IZA DP No. 9542: Ability Drain
published in: Journal of Population Economics, 2017, [online first], doi: 10.1007/s00148-017-0644-1
Is ability drain (AD) economically significant? That immigrants or their children founded over 40% of the Fortune 500 US companies suggests it is. Moreover, brain drain (BD) induces a brain gain (BG). This cannot occur with ability. Nonetheless, while BD has been studied extensively, AD drain has not. I examine migration's impact on ability (a), education (h), and productive human capital or 'skill' (s) – which includes both a and h – for source country residents and migrants, under the points system (PS), 'vetting' system (VS), which accounts for s (e.g., US H1-B visa), and 'new' points system (NS), which combines PS and VS (e.g., Canada, 2015+). I find that i) Migration reduces (raises) source country residents' (migrants') average ability and has an ambiguous (positive) impact on their average education and skill, with a net skill drain more likely than a net BD; ii) AD is greater than BD; iii) the effects increase with ability's inequality or variance V(a); iv) the policies in turn raise V(a), V(h) and V(s), with V(a) > V(h); v) effects in i) - iv) are larger under VS than PS; vi) residents' (migrants') consumption is lower (higher) under either policy than under a closed economy; vii) consumption falls with ability's inequality; viii) contrary to the situation with education and skill, consumption inequality is lower under VS than PS; viii) ability, education and skill (consumption) under NS are identical (is larger than) the combined values under PS and VS. Orders of magnitude, empirical research plans, and policy implications are provided.