of cost. However, they are relatively small compared to those from global migration, shown in the second panel of Table 1. A primary reason for the low BCRs is that within Africa skilled migrants do not receive large gains in wages abroad, given the relatively narrow range in salaries across nations. Further, as noted later, some African regions experience relatively large losses from lower demographic support capabilities. Nonetheless, the estimated BCRs suggest that there are substantive net gains available to African countries through a marginal increase in skilled labor on the continent.

There are far larger volumes of migration in the global model, of course. The major point at this stage is that the BCRs are considerably higher, achieving levels above 10, suggesting truly notable potential net gains. These ratios are over 38 for physician migration and 17 for STEM workers, reaching 20 for the combination of those flows. There are four primary reasons for the markedly higher growth in benefits over costs between Africa and the world analysis. First, migrants from lower-income to higher-income economies receive considerably higher wage gains in the global model. Second, these gains generate significantly higher remittances back to source nations, which may be used by residents there to invest in productivity-increasing activities, such as more education and entrepreneurship. Third, there are greater positive productivity spillovers associated largely with migration from richer to poorer countries.[4] Fourth, the arrival of skilled immigrants generates relatively large demographic support gains in destination economies.

Table 1: Overview of B/C ratios.
A. African case			B/C
Policy	Benefit	Cost	ratio
10% rise in bilateral physician migration	194	28	6.87
10% rise in bilateral STEM migration	1,466	335	4.37
10% rise in other skilled labor migration	4,696	1,258	3.71
10% rise in all bilateral skilled migration	6,356	1,621	3.92
10% rise in bilateral physician + STEM migration	1,660	363	4.57
B. Global case
Policy
10% rise in bilateral physician migration	83,993	2,193	38.29
10% rise in bilateral STEM migration	299,642	17,127	17.50
10% rise in other skilled labor migration	710,383	67,692	10.49
10% rise in all bilateral skilled migration	1,094,019	87,012	12.57
10% rise in bilateral physician + STEM migration	383,635	19,320	19.86

Note: In millions of dollars at an 8% discount rate.

This policy would permit a 10% increase in bilateral skilled migrant stocks through migration according to 2020 estimated skilled migrant stock shares. Workers would work abroad for 25 years.

The final peer-reviewed published article can be found here:

[1] Protocol to the Treaty Establishing the African Economic Community Relating to Free Movement of Persons, Right of Residence, and Right of Establishment, https://au.int/en/treaties/protocol-treaty-establishing-african-economi….

[2] See the extensive analysis of the potential impacts of AfCFTA performed by the World Bank (2020), which projects growth in real GDP of 7% by 2035 across the continent. Such gains would be enhanced by increased international labor mobility.

[3] The Revised Migration Policy Framework for Africa and Plan of Action (2018–2027), an update of earlier frameworks, was adopted in 2018 by the African Union members. Labor migration is one of nine thematic areas discussed in the context of international and domestic migration policies.

[4] As explained later, there are such movers in the data. The model posits that they retain their home-country salaries, meaning they would not migrate to low-wage nations and accept diminished compensation. They do, however, generate local spillovers.