Academic Introduction Summary – Gilles Saint-Paul
Since 1995, Europe has stopped closing the gap with the U.S. Growth has been faster in America as it reaped the benefits of full employment and new information technologies. Europe is worried about its aging population, its ability to adapt to technical change, the burden of its welfare state and the pains of labor market deregulation. Among the worries is the fear that it might be losing its most talented workers to the United States. Stories about successful expatriates in the Silicon Valley or at top academic places abound. Many European politicians and businessmen now complain that they cannot compete because of taxes and regulations in order to attract the best workers. This paper provides some evidence about the brain drain from Europe to the US. It uses US census data for 1990 and 2000 to measure the characteristics of European xpatriates and see how they fare in the US labor market.
The data confirm the presumption that the skill composition of expatriates is much better than in the source countries. The quantitative significance of that, however, is open to debate, as the total number of expatriates ranges between 0.5 and 1 % of the population. If one takes the view that labor is a small number of homogeneous inputs, such as skilled labor and unskilled labor, then our back-of-the envelope computations suggests a moderate adverse effect of the brain drain on inequality and income in home countries, with say a 2-3 % increase in the relative wage of the skilled and a 0.5-0.7 % decline in GDP per capita. On the other hand, if one assumes that labor is not a collection of homogeneous inputs, but instead that very talented individuals are crucial for innovation, business formation, and management, the loss could be considerably bigger, but it is much harder to estimate (An interesting first step is Zucker et al. (2003)). My speculative extrapolations suggest that the proportion of European people who "matter", who are in the U.S. could be as high as 50 %; that is huge and can in principle have dramatic consequences on Europe's growth potential--while such a number can be disputed, casual observation suggests that in my field (research in economics), it is about right.