19/2010 Sanjay Jain, Sumon Majumdar and Sharun W. Mukand

This paper examines the role of cultural factors in driving the politics, size and nature (temporary versus permanent migration) of migration policy. We show that there exists a broad political failure that results in inefficiently high barriers restricting the import of temporary foreign workers and also admitting an inefficiently large number of permanent migrants. Strikingly, we show that countries that are poor at cultural assimilation are better positioned to take advantage of temporary foreign worker programs than more culturally diverse and tolerant countries. Furthermore, relaxing restrictions in the mobility of migrant workers across employers has the potential to raise host country welfare even though it increases migrant wages and lowers individual firms' profits. We also demonstrate the existence of multiple equilibria: some countries have mostly temporary migration programs and see a low degree of cultural assimilation by migrants, while other countries rely more on permanent migrants and see much more assimilation.

Culture and Development