Migration into Europe: A problem with no solution

Sometimes seeing things, even when one is prepared for them, is helpful in focusing the mind. A couple of nights ago, as I got out of a bus that takes passengers from the Malpensa airport in Milan to the Central Railroad Station, I was struck by the number of people, obviously African migrants, camping in the piazza in front of the railroad station. It is not the first time that I have seen migrants en masse in Italy, but never have I seen entire families cooking and eating meals, while sitting on the lawn (or what remains of the lawn), in a large city park.   

One needs just to look at the newspaper headings to see that the problem of migrants is growing daily in Europe and that its gravity is greater than before. The number of migrants this year has already exceeded 100,000 (about 15% higher than the last, record, year);  the number of the dead has reached at least several thousand although the statistics are murky since no one has incentive to compile them. People just die in desert or sea and no one cares. Practically every European country thinks about either deporting the migrants, making the asylum laws more difficult, or simply shutting the borders: from France that under Sarkozy deported European (sic!) Roma, to Hungary that threatens to shut its southern border to Serbia, and to Bulgaria that, at the EU urging, has built a wall against Turkey. 

For now, Italian border police, together with the Austrian police, patrols its Northern border so as not to allow migrants to cross into Austria. This may not last though. According to the EU internal rules, the country where migrants first come is supposed to deal with them, giving them a temporary authorization to stay or political asylum. But many migrants wish to go North, to Germany and Scandinavia where they have relatives and better prospects of finding a job. The Italian PM Matteo Renzi has threatened to simply issue them Schengen visas so that they can go whenever in Europe they wish. Italy wants to be rid of them and is tired of having to deal with the problem (as they see it) alone, with little help from the North. Every country in Europe is willing, at most, to be the transit point for the migrants; none is willing to be the point of settlement. Thus everybody tries to pass the hot potato of migrants to its neighbor. The only way to make sure you will not have to accept the hot potato is to build a wall as Bulgaria has done and Hungary plans to. No walls have yet been planned or erected within EU members states but that too cannot be excluded.

And it is a delicious irony of history that the countries that complained the most about the existence of border fences and walls and vowed to bring them down forever are now busily constructing them. 

Perhaps it might seem odd to an impartial observer that rich Europe of more than 1/2 billion people is unable to cope with one hundred thousand migrants and refugees while much poorer Turkey has accepted 1.7 million refugees from Syria and Pakistan and Iran have accepted several hundred thousand from respectively Afghanistan and Iraq. The difference is that the African and Middle Eastern migrants who come to Europe have often no relatives, friends or even the vague possibility of a job. They are left to fend for themselves, living on public or private charity, and small, often illegal, trade. They are culturally, religiously and linguistically more different from the average Italian or Spaniard than are Syrian refugees from the Turks (or more to the point, Syrian Kurds from the Turkish Kurds). Thus the refugees and migrants remain totally unintegrated.

Now several things are clear. First, the migration wave, even if the Europeans manage to control it this Summer (which is far from obvious), reflects more deeply seated and permanent factors that are unlikely to abate any time soon. These factors are political chaos in the Middle East, and more importantly, the extraordinarily huge income gaps between Europe and Africa. With globalization, the knowledge of these gaps as well as the practical means to bridge them by migrating to a rich country, are more known and affordable than ever. These trends look even more unmanageable for Europe when one takes a longer-term view and realizes that sub-Saharan African population which is currently only slightly greater than that of all of Europe is expected to be almost six  times greater by 2100. Thus, economic migration will, if anything, increase.

Second,  European difficulty in absorbing the migrants  is not only due to cultural or religious differences but also (unlike the US, Canada, Australia) to the lack of history of being a land of immigration. Although some countries have received political refugees in large numbers (examples of France receiving refuges from the Spanish civil war, or more recently many EU countries accepting refugees from Bosnia, come to mind), Europe has generally been an emigrant  continent, from the Hebrides and Ireland in the North to Sicily and Greece in the South. Furthermore, lack of economic growth, sluggish domestic employment numbers and high unemployment rates in Southern Europe make availability of real, however modest, jobs for the migrants low.

Third, European Union has in the past several years committed a number of political blunders that have aggravated the crisis and created instability on its borders. The mistakes  include the mindless overthrow of Ghaddafi whose regime was replaced by feuding tribes and Hobbesian chaos leading to the absence of any control over Libyan borders, both in the South and the North. Then, the equally mindless ultimatum to the previous Ukrainian government (namely, German insistence that the condition for the signing of the trade agreement be the release of Yulia Timoshenko from prison and her medical treatment in Germany); this has led to the overthrow of the Yanukovych government, Russian intervention in Ukraine, and the civil war. And finally, the current impasse over Greece which threatens to create chaos not only on the borders of the Union but within itself. The EU thus needs to think long and hard whether it is in the process of transforming itself, through a combination of arrogance and incompetence, from a source of stability to an exporter of political and economic chaos.  

Fourth, the situation with migration as it is currently, increases the influence only of the right-wing, often xenophobic, parties. Even when do not participate in government their ideas and agenda are taken over by the center-right or  centrist parties, as it happened in France, the Netherlands, Denmark and Sweden. Gradually, the entire political spectrum gets "infected": anti-immigrant policies become mainstream.   

Fifth, it is I think obvious that EU has absolutely no solution to this latest migration crisis. It is simply lost: with no strategy, no policy and no ideas. Not that the problem is easy. But the only approach that might begin to produce something that resembles a solution would be multilateral, not solely amongst EU members (as in the current, strongly contested, idea of allocating migrants among EU member-countries), but in including also the emitting countries from Africa. A general system of both emitting and receiving country quotas seems the only way to impose some order and stability. The quota system may not be able to deal with random events like the Syrian civil war, but it should be able to deal with economic migration. With an orderly quota system, a person from Mali who is considering migrating to France, may prefer to wait several years and get an official permission to settle there rather than to pay a smuggler now for a uncertainly entry into France. 

But such a multilateral approach would require (i) a huge amount of coordination and goodwill amongst both European countries themselves and between them and African countries, and (ii) European recognition than in the next 50 to 100 years they have to accept a strong influx of African populations simply because demography and economic gaps are dictating it. Unfortunately, neither of these two conditions is close to being satisfied. So the problem, among permanent political improvisation, will continue to worsen.

Why I am still not excited by the Palma index

Those who follow inequality studies and debates might remember that about a year ago there  was a fierce attack on “the tyranny of the Gini coefficient” from the proponents of a new index of inequality named after the Cambridge professor Gabriel Palma.  Alex Cobham and Andy Sumner (both my good friends and among the top researchers in development and inequality) argue that Gini lacks an intuitive meaning (which is true) and that the Palma index which shows the ratio between the share of income received by the top 10% of recipients and the share of income received by the bottom 40% is much more intuitive, more sensitive to the changes, and should be used in the UN’s Millennium Development Goals to monitor changes in inequality.

Let me define the logic of Palma. It has been observed throughout the years, and codified by Gabriel Palma, that the “middle five deciles” (which I will call “the central deciles”) in most countries get about the same share of total income. (I have noticed that regularity here; see Table 6 on page 29). Thus almost any inequality change, if we look at what happens in a single country over time, or any inequality difference, if we compare various countries, must be due to the high (low) share of the top decile vs. correspondingly low (high) share of the bottom deciles. Nothing will be changed among the central deciles. Now, which are the central  deciles? 

Not what you might expect: the deciles around the median and slightly below and above it.  To find which are the central deciles, we have to recall the rationale of the Palma approach: find the parts of the income distribution such that that their  shares will be constant regardless of what happens elsewhere in the distribution. Once we have identified such “central deciles” we can just drop them from the picture and represent income inequality by some measure of what happens among other parts of the income distribution. The first part of the Palma approach consists in “gutting out” or ignoring one part of the distribution.

Now, income distributions are skewed to the right which means  that the right-end tail is longer than the left-end tail (there are many rich people but there are no people who can live on zero income or consumption). Skewness to the right implies  that the mean is greater than the median. Normally, the mean in empirical income distributions is  found in the 7^th decile. Thus, unless something really radical happens, real income of the 7^th decile will increase at the same rate as the mean income of a country—which precisely means that its share will be fixed. Similarly to it will also rise incomes of the deciles around the 7^th decile, the two above (8^th and 9^th) and the two below (5^th and 6^th). Therefore, these five deciles together should, approximately, take one-half of total income, regardless of what happens elsewhere in the distribution, and we can just drop them from the rest of the investigation. 

And indeed Palma and people following him find that, across countries, these five central deciles take about one-half of total income. The Palma measure of inequality is then defined simply as

Figure below shows the range of the Palma (calculated from my World Income distribution WYD-2008 data, the same as used by Alice Krozer; see below).  The mean Palma is just below 2, the maximum value (for South Africa) is 10, while 14 countries have vales below 1 (the minimum being Slovenia with a Palma of 0.8). Gini mean is 0.38; median 0.36.

The next figure shows the empirical relationship between Palma  and Gini. As can be seen, Palma is convex with respect to Gini. It is much more “elastic” at high values of the Gini, that is, the increase in Palma for a given change in Gini is much greater at high values of Gini. If one wishes, one can even establish a strong empirical relationship between the two with R² reaching 0.97. (I am not sure though what would be the value of such a relationship.) 

In  a recent paper, Alive Krozer notices on the same dataset that I used here that the stability in the income shares extends further and goes over to the 19^th ventile, that is to the lower half of the top decile. Thus, she decides to drop these five percent of the population  too, and redefines Palma, calling it Palma v.2, as follows:

She then goes even further and defines Palma v. 3, by putting the share of the top percentile only in the numerator since we know that most of the recent increase in inequality in rich countries was driven by its rising share. Thus, not only are the five “central deciles” left out, plus the percentiles 91-95, but also the percentiles  96-99. At that point, Krozer seems to realize that the things have gone too far and rightly decides to ignores Palma version 3.

Her paper is valuable in a way which I think was not part of her original intention. The paper shows a rather thin basis on which the Palma is constructed.  Palma’s logic is, as we have seen, to find parts of the distribution that, in terms of their shares,  do not change regardless of the changes elsewhere, and to build a measure of inequality around these immovable parts.  But these immobile chunks are no more immobile than Pareto’s top shares were. What is immobile may change between the countries, or across time. We see this it in Krozer’s own paper:  there is no superior argument to assume that only the “central five deciles”  are constant than to assume that “the central 55 percentiles” are constant. 

With Palma we are thus building a general measure of inequality on the quicksand of what seems today more or less an empirical regularity.  (Note that even when the regularity holds the five central deciles do not take exactly 50% of total income, but approximately 50%.) 

But if  the distribution changes and the middle loses while the bottom gains, and it turns out, for examples, that the deciles’ 4-7 shares are suddenly fixed, should we change our measure of inequality to look at the ratio between the top three deciles and the bottom three? Or if growth of incomes is concentrated in the top 1% or the top 5%, should be again redefine the Palma formula as Krozer has done? An infinite number of such permutations is possible, and an endless dispute will open up regarding what deciles’ shares are fixed and what not. The virtue of Krozer’s paper, despite what I think was her original intention,  is to highlight the fragility of the empirical nature of the index and thus its basic arbitrariness. 

This is, in my opinion, a big and insoluble problem, separate from other methodological problems that have already been raised with respect to Palma: insensitivity to transfers within each of its “chunks” (bottom 40%, central 50% and top 10%) which is indeed a big factor that should disqualify any inequality measure. Namely, if there are either progressive or regressive transfers within such “chunks”,  Palma does not change. (Another problem is that its decomposition properties—what is the Palma of two distributions whose Palmas and mean incomes are known—cannot, I think, be determined in general.)

In conclusion, using Palma, among other indexes  of inequality, may be useful. But believing, like Pareto, that there is some fundamental immutability that has been revealed by the measure, and that we can dispense with other measures, is plain wrong.