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Wednesday, May 23, 2007

Borjas: Sondheim on Migration

George Borjas is puzzled by Puerto Rico's failure to behave according to economic theory:

Sondheim on Migration, by George Borjas: Ever since I was first exposed to the music from West Side Story as a teenager, some of Stephen Sondheim's lyrics stuck with me. They appear in the song America. In the movie version, Bernardo and Rita are arguing over the costs and benefits of migrating from Puerto Rico to New York.

BERNARDO: I think I'll go back to San Juan

ANITA: I know a boat you can get on

BERNARDO: Everyone there will give big cheer

ANITA: Everyone there will have moved here

Given the huge volume of migration from Puerto Rico to the United States in the 1950s, it is not surprising that Sondheim expected Puerto Rico to empty out. But the fact is that it didn't. And therein lies one of the great unsolved puzzles in the study of migration. There are no legal restrictions whatsoever that hamper the mobility of Puerto Ricans to the mainland--they are American citizens by birth--and transportation costs are low. ... Why hasn't Puerto Rico emptied out?

Between 30 to 40 percent of the Puerto Rican population chose to move out. But that means that about two-thirds did not. Why? If economic theory is right, it must be the case that there are huge costs associated with the migration. Since these costs are unlikely to be monetary in nature, they represent the fact that most people, if given the choice, would much rather stay where they are at. It is not hard to calculate the migration cost for the "marginal" migrant. And they are substantial: probably around $400,000 to $500,000. (...The half-million dollar range comes about if one assumes that a worker can, say, double his salary by migrating to the United States and the rate of discount is 5 percent...).

There's still another puzzle. There are also no restrictions that hamper the flow of capital between the two places. Yet despite all these unrestricted labor and capital flows, there is still a sizable income differential between the United States and Puerto Rico. By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table). Whatever happened to the factor price equalization theorem? If 60 years is not the "long run," maybe Keynes was right after all.

The fact that migration entails very high costs if an important--and often ignored--part of the economics of migration. The fact that wages don't equalize even when a "country" loses a large chunk of its population and there are unrestricted capital flows is both interesting and important. It should give some food for thought to those who view migration as a policy tool that can help alleviate many of the developing world's problems.

I'd be curious to know what stopped the inflow from Puerto Rico and how those factors might affect his and other estimates of migration from Mexico to the U.S. in the future. At what point would the flow from Mexico begin to ebb if the legal restrictions were removed and it was left to self-correct (that's a question, not a suggested policy)? What are the important factors determining the share that would leave Mexico permanently? Would it also be around one third? That would be around 36 million migrants, about triple the current level of illegal immigration.

    Posted by on Wednesday, May 23, 2007 at 03:06 AM in Economics | Permalink  TrackBack (0)  Comments (36)

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