Welfare state, social ladders and the american dream. How the citizenship premium affects migration

August 3, 2017
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A preview form the book Global Inequality. A new approach for the age of globalization. Reproduced with kind permission of the Author


The existence of the citizenship premium has important implications for migration: people from poor countries have the opportunity to double or triple or increase ten- fold their real incomes by moving to a rich country. But the fact that the premium varies as a function of one’s position in the income distribution carries additional implications. If a person considers two countries with the same average income as his possible migration destination, his decision (based on economic criteria alone) about where to migrate will also be influenced by the expectation regarding where he may end up in the recipient country’s income distribution, and thus about how unequal the recipient country’s distribution is. Suppose that Sweden and the United States have the same mean income. If a potential migrant expects to end up in the bottom part of the recipient country’s distribution, then he should migrate to Sweden rather than to the United States: poor people in Sweden are better off compared to the mean than they are in the United States, and the citizenship premium, evaluated at lower parts of the distribution, is greater.

The opposite conclusion follows if he expects to end up in the upper part of the recipient country’s distribution: he should then migrate to the United States. This last result has unpleasant implications for rich countries that are more egalitarian: they will tend to attract lower-skilled migrants who generally expect to end up in the bottom parts of the recipient countries’ income distributions. Thus, having a more developed national welfare state could have the perverse effect of attracting migrants who are less skilled and can contribute less. Another element, however, has to be taken into account, even in this admittedly very rough sketch: how much social mobility there is in the recipient country. More unequal countries with strong social mobility will, every thing else being the same, tend to appeal to more- skilled migrants who expect to end up in the upper part of the recipient countries’ income distributions. The ability to move up the ladder was precisely the image, and might also have been the reality, of the United States in the nineteenth century and perhaps most of the twentieth. But this third attractive feature of the United States (in addition to higher mean income and more unequal income distribution) may be losing some of its luster, since, according to some studies, intergenerational mobility is now lower in the United States than in northern Europe.

Some countries with highly developed welfare states may try to isolate themselves from the “negative” eff ects of disproportionately attracting low- skilled migrants. One way to do it, as in Canada, the United Kingdom, and Australia, is by accepting only “qualified” migrants. Th ese are migrants with high levels of education or some special characteristics which make them attractive to the recipient country (say, high athletic or artistic ability). Other countries try to attract rich migrants. In this case, residency permits and ultimately citizenships are bought: a person needs to invest a certain amount of money (which may range from a couple of hundred thousand to several million dollars) into a com pany or real estate. Th e United States is one of the countries that takes this approach, allowing migrants who invest $1 million in US companies (or $500,000 in companies located in rural or high- unemployment areas) to receive a green card.

A number of countries in Eu rope allow foreigners to reside there, and thus to travel visa- free within the Schengen zone (an area of free movement within most of the Eu ro pean Union), in exchange for a real estate investment. Both such filters, education and money, are supposed to improve the pool of immigrants a country receives, and thus ultimately to contribute to the country’s economic output and enable the maintenance of its welfare state by minimizing the number of migrants who depend on social transfers. From the point of view of individual countries, these are intelligent strategies. The problem is that from the global perspective, this approach to migration is heavily discriminatory.

To one set of “discriminations,” the citizenship rent, we add another set of discriminations whereby this rent may also be enjoyed by those who were not lucky enough to have been born in a rich country but have exceptional abilities or wealth. We run the risk that such policies will result in the poor world, and I am thinking especially of Africa here, becoming even poorer as its most educated and wealthiest members leave. All of these problems illustrate both the complexity of the issues in the era of globalization and the need to think of the problems from a global perspective rather than solely from the point of view of individual nations and their populations.


The author

Branko Milanovic

One of the world’s leading economists of inequality. Previously at World Bank, is currently professor at City University of New York  

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