Is International Labour Mobility a Threat to the Welfare State? Evidence from Finland in the 1990s

Abstract

This paper assesses the factors behind Finnish emigration and return migration in the 1990s. Logit-analysis using combined micro data from the labour force survey and emigration statistics in 1990-1999 reveals that, when controlling for other background characteristics, highly educated individuals are 5 times more prone to emigrate than individuals with secondary education only. There is no similar difference in the return migration propensities within individuals of different educational levels. Panel-data analysis based on country-level data on the migration destination countries of the (even highly educated) Finnish emigrants in 1990-2000 reveals, however, that migration has not been directed towards countries with low tax rates. These findings therefore suggest that while there is some evidence that the Finnish welfare state may suffer from the selection of emigration incidence on highly educated workforce, emigration has mainly been determined by other factors than potential tax competition on mobile labour.

JEL Classification: F22, H77, J61