Welfare Magnet Theory: Do Large Welfare States Attract Low-Skilled Immigrants?

To leave one's home to live in another country is a huge undertaking. It involves leaving behind that which you once knew, and once you arrive, you have to get used to a new culture, a new way of doing things, and in some instances, a new language. This acclimation and shock are all the more pronounced if you come from a lower socioeconomic status. Why do these individuals decide to leave their comfort zones and migrate to another country? There are a number of reasons one makes the choice to live in another country. One possible answer is that of the welfare magnet theory.

The welfare magnet theory hypothesizes about the effect that the existence of a welfare state has on migration flows. The larger the welfare benefits, the more incentivized migrants, particularly low-skilled migrants, are to move to a given country. It seems intuitive enough of an idea. The question is whether it plays out in reality.

Harvard economist George Borjas was one of the first ones to argue on theoretical grounds that the phenomenon exists (Borjas, 1998). There has been some empirical work since then to rebut the theory. Here are four particular studies:

• The Personal Responsibility and Work Opportunity Act of 1996 included a provision to allow states to provide cash welfare to immigrants. Since some states opted not to, it would follow that immigrant families would have migrated to states that had the benefits. However, the law did not have that magnitude of migration (Kaushal, 2005). Perhaps the cash incentive was not large enough to induce migration. 
• One study showed that poor, single mothers were not particularly inclined to move across state lines for the welfare benefits (Levine and Zimmerman, 1999). 
• Another study showed that the empirical evidence for the welfare magnet theory "does not uniformly support this theory" (Bitler and Hoynes, 2011).
• One study from the Journal of the American Medical Association: Pediatrics came out earlier this week showing that the expansion of public health insurance for non-U.S.-born children does not create a "welfare magnet effect" (Yasenov et al., 2019).

To be fair, the aforementioned studies are measuring interstate migration patterns. Migrating across international borders involves a whole different set of incentives and challenges. On the other hand, if one is not willing to migrate interstate, one would a fortiori would not be incentivized to migrate internationally. What does international research have to say? One paper uses an econometric model for the European Union to suggest that it does exist (Razin and Wahba, 2011). One study countered by postulating that not only does the magnet not exist, but in some countries, immigrants experience less welfare dependence than their native counterparts (Giulietti, 2014).

If it didn't feel coincidental to have one study on the topic released this week, how about two studies? We already covered the first one (see above), but there was one released in the National Bureau of Economic Research (NBER). A Princeton economist, Henrik Kleven, worked with two of his subordinates to look at a Danish case study. According to this research, it turns out that the welfare magnet theory is much more than a theory (Kleven et al., 2019). The authors go as far as stating that this is the first real piece of causal evidence on the welfare magnet theory.

After sifting through this evidence, I still maintain some skepticism because there are multiple factors that induce migration. Let's use the United States as an example. The Congressional Research Service, a nonpartisan public policy research institute of Congress, found that major factors of Central American migration include poverty, natural disasters, political persecution, and gang violence. At best, I would say the recent NBER study would hold for Denmark only, and that it is a single case study.

I personally don't hold any stake into the veracity of the theory. I recognize that it has political implications for immigration policy throughout the Western world regardless. It could be used by anti-immigration movements to restrict migration flows. As I have brought up in the past, immigration is a net benefit for the host country, even when it comes to low-skilled immigrants. If the welfare magnet theory ends up being true, I would find it more of an indictment of the welfare state and provide an argument that we should scale back the welfare sate. After all, the famous economist Milton Friedman found the welfare state to be incompatible with open borders because of limited resources. At the same time, Friedman was against having a welfare state in the first place.

Plus, it is worth noting that the welfare magnet theory is not the same as the fiscal burden hypothesis, which states that migrants pose a net fiscal burden on the native population. Evidence shows that immigrants, especially low-skilled immigrants, do not cause a fiscal burden (see here, here, and here). If you're worried about welfare usage, look no further than Cato Institute research from 2018, which found that natives are more likely to use welfare benefits than immigrants.

Getting back on topic, the welfare magnet theory should not be weaponized against immigrants. Even if the theory does turn out to be true, it is also true that low-skilled immigrants are a net benefit to this country. If people are worried about draining the welfare system, perhaps they should ask how it got so big in the first place and what could be done to shrink it so insolvency doesn't swallow us whole.