Welfare magnet hypothesis

The welfare magnet hypothesis is a hypothesis about the effect that the existence of the welfare state, and the magnitude of welfare benefits, has on the quantity and quality of migration flows. The two parts of the hypothesis are:

  • More generous welfare provisions tend to attract potential migrants.
  • The existence of generous welfare provisions is more likely to attract migrants who are more likely to use such provisions. This generally means migrants who are low-skilled and have low earning potential. This is particularly true for means-tested welfare benefits. It may also be true of other benefits, because for people with greater earning power, the relative allure of a welfare benefit is lower. Further, insofar as larger welfare states typically require more taxes, this also creates a disincentive for people at higher skill levels to migrate.

Although the welfare magnet hypothesis is, in and of itself, simply a factual claim, it is often a part of the reasoning used by people who raise the welfare state/fiscal burden objection to more liberal migration policies. It should be distinguished from the fiscal burden hypothesis, which claims that migration (of certain types) imposes a net fiscal burden on the immigrant-receiving countries. The welfare magnet hypothesis is a hypothesis about the effect that the country’s fiscal policy has on its migration outcome, whereas the fiscal burden hypothesis is a hypothesis about the effect that the country’s migration policy and migration outcome has on its fiscal outcome.

Although the welfare magnet hypothesis per se is only about consequences, the discussion of this hypothesis often carries normative connotations. In particular, the welfare magnet hypothesis may be associated with the view that immigrants are low on virtue, or have poor moral character, because they come to leech off the welfare state. The hypothesis, however, need not be viewed that way, any more than the fact that higher tax rates disincentivize people from earning large amounts should be viewed as evidence that people are low on virtue on account of being selfish. Of course, the welfare magnet hypothesis could interact with views about the morality of immigrants, but it does not per se posit that immigrants are different in virtue from natives. However, some versions or formulations of the hypothesis might make claims of this sort.

Considerations of how immigrants might differ from natives

  • In the direction of natives taking welfare differentials into account to a greater extent: Natives are more familiar with the system, and therefore more likely to be aware of strategies to optimize within the system.
  • In the direction of migrants taking welfare differentials into account to a greater extent: Borjas (1999) argues that, on theoretical grounds, one should expect that the welfare magnet effect in choosing a state to settle in would be greater for migrants who are newly arriving in the United States than it would be for people who are already residing in the United States, because newly arriving migrants have already decided to incur the fixed costs of moving, whereas those already residing need the welfare differential between states to be sufficiently high to make it worthwhile to incur these fixed costs. Here is how Borjas puts it:

    The intuition underlying the hypothesis developed in this article is easy to explain. Persons born in the United States and living in a particular state often find it difficult (i.e., expensive) to move across states. Suppose that migration costs are, for the most part, fixed costs—and that these fixed costs are relatively high. The existing differences in welfare benefits across states, therefore, may not motivate large numbers of natives to move because the interstate benefit differentials might be swamped by the migration costs. In contrast, immigrants arriving in the United States are a self-selected sample of persons who have chosen to bear the fixed costs of the geographic move. Suppose that once the costs of moving to the United States are incurred, it costs little to choose one particular state over another. The sample of newly arrived immigrants will then tend to
    live in the “right” state.

    Relevant literature

    Paper title Author(s) Year of publication Publication details Country or region studied
    Welfare and the Locational Choices of New Immigrants Madeline Zavodny 1997 availabone line United States (inter-state comparison, discussion of 1996 changes to immigration policy and welfare policy)
    Immigration and Welfare Magnets George Borjas 1999 Journal of Labor Economics, Vol. 17, No. 4, pp. 607-637, JSTOR link United States (inter-state comparison)
    Welfare Magnet Hypothesis, Fiscal Burden, and Immigrant Skill Selectivity Assaf Razin, Jackline Wahba 2011 NBER working paper 17515, available online European Union (inter-country comparison)
    New Immigrants’ Location Choices: Magnets without Welfare Neeraj Kaushal 2005 Journal of Labor Economics, Vol. 23, No. 1, available online United States (inter-state comparison)
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