Neoclassical economics and the new economics of migration
Neoclassical Economics: the macro levelThis was the earliest theoretical framework developed to explain labour migration. It sees migration as the result of geographical differences between labour supply and labour demand. These differences can exist at the international level or at the internal (or national) level. International migration is caused by the differences in wage levels between countries and labour markets. If wage differences were eliminated, labour migration would stop according to this theory. This theory suggests that the bulk of labour migration moves from capital-poor/labour force-rich countries to capital-rich/labour force-poor countries, while by contrast capital moves in the opposite direction, expecting a higher return on investment made in capital-poor countries. This theory also suggests that high-skilled workers move from capital-rich to capital-poor countries to reap higher returns on their skills. Labour markets are the main mechanisms that influence international migration. Other markets have little role. Thus, governments can regulate migration through labour market policies (e.g. through wage increases in sending countries).
Neoclassical Economics: the micro levelThis variety of neoclassical economics theory refines the arguments at the macro level by suggesting that international labour migration is caused by differences in wage and employment rates and that migrants EXPECT their wages to be higher in the destination country.
Want to keep
European University Institute (EUI) online course,
Why Do People Migrate? Theories
New Economics of MigrationThe new economics of migration theory has a different point of departure compared to neoclassical economics and challenges both the micro and the macro approaches outlined above. According to this theory the decision to migrate is not made by isolated individual actors: it is the result of a collective decision to maximise income and employment opportunities and to minimise risks. Developed countries minimise risks through welfare state and insurance systems. So, for example, if a crop fails, there are crop insurance markets. There is also access to futures markets to obtain guaranteed prices for selling agricultural products. If someone is injured or loses their job, there are unemployment benefits. If someone seeks to improve their business, there are credit institutions and capital markets that provide loans. In developing countries all these risks have to be faced by the household. Hence, migration is a strategy to diversify risks. The main incentive to migrate is not only to raise income but also to diversify risks. International migration may occur alongside increases in local employment and production. It does not have to stop when wage differentials disappear. This theory also introduces the notion of relative deprivation: migration can alter income distribution within a community and therefore lead to more people deciding to migrate. Governments can influence migration not only through labour market policies but also through policies on the other markets identified above (insurance, credit, etc.). Moreover, government policies in sending countries that raise the mean income of the population but leave behind the poorer households may increase the probability of migration.
Why Do People Migrate? Theories
Our purpose is to transform access to education.
We offer a diverse selection of courses from leading universities and cultural institutions from around the world. These are delivered one step at a time, and are accessible on mobile, tablet and desktop, so you can fit learning around your life.
We believe learning should be an enjoyable, social experience, so our courses offer the opportunity to discuss what you’re learning with others as you go, helping you make fresh discoveries and form new ideas.
You can unlock new opportunities with unlimited access to hundreds of online short courses for a year by subscribing to our Unlimited package. Build your knowledge with top universities and organisations.