The immigration economy: interview with Carlo Devillanova

The immigration economy: interview with Carlo Devillanova

Carlo Devillanova graduated in Economics and Social Sciences at Bocconi University, then obtained his Master’s degree and completed his doctorate at Pompeu Fabra University in Barcelona.
After a period as assistant at Pompeu Fabra University and the University of Trieste, in 2002, Carlo Devillanova became Professor of Economics at Bocconi University.
Among the many working collaborations, his work at Cream, the Centre for Research and Analysis of Migration located in the Department of Economics at University College London, is of particular interest.
His research includes: labour economics, public economics and migration economics.
Carlo Devillanova is currently working on issues related to the assimilation of immigrants in the host country, in particular: assimilation of welfare, assimilation of the labor market, barriers to access and spatial segregation.

1 – Taking into account the current pension system, the labour market and the unemployment rate, is there room for the economic integration of migrants in Italy?

There are two aspects that I would like to distinguish: the pension system and the labor market, and consequently also the unemployment rate.

As far as the pension system is concerned, it is a topic that has been addressed for several years now, both by the major Italian and international institutions, and in the academic field. The Italian pension system is a distribution system, where the working generation pays the contributions that are immediately used to finance the pension benefits provided. So, there’s a direct transfer between those who work and those who are retired.
A higher number of immigrants or people who contribute to the pension system feeds the system itself. Among other things, given the minimum contribution constraints and the fact that pension portability is ensured only by bilateral agreements between countries, then many immigrants who are now contributing to the pension system will probably not benefit from it. In practice, the portability of pensions in one’s country depends on bilateral agreements that Italy has historically signed with the countries to which Italians emigrated in the past, South America in particular. Therefore, unless these people stay in Italy after their employment, they will not have the opportunity to redeem their contributions, therefore this is an additional net gain for the pension system.

In Italy we are paying for this historical period, in which the individuals of the Baby Boom generation are approaching retirement. In fact, from the mid-50s to the mid-60s, there was an impressive increase in birth rates. This increase in the population, which has passed in the late 1960s, will gradually reach retirement age and will be a relatively large mass of people who, however, do not have the support of new generations who pay contributions for them. Immigration, in this sense, could produce the contributory basis for the pensions of this generation. Anything that increases the contribution base, or because immigrants pay contributions and therefore work in the official and non-submerged economy, or because young Italians find more or better jobs and therefore pay more contributions, increases the sustainability of the pension system. The consequences of this demographic shock starting to show up now, but in reality, they will be clearer in a few years.

Increasing the workforce certainly has a positive effect; in this regard, I recall several speeches by the current president of the INPS (National Social Security Institute), but even before the Governor of the Bank of Italy, who stressed the importance of introducing immigrants into the official labor market as a method to facilitate the financial sustainability of the pension system. So, the answer in this sense is certainly yes, there is room for economic integration.

On the other hand, as far as labor market integration is concerned, I am forced to give a slightly more articulated answer. A country is not a fixed number of jobs that must be shared among a certain number of workers. In fact, a country can create new jobs; in particular, the arrival of a workforce can attract investment and create businesses. So, once again, the answer is yes, there is room for new migrants.
Italy, for demographic reasons, is a country that is declining very much in terms of working age population, so there is certainly theoretical space for immigrants. However, there is a need to create demand through policies that are not limited to increasing supply, but which facilitate the placement of workers, the opening of new businesses and investment in entrepreneurial activity.

2 – And this brings us to the second question … Is it true that they steal our jobs?

Here there are at least 30-40 years of highly polarized economic literature on what the effect of immigration is on the labor market. In this regard, it is interesting that an article published in 2016 by an important economics magazine titles: “Why do studies on the effects of immigration on the labor market differ so much?”.

Basically the answer is that: on average, the arrival of immigrants has a positive effect on the work outcomes of the natives, because this creates complementarities whereby the integration of a new workforce creates wealth in a country. This wealth benefits certain types of work and various productive factors, especially land or property prices.

However, there are some categories of workers particularly exposed to the competition of immigrants, and typically they are the least skilled workers: agriculture, industry, construction, services, etc. … This is because immigrants, especially in Italy, tend to be concentrated in low-skilled sectors, so the supply strongly increases, and this depresses wages and creates unemployment, obviously in these limited sectors. If the same number of immigrants could be distributed over the whole range of skills, the effect would probably be slightly positive, certainly not negative.

Literature on the effects of immigration on the labor market has developed mainly in the United States, where, on average, immigrants have lower levels of education than Americans. For Italy this is not true, many graduates arrive, the problem is that once they enter the labor market they low-skilled jobs. This means that immigration is substantially beneficial, because it is highly qualified, which then clogs individual segments of the low-skilled labor market, where competition with Italians becomes unsustainable.

3 – So what happens when the migrants arrive in Italy, do they deal with generally low-skilled jobs having lower wages? Do the salaries of italians also drop?

The literature on this subject is still open, but basically it is so. If immigrants arrive and enter a few individual sectors, generally low-skilled sectors, then wages in these sectors fall. However, the reason lies in the question, in fact, it is precisely because these people clog specific sectors that this problem arises. If we could integrate immigrants according to their qualifications, i.e. by making the architect work as an architect, the engineer as an engineer, the chemist as a chemist, etc… we would remove oppression from the low-skilled sectors and the labor market would be enriched.

The economy of a country is not something static, there are no fixed jobs and people fighting for these jobs, the latter can be created if virtuous processes are triggered.
The least form of integration is to have irregular immigration, which we do not even see in the statistics. Personally I have worked a lot with the data of irregular immigrants, especially for the city of Milan, and on average the employment rates are quite high. So being in Italy without being integrated neither in the labor market, nor in society, but even being irregular, does not mean acting without pressing on the labor market. On the contrary, being particularly blackmailed, immigrants cannot claim any social right, any political right, and they basically do not exist. In fact, these people have less bargaining power, so they accept worse working conditions, probably even lower wages, negatively affecting the labor market.

Finally, although the literature on the effects of immigration on the labor market is uncertain about the results, what is certain is that a positive integration into the labor market, therefore regular, reduces any negative effects.

4 – In this regard, how can it be economically advantageous to integrate migrants, and how can it not be?

The integration of migrants, but more generally of people, always has an economic advantage. Being able to integrate any person, especially migrants, means increasing their integration in economic terms, therefore the wages they earn, the taxes they pay, the lower subsidies they receive in case they are entitled to these benefits, etc. …
Instead, the forms of partial integration or marginalization can be dangerous, both for the possibility of reducing the social cohesion of a country, and for the possibility of creating opposition from Italians towards migrants, but also for the possibility of contestation by migrants towards the institutions of the host country.

Italy has the great advantage of being able to look at the experience of other countries with an older immigration tradition (United States, France, etc..), especially those countries that have not succeeded in integrating immigrants and that now have to deal with very significant problems in terms of ethnic minorities, saturated social services or suffering labor market.
Therefore, there is a need for intelligent and comprehensive integration, which in my opinion is economically, socially and culturally advantageous, however it may not be so when partial integration occurs.

5 – Do we need migrants?

There are too many of us in the world, about 8 billion people, and in Italy we complain about the fact that few children are born, so in our country we are getting older. This has enormous consequences from all points of view: the depopulation of cities, the price of housing decreasing, the price of assets decreasing, cultural innovation decreasing; an aging country is a problematic one.
There are a good number of people who propose policies to stimulate the birth rate, someone who opposes immigration and there is a world where we are too many.

A redistribution of the world population could be useful, even if the question: “Do we need migrants?” seems rather provocative to me. This redistribution has been repeated in many experiences, especially in Spain, to repopulate the mountain municipalities that were dying, but also in Russia when the capital was moved from Moscow to St. Petersburg.

A few years ago I met Mimmo Lucano, the mayor of Riace, and he told me how his country was reborn thanks to immigrants. But Riace was not reborn simply because the immigrants moved there, but because the baker started selling them bread and the carpenter started fixing their houses.
Cities like Genoa, which are experiencing a chronic aging of the population, need a demographic influx characterized by young people and working-age population, which could be good for the economy as a whole.

I would like to add another element which is perceived as secondary by the majority of people, but which is certainly not trivial. Immigration in Italy, as I said, is mainly made up of immigrants who are, on average, very well educated. This means bringing people to Italy that it was expensive to train, both for the family and for the state of origin. So, we have the opportunity to do free-riding on countries, even poorer ones, that are training people that we could include. The United States made its wealth out of this mechanism, as well as having reformed its university system on graduates, including Italians, who moved to their home country in the 1930s and beyond.
Despite this, Italy is losing its attractiveness towards graduate immigrants, while a few years ago people with very high educational levels were arriving, now they are gradually decreasing. Meanwhile, graduates migrating to countries such as the United States and Canada are constantly increasing.

Maybe I have a somewhat catastrophic vision, but choosing whether or not to have immigrants in a given country is not a variable of choice. Human migration is such a great phenomenon that we simply have to take it as a fact; you cannot close a border.
However, we can decide how to manage these flows, in fact if I decide that officially no one can enter Italy legally, the number of legal immigrants in Italy would be reduced to zero by law. This does not mean that immigration to Italy would be nullified, but it does mean that irregular immigration would increase at the expense of regular immigration. So, the question is not whether to isolate oneself from the rest of the world or not, also because even the United States, which has a relatively easy border to control and an extremely efficient army, is unable to stop immigration. Then you can politically pretend that immigration can be stopped, but it’s really a fiction.

6 – Positive and negative effects of immigrants on taxation?

I have made quite accurate studies on taxation, but now they are too old.
I took a picture of everything that immigrants pay in taxes, fees, etc… and everything they receive in various types of public transfers. In short, immigrants make a rather high contribution to general taxation.

Most of the social expenses are concentrated in the early years of an individual’s life, in the period of care and education, then again in old age, due to health care costs and pensions. Immigrants, on the other hand, in this historical period, are concentrated in the working age group, so they have few social costs and relatively higher taxes. Consequently, from a public finance point of view, they are making a rather positive contribution.

However, this is a static response; in fact, as time goes by, when the immigrants who have arrived now will start to age, then the care and education costs for their children will increase, as well as their health and pension expenses, so the picture may change, but today they have a very positive contribution on taxation.

7 – Why, from an economic point of view, do urban ghettoisation dynamics develop on an ethnic basis?

There are human processes of empathy towards the similar and aversion towards the different. This means that people tend to tolerate only a small percentage of minority groups in their neighborhood or area of reference, beyond which an opposition arises. The opposition manifests itself in an aversion expressed through the voting mechanism, or through the change of residence, which is a study that I am conducting on the city of Milan.

The tendency to move from certain areas to others leads to the creation of relatively homogeneous areas, this also has an economic aspect: house prices. If these processes change house prices, then ethnic segregation mechanisms exist to the extent that the ethnic basis coincides with the economic one. Therefore, immigrants, who are relatively poorer, will be gradually expelled from the richer neighborhoods and vice versa, so that at the end of the process a more segregated urban geography is presented. Some authors underline the positive aspects of having these forms of segregation, because they are facilitated in linguistic exchanges, or in social aid. Instead, many other authors emphasize how forms of ghettoization increase opposition to immigration and reduce the possibility of social mobility.

Regardless of economic considerations, if I prefer to have an Italian neighbor, while the number of non-Italians increases in my neighborhood, I will tend to feel worse, until I move. It is a process that leads to segregation on a cultural basis, which then corresponds to economic segregation.

8 – What are the mechanisms (economic / social / urban planning) that can reverse this trend?

Certainly the contact between people facilitates the economic, cultural, and linguistic integration. We could start from the immigrants whose location we can decide, for example the asylum seekers. Instead of concentrating immigrants in certain centers where they have excessive visibility in people’s perception, they could be distributed in vacant private homes, or where there is the possibility of hosting them. This would increase the possibility of contact and contamination.
What was done by the United States during Nazism and Fascism, what was done in the immediate post-war period with the reception of refugees from the Second World War, what was done in the 50s and 60s in Italy with the distribution of southerners in the North, suggests that the problem, probably, is the lack of an idea of a state without strong divisions, and not the immigration itself.

Having said that, if it is true that in Italy the problem is the decrease of the population and therefore an emptying of the cities, there will be no need to build new houses or new infrastructures, but one could take advantage of the current situation to calm down the possible drop in prices. Cities like Milan and Turin will resist, but there are countries in Southern Italy that are completely emptying out.

As far as political infrastructures are concerned, in my opinion, integration processes should be speeded up, such as giving immigrants the opportunity to vote, and thus faster ways of acquiring citizenship. This operation would reduce the political convenience of identifying immigrants as the target of all problems, because they would become a basin to be attracted politically and this could balance the powers on the field.

9 – Following the analyses carried out, which infrastructures are needed for an Active Integration from an economic point of view?

Perhaps because I’ve studied the subject a lot, or perhaps because I am so temperamentally, I don’t think there are simple solutions, especially if the problem is complex.

The only thing I know for sure is that any attempt to close is unrealistic, so we must act intelligently in every single sector, from urban planning to the economy. Immigration must be integrated in a virtuous way, without creating opposition, which today translate into contrasts between Italians and immigrants, but tomorrow there will be tensions between Italians and Italians made up of an ethnic minority.

My answer is that I can’t answer, but I reserve the right to respond for the sectors I know, focusing particularly on specific problems. We need to roll up our sleeves and solve problems from time to time, creating oppositions between groups of people is the most dangerous road.

I would turn the prospect upside down. What is the role of the State? What is currently failing in its function as general planner? From this point of view, immigration becomes a phenomenon but also a symptom of our failures in managing situations.

Translated into English by Marco Grattarola.

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Marco Grattarola AdministratorKeymaster
He graduated in Architecture Sciences at the Polytechnic School of Genoa with a thesis on “Active Architecture”. He did two internships, in an art gallery and in an architecture studio. He currently attends the Master at the Polytechnic of Milan. His interests range from music to drawing, in which he experiments with curiosity and passion.
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