The Economics of Circular Migration - IZA Institute of Labor Economics

DISCUSSION PAPER SERIES

IZA DP No. 6940

The Economics of Circular Migration

Amelie F. Constant Olga Nottmeyer Klaus F. Zimmermann October 2012

Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor

The Economics of Circular Migration

Amelie F. Constant

DIW DC, George Washington University and IZA

Olga Nottmeyer

IZA

Klaus F. Zimmermann

IZA and Bonn University

Discussion Paper No. 6940 October 2012

IZA P.O. Box 7240

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IZA Discussion Paper No. 6940 October 2012

ABSTRACT The Economics of Circular Migration*

Circular migration receives increasing attention due to its empirical relevance and as a policy concept to manage labor flows. This review discusses the advantages and disadvantages of circular movements for all parties. It studies the characteristics of circular movers worldwide and investigates the consequences of restrictive migration policies. Recent policy initiatives that aim to manage circular labor movement are also analyzed. JEL Classification: J61, F22, F24 Keywords: geographic labor mobility, immigrant workers, international migration, remittances Corresponding author: Klaus F. Zimmermann IZA P.O. Box 7240 D-53072 Bonn Germany E-mail: zimmermann@

* We thank the anonymous referee for many helpful comments on earlier drafts. This paper will be published as a chapter in the forthcoming handbook of Constant and Zimmermann (2013).

1. Introduction The economics of migration literature saw an increasing interest in circular or repeat migration in the last two decades. At the same time, more and more programs concerning circular, revolving-door or "va-et-vient" migration started sprouting. By the year 2003 about 176 bilateral labor agreements have been signed among the Organization for Economic Cooperation and Development (OECD) countries alone (Newland et al., 2008). The importance of circular migration is underscored in the September 2005 communiqu? on migration and development of the European Commission. The benefits of this labor movement "back and forth" between the home and host countries as well as labor movements involving third countries are listed in the Global Commission on International Migration (GCIM), the International Organization for Migration (IOM), the World Bank, the European Commission, and the House of Commons International Development Committee. The emerging importance of circular migration comes from its potential benefits to all countries involved in migration - be it the home or sending country, the host or receiving country or a third country, as well as to the migrants themselves. Circular migration is not a new phenomenon or a new form of migration that suddenly appeared in the late 20th century. Looking back in time before even current national borders existed, many migration moves were de facto circular. Nomads, traders, and other seasonal laborers have been pursuing livelihood strategies by consciously taking advantage of opportunities in time and space in order to meet their needs under scarce resources. These needs include food security and access to institutions such as welfare, insurance, access to credit markets and risk diversification. In developing countries, circular migration has also been the road to eliminate poverty.

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In neoclassical economic theory1 in which rational labor migrants (the agents) have complete information, maximize utility under income constraints, make decisions at the margin, are optimizers, and pursue their own self-interest, it is natural that labor migrants move multiple times taking advantage of each situation in each country. Migrants optimize their income, savings, and investment strategies according to employment options and possibilities in both the home and host country and therefore improve their economic, social, and personal situation in every move and reach equilibrium (Constant and Zimmermann, 2011).

With technology allowing relative inexpensive travels and with communications allowing easier information access, the last couple of decades have witnessed circular migration in a larger scale. The creation of de facto migration markets ensures the efficient allocation of the scarce resource labor. In addition, circular migrants can be the buffer during periods of economic volatility and provide employers with a flexible labor force. Agreements about free labor mobility among countries can also foster circular migration. Such examples we find in the European Union of 27 and between Australia and New Zealand.2 Besides the receiving and sending countries, the migrants themselves can profit from repeated or circular moves.

As there are benefits there are also disadvantages and costs associated with circular migration that we will cite and discuss in a later section. In addition to theoretical arguments empirical studies can enlighten our understanding of circular migration and produce sound evidenced-based policy recommendations. Unfortunately, empirical evidence about circular migration is scarce and empirical analyses are limited due to missing or problematic data. A thorny issue in the data collection is whether a free democratic country should prohibit its residents from going abroad and/or gather

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information about their exit and re-entry.3 Even if this information could be obtainable, often reliable data do not exist because there is no matching information in home and source countries. A notable exception is the Mexican Migration Project (MMP), a binational study that surveys Mexicans on both sides of the U.S.-Mexican border since 1983. MMP allows for unique insights into the characteristics and determinants of circular migration. For example, these data show that Mexicans are indeed practicing circular migration; they are going to the US to work for a couple of months, and return to Mexico to live.

Other limitations arise because surveys may follow migrants only for a limited period of time and report observations of only parts of migrants' lives, or they even do not ask about migration history at all. Availability of better datasets such as the German Socio Economic Panel (GSOEP) that is done since 1984 and has rich information on before and after migration experiences make empirical studies on circular migration possible. According to the analysis of Constant and Zimmermann (2011), male and single migrants and those who have lower levels of education and are closer attached to the labor market are more likely circular migrants in their GSOEP sample. The New Immigrant Survey (NIS) is another exceptional migration dataset combining information from US administrative data as well as survey data. NIS contributes to our knowledge about circular migration by containing information about previous migration trips, their frequency and duration; it goes a step further to provide a glimpse into the behavior of migrants by offering information about possible previous repeated "illegal" trips to the US (Jasso et al., 2008).

One stunning finding about unintended consequences in policymaking became apparent from research on circular migration. Namely, restricting free circular mobility

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between home and host countries such as by introducing immigration quotas, increasing border protection, or enforcing return migration has often backfired. Flagrant examples are the increasing number of undocumented migrants living in the US and the permanence of the Turkish population in Germany. Instead of reducing labor migration, restrictions simply shift migration routes, change the type of migrants entering the country, and render sojourner migrants permanent. Entry without inspection and overstaying of legal entry visas increase making the number of migrants staying in the host country bigger. Lost options for legal re-entry makes families to unify and procreate in the host country.

The organization of this chapter is as follows: the next Section sets the stage for the economics of circular migration starting with a short presentation of definitions (2.1), and continuing with a detailed analysis of the benefits and costs of circular migration (2.2). Section 3.1 presents examples or case studies of the - often negative and counterproductive - consequences of restrictive migration policies; it also reviews empirical studies that analyze the characteristics of circular movers worldwide (3.2). The final Section concludes and offers policy recommendations as it also lists remaining gaps in the literature of circular migration.

2. The Economics of Circular Migration 2.1. The Circular Migration Nomenclature

Following Constant and Zimmermann (2011), we define circular migration as the systematic and regular movement of migrants between their homelands and foreign countries typically seeking work.4 Both skilled and unskilled workers practice circular migration. In the literature we find the following synonyms of circular migration:

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repeat, shuttling, rotating, multiple, cyclical, or circuit migration. For migration between the US and Puerto Rico, where there is free border mobility, the terms commuter or revolving-door migration have been used. Circular migration should be differentiated from the one-time emigration or out-migration and the eventual permanent return migration. Out-migration denotes a single move out of the home country and into the host country with no prospects of return ? as was, for instance, the case for many Europeans immigrating to the U.S. between the 15th and 17th century. Similarly, return migration describes the only and final move back to the home country after a single migration trip.

Within the umbrella of circular migration there is seasonal and non-seasonal migration, mobility of professionals or brain circulation, and transnational entrepreneurs to name a few. The seasonal type of migration is the most popular and the probably most often occurring form of circular migration; it is taking place between high-income and low-income countries or regions during certain seasons such as during the summer to harvest of tomatoes. Unregulated systems and spontaneous circulation should also be differentiated from regulated systems and managed circulation (Newland et al., 2008).

Unregulated systems are established by the migrants themselves. Examples of this type are the nomads and traders. Regulated systems on the other hand are based on collaborations and diplomatic agreements between states and/or employers. Examples of this type are the "bracero" program in the US in the 1940s, 1950s and early 1960s and the "guestworker" recruitment in many European countries in the 1950s, 1960s and 1970s.5 The type of circulating migration one observes among the EU member states and also among the former Soviet Union countries can be labeled transnational or commuter migrants. Zapata-Barrero et al. (2012) use the term "circular temporary labor

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