Debunking the “Brain Drain” Myth: Observing the Repercussions of Emigration on the Social and Privat

Increasing diversity within the American labor market force seems an inevitable consequence to the ever-growing reach of globalization. Market expansion and rising economies have seen the ability and willingness of individuals to migrate increase in the post-Cold War Era. It is thus not surprising that the issue of immigration continues to ramify in United States politics and legislation, with regulations responding to exponential supply shocks of low and high skilled workers, which in turn respond to market forces and shifts in demand. Nevertheless, while immigration seems to be one of the most prominent labor economic topics, the issue of emigration and internal dispersion seem to have been overlooked, and mythicized as the phenomenon of “brain drain”. This compartmentalization allows for legislation to act as a cost-minimizing private firm: economic academia has focused on describing and analyzing how different legislation allows for high skilled immigrants to enter the country but be trapped at capped lower wages than the going wage for a specific sector precisely because of their immigration status binding them to their employer. This, and many other examples characterize the nature of the academic research cited throughout this paper. However, focus must be placed on the social and private costs of higher education in respect to emigration, as academics have found that wages almost never reflect initial investment for higher education over time. Therefore, the question is both one of who emigrates and of the status not only of the receiving country but especially that of the sending country. Subsequently, this paper argues that higher education’s social and private rate of returns are lost at the taxpayer level in relation to public university investment; and are lost to emigrating forces that push high skilled workers’ post-degree to find work elsewhere and thus face legislation and competition that cap their wages lower than the going wage for a specific job.

Firstly, in order to correlate higher education and emigration as a cost rather than a benefit, one must seek to understand the multiplier effect. This economic concept is best summarized as an increase in private spending that produces an increase in national income and consumption, through an increase in aggregate demand. Education as a whole has been regarded in academia as having different multiplicative effects: an investment allows for an individual to be educated and acquire skills and knowledge that are refined in higher education and should presumably place a job that reflects that skillset. Then, the initial investment proliferates by increasing demand for goods and services—hence, the more individuals are more educated, the more aggregate demand for goods and services in an economy increase. However, according to the estimated rates of return to education, primary education yields a higher rate of return than secondary education, which in turn yields a higher rate of return than higher education[1]. Secondly, at every level of education, in general, private rates of return are higher than social rates of return[2]. Therefore, the axiom is clear: education yields public beneficial spillovers only if education is privately invested in and the individual becomes part of the domestic labor force. Interestingly however, while many might suggest that countries, particularly which are starved of public resources, should reallocate public resources in favor of primary education and withdraw from higher education[3], many countries do not. It is also suggested that since private rates of return are higher than social rates of return, individuals should be required pay high levels of fees and public subsidies could be drastically reduced. This, it is feared, would lead to the burial of the public good nature of education once for all[4].

At the heart of public goods, is that they are non-excludable and non-rivalrous: public higher education for one individual does not exclude another individual and does not impede another individual from his studies. This is an unavoidable consequence if higher education is a public good because tax revenue from a country’s residents pays—whether knowingly or not—for a public education of anyone whether one is enrolled or not. Among countries that have stood out for their efforts in making public higher education competitive with private higher education institutions, are Germany and Italy. Two very diverging countries have produced some of the best public undergraduate universities of Europe, producing competitive graduates of the same standing as privately educated graduates. In Italy, the Politecnico di Milano was ranked in 2016, 1st public university domestically, and 183rd internationally[5], while Germany bested it with the Ludwig-Maximilians-University (LMU) Munich, ranked 51st internationally. These results are remarkable in proportion to the demographic ratios of each respective country and their respective growing senior groups and shrinking birthrates. Although this type of singling high ranked universities might seem trivial, it is a reflection of the whole. Essentially, both countries, while affected by relatively constant economic regressions and rising senior demographics, paired with declining birthrates, have invested into the amelioration and increased competitiveness of education as a public good. We can thus exemplify Italy and Germany’s public investment in education as countries that although starved of public resources due to regressions of the economic cycle, continue to hold education as a public good that—essentially—works. The efficacy and competitiveness of undergraduate universities in Germany and Italy can be observed by the very small number of students that emigrate to the United States for higher education in Table 1 below.

In Table 1, “International Students by Place of Origin and Academic Level, 2014/2015 & 2015/2016” Germany and Italy have been personally singled out from the overall larger spectrum of origin countries considered in the Institute of International Education’s research for length and purpose of this paper. The Table takes into account all the international students’ origin countries in the periods between 2014 and 2016 and then intersects this information with their enrollment in different levels of education in the United States. Immigrants from Europe at the undergraduate level have risen from 36,385 in the 2014-2015 period to 37,578 in the 2015-2016 period. Of this smaller number compared to more significant influxes coming from East and South Asia, a little over 3,000 were German undergraduates and a little over 1,600 were Italian undergraduates in average of the two periods considered. This is a significant data number, compared to the fact that the majority of public higher education institutions in Germany and Italy alone offer placement to tens of thousands of students at all levels, and in the thousands at undergraduate level alone.

Table 1. International Students by Place of Origin and Academic Level, 2014/2015 & 2015/2016 [6]

As demonstrated by the data set above, the students that choose to emigrate from Italy and Germany forsake a competitive public education in lieu of a private education in the United States are not many, in any regard, whether against domestic student population at each level of education or international student population in the United States. The reasons for this migration flux are many, yet they will be analyzed further along the paper. Hence, it might seem, given the data numbers, that undergraduates benefit from higher education being a public good and take advantage of its competitive status without the cost. The private rate of return of education in Italy and Germany is still high for the initial private investment, given that this investment is factored into taxes that would otherwise still be paid. Undergraduate students take advantage of this public good—yet, since the social rate of return is based on the coefficient of the multiplier effect for education, it can be argued that the social rate of return is almost null in these two aforementioned economies. That is, beyond undergraduate public education, increasing numbers of students emigrate from Germany—and especially Italy—to the United States (and elsewhere). Thence, while private benefits can be found in the form of a degree from a public university, this comes at the expense of social costs as graduates seek post-graduate education or jobs in the United States (or elsewhere), as demonstrated in Table 1. Italian undergraduates in the United States were 1,624 in the academic period 2014-2015 and 1,764 in 2015-2016. However, Italian graduates seeking higher level of education in the U.S. were between 1,900 and 2,000 between 2014-2016. While the number might be trivial in and of itself, it is indicative of a migration flow that does not only end in the U.S. but ends outside of Italy.

The flow of graduated students emigrating from their country of origin signals that they are taking the skillset they learned, paid through taxpayers’ money, and applying it elsewhere instead of their home country. However, this is not exact. Not all high-skilled workers migrate, or else the numbers would show significant changes in immigrants. The high-skilled workers who migrate tend to be those who self-select, according to Borjas (2016). The process of self-selection offers an in-depth analysis of what kind of worker or student immigrates to the United States, and what kind of socio-economic and political situation he or she leaves behind, at a given point in time and space. Borjas outlines the process of self-selection as the choice a worker makes to either remain in his or her native country, or to emigrate to the United States, hence discouraging the view that immigrant workers are either chosen at random, or represent the “best and brightest” or the worst and most ignorant[7]. United States attracts high-skill workers when American employers reward their skills more than employers in their native country[8]. However, this concept applies to higher-skilled workers more than low-skill workers, as the former might have more flexibility to remain in their native country if their standard of living and costs are perceived lower than in the United States. Instead, these immigrate to the United States purposefully because of higher wages that American employers promise, a perceived opportunity at social mobility, and the perceived costs of moving (both pecuniary and social) inferior to the benefit of the migration.

This could be exemplified by the extremely significant migration flows from East and South Asia, especially from China and India respectively. In Table 1, Chinese undergraduate and graduate students together were 244,833 in the United States in the academic year 2014-2015. The subsequent period, 2015-2016, Chinese students were 258,879. These numbers are monolithic compared to the aforementioned European countries. Moreover, in the case of India, undergraduate and graduate students in the United States for the 2014-2015 period were 101,576, 80% of whom enrolled in graduate education. These numbers are still extremely more substantial than their European counterparts and might reflect a desire for higher skills acquire through higher education to be more proportionately rewarded.

In the graph below, one sees the trends in foreign enrollment to United States higher education institutions of students from China, India, and Germany. While Germany’s numbers are drastically low, both at the graduate and undergraduate level, China and India’s numbers are significant: Chinese continuous growth, as well as Indian sheer numbers are signals that perhaps the promise of better wage in the United States is not the only concern of these students. In fact, it can be argued that whereas Italian and German universities provide competitive skillsets compared to American institutions, Chinese and Indian institutions do not compare well with American ones, and thus other than wage, imply that the issue of public good in China and India is either undeveloped (China) or underdeveloped (India), inciting thus students to emigrate.

Figure 1: Trends in foreign enrollment by select countries of origin, 1993-2011[9]

However, strikingly divergent from Chinese and Indian numbers of émigrés is the low number of immigrants from Scandinavian countries. In fact, the axiom pertains to the circumstance: education yields public beneficial spillovers only if education is privately invested in and the individual becomes part of the domestic labor force. However, it is also clear that the first part of this axiom could be discussed unfavorably given the Scandinavian countries’ public education system. The education system in Scandinavian countries—Norway, Finland, Sweden, and Denmark—is renowned around the world for its impeccable reputation both in teaching style and skillset that allow for competitiveness in the international work force. Emigrant undergraduate students from Norway, Finland, Sweden and Denmark were 5320 total in the academic year 2014-2015, and 5063 total in the year 2015-2016. Furthermore, even more remarkably, graduate students from Scandinavian countries totaled a mere 1,190 in 2014-2015, and a meagre 1,138 in 2015-2016. This finding is a remarkable piece of evidence against the claim that the United States attracts high-skill workers when American employers reward their skills more than employers in their native country.

In fact, it seems deductible from Table 1 that high-skill university graduates return to their home country after achieving their degree because their skills are more rewarded in their native countries not only by employers but especially by the state itself. Or simply, they do not leave. Scandinavian countries follow the Nordic model, with tax burdens towering 51.1% in Sweden, 46% in Denmark, and 43.3% in Finland; however, not many students leave. This is because, unlike Italy and Germany, the Scandinavian model of nation welfare works. The state substitutes the private firm in creating public healthcare for all, highest level of public education, functioning pension systems, etc. Therefore, in terms of incentive, Borjas (2016) argues almost close-mindedly that high-skill workers emigrate only in search of higher wages: this model reflects a liberal capitalistic economic model that positions private pecuniary acquisition above social benefits. It is almost incomprehensible for foreign populations how Scandinavian countries focus on the idea of redistribution of wealth not as a cost and burden to the high-skill high-income workers, but as a safety net for everyone, especially those who contribute the most.

Therefore, this reflection begets the question of debunking the “brain drain” myth. The purpose of this paper was to argue that higher education’s social and private rate of returns are lost at the taxpayer level in relation to public university investment; and are lost to emigrating forces that push high skilled workers’ post-degree to find work elsewhere and thus face legislation and competition that cap their wages lower than the going wage for a specific job. Excluding the Nordic social and economic Utopia, one might still hold to that assumption, given the axiom that education yields public beneficial spillovers only if it is privately invested in and the individual becomes part of the domestic labor force. Migration of individuals occur as a result of shifts in demand curves of either the domestic labor market, the international labor market, or both. In the case of countries such as China, India, and even Italy, contractions and inwards shifts of the demand for labor—or a supply surplus, in China and India—set in motion migrations. Inwards shifts of the demand for labor translates into a lower level of employment for a given sector or aggregately the whole economy, or in lower wages. A surplus of worker supply instead, translates into lower wages to readjust market equilibrium. Therefore, it is understandable why some workers might actually be attracted to more rewarding wages in the United States for example. However, do these represent a brain drain?

Immigrants tend to self-select. This process of self-selection ultimately translates into a portion of immigrants representing a brain drain from their “sending” countries and a portion of those immigrants not representing a brain drain. Effectively, self-selection for high-skill or middle-skill workers occurs in the eventuality that their income and social benefits in their native country does not reflect their initial investment into higher education and yields not multiplicative effects. This is an incentive for high-skill worker to “positively” select and immigrate to the United States, which would reward their high-skills proportionately more than their native countries[10]. Moreover, this selection is positive for the United States because it not only creates beneficial spillover effects such as the exchange of knowledge among workers of different educational backgrounds, but it also implies that these immigrant households will not be a fiscal burden, but instead positively contribute through income, sales, and property taxes. Thus, the multiplicative effect of the worker’s initial investment yields no social returns natively, and instead does so in the United States, minus the public cost to American taxpayers for the initial investment, which the native country produced.

However, Matloff (2013) tends to disagree with the notion that the high-skill immigrants that enter the United States are only the best and brightest (representing a brain drain from their own country) and instead argues that due to immigration laws, restrictions placed on the range of work permits allow for employers to pay their immigrant employees (even at the highest level), less than the going wage for a specific sector[11]. Matloff explains that the prevailing wage for a specific sector in an economy is “the average wage for American workers in a given profession, for a given region and a given number of years of experience”[12]. This is significant because of its repercussions in the analysis of the wage ratio of immigrant workers, calculated as the quotient of the wage paid to the prevailing wage[13]. Matloff’s results reflect that the quotient ratio for “outstanding” high-skill immigrant workers is not as outstanding as it should be, and the coefficient he calculates would be low if attributed to a native worker. However, while Matloff diminishes the importance of immigration policies as acting as economic ceilings to cap the wages of immigrant work, it is of note if we are to analyze how the presumably “best and brightest” represent a brain drain. That is, strict American immigration policies cap wages for immigrant workers even at the high-skill level: quotas on H-1B visas do not measure the “best and brightest” and hence cannot grasp only and all of them. Moreover, green card applications must be sponsored by employers, furthering the strict relationship between employee and employer and allowing the latter to set a cap on wages.

Subsequently, the initial axioms have proven to be true, through the data-centered analyses of Matloff, Borjas, and Bound and his colleagues: generally, the private rate of return for higher education is more than the social rate of return, which is almost inexistent when higher education is regarded as a public good and thus has greater public costs than benefits. Moreover, higher private rate of returns for higher education occur when the individual makes a significantly higher wage externally—such as the case between China and the United States—than compared to domestic wages for the same profession. However, higher education can lead, as the Nordic model demonstrates, to social rate of returns if the individual returns to his original home country and his investment has ramified and multiplied in the form of higher taxable income due to higher skill sets acquired through higher education. Nevertheless, immigrant workers are faced with unavoidable wage caps set by American legislation—if immigrating to the United States—that does not allow them in the long run to redeem their initial investment. Ultimately, although high-skilled workers have seemed to only provide competition for native high-skill workers in terms of their knowledge and skillset, in reality their presence has created internal dispersion due to the fact that immigrants are inevitably tied to their “visa status” and associated wage. Therefore, it is untrue that immigrants represent the “best and brightest” at the highest level of skills. Furthermore, higher education’s social and private rate of returns are lost at the taxpayer level in relation to public university investment; and are lost to emigrating forces that push high skilled workers’ post-degree to find work elsewhere and thus face legislation and competition that cap their wages lower than the going wage for a specific job.

*****

References

Bartoloni, Marzio. “Tre Atenei Americani in Cima alla Classifica Mondiale, il Politecnico di Milano Primo in Italia”. Scuola24. Il Sole 24 Ore (2016). Retrieved from http://www.scuola24.ilsole24ore.com

Borjas, George J. We Wanted Workers. New York: W. W. Norton & Company, 2016.

Bound, John, et al. “Finishing Degrees and Finding Jobs: Higher Education and the Flow of Foreign IT Workers.” National Bureau of Economic Research, no. 20505 (2014): 1-57.

Ehrenberg, Ronald G. and Smith, Robert S. Modern Labor Economics: Theory and Public Policy. New York: Routledge, 2016.

"International Students by Academic Level and Place of Origin, 2014/15-2015/16." Open Doors Report on International Educational Exchange. Institute of International Education. (2016) Retrieved from http://www.iie.org/opendoors

Matloff, Norman. “Are Foreign Students the ‘Best and Brightest’? Data and Implications for Immigration Policy”. Economic Policy Institute, no. 356 (2013): 1-23.

Footnotes

[1]Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy. (New York: Routledge, 2016)

[2] Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy.

[3] Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy.

[4] Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy.

[5] Marzio Bartoloni, “Tre Atenei Americani in Cima alla Classifica Mondiale, il Politecnico di Milano Primo in Italia”. Scuola24. (Il Sole 24 Ore: 2016).

[6] “International Students by Academic Level and Place of Origin, 2014/15-2015/16." Open Doors Report on International Educational Exchange. Institute of International Education. (2016)

[7] George J. Borjas. We Wanted Workers. New York: W. W. Norton & Company (2016), 68

[8] George J. Borjas. We Wanted Workers. New York: W. W. Norton & Company (2016), 68

[9] John Bound, et al. “Finishing Degrees and Finding Jobs: Higher Education and the Flow of Foreign IT Workers.” National Bureau of Economic Research, no. 20505 (2014), 54

[10] George J. Borjas. We Wanted Workers, 68

[11]Norman Matloff. “Are Foreign Students the ‘Best and Brightest’? Data and Implications for Immigration Policy”. Economic Policy Institute, no. 356 (2013), 10.

[12] Norman Matloff. “Are Foreign Students the ‘Best and Brightest’? Data and Implications for Immigration Policy”, 10

[13] Norman Matloff. “Are Foreign Students the ‘Best and Brightest’? Data and Implications for Immigration Policy”, 10