Brain drain, also known as human capital flight, is the process by which highly educated and skilled workers in an economy leave their home country to find better opportunities elsewhere. This can be motivated by a variety of push and pull factors such as better paying jobs or escaping persecution.
What are the causes of a Brain Drain?
Workers may choose to leave their home country to seek better job opportunities elsewhere. In general, skilled professions in advanced economies are much better paid than in developing economies. For example, the average salary for engineers in Brazil is around £33,500 annually whereas in the UK the average salary for engineers is around £48,000.
In addition, advanced economies may have better public services, such as healthcare and education which makes living standards better, as well as lower corruption and crime. Also, many international university students can also choose to stay in the country where they received their qualifications to find employment there.
Some people may leave their home country to escape from violence or natural disasters and seek safety elsewhere. Others may seek to escape political turmoil[i] in their home country.
Why are Brain Drains so damaging to the source nation?
A brain drain sees an economy’s most productive and skilled workers emigrate out. These workers are typically much higher paid thus the source country loses a lot of consumer spending. This means businesses make less revenue and could lead to a fall in the derived demand for labour causing unemployment. Consequently, a negative multiplier effect[ii] may ensue. Firms may go out of business due to a lack of demand. Unemployment will cause average incomes to fall, lowering material living standards for consumers. Government tax revenue shrinks while expenditure rises which can lead to budget deficit and the threat of austerity[iii].
However, emigrants[iv] often send remittances[v] back home to their families which could maintain consumer spending and avoid the negative multiplier effect.
Less government tax revenue could stunt economic growth as the government has less money to invest in the private sector and create jobs. A fall in government spending can lead to public sector cuts which lower the quality of public services and living standards and may cause unemployment.
Workers leaving can lead to a shortage of skilled workers such as doctors. This will lower output and productivity for firms, making them less price competitive, which may cause prices to rise. Thus, consumers have less purchasing power and lower material living standards. Public services may see a severe reduction in quality if the supply of workers diminishes. For example, the loss of nurses and doctors will see longer waiting lists for healthcare services and less availability of treatment. This could damage productivity as workers may spend more time unwell as well as reduce life expectancy in the country.
Brain drains can be a particular problem for developing economies as losing skilled workers may lead to them being trapped in the developing stage for a long period of time.
What is an example of a country damaged by a Brain Drain?
Since the 1979 revolution in Iran, there has been a steady exodus of skilled workers and intellectuals seeking a better life elsewhere. The World Bank estimates that this departure costs the Iranian economy $50 billion a year. To put that into perspective, Iran’s nominal GDP was estimated to be worth around $360 billion in 2021. Particularly prone to emigrating from Iran were healthcare workers. A lack of qualified nurses and doctors may have been responsible for high mortality rates during the Covid-19 Pandemic with an estimated 144,993 deaths in Iran according to the World Health Organization.
What are the benefits of a Brain Drain on the host country?
The host country will receive an influx of skilled workers. Critical skills shortages can be filled in many industries which helps firms be productive and allows public services to meet demand. Having a more abundant supply of workers keeps wage rates lower, which reduces a firm’s costs, allowing them to be more price competitive and make more profits.
Furthermore, an influx of skilled workers can lead to an economic stimulus. These workers often earn higher incomes and may need to buy many things such as new cars and kitchen appliances to get settled in. As a result of the increased demand, firms can make more profits and have the means and motive to expand which can lead to a positive multiplier effect. Firms expanding will lead to higher derived demand for labour causing unemployment to fall and average incomes to rise. The government will receive a fiscal dividend with more tax revenue and less expenditure. The extra income can be used to lower the budget deficit and invest in public services or infrastructure to boost economic growth and improve living standards.
Moreover, workers moving into the host country are often young, which helps balance out the ageing population seen in many advanced countries and may also increase the birth rate. This helps keep the population structure stable, reducing the burden on the government to keep the older population well cared for.
Footnotes:
[i] Political turmoil - a state of confusion, uncertainty, or disorder as a result of political movements or power.
[ii] Negative multiplier effect - when an initial withdrawal of spending from the economy leads to knock-on effects and a bigger final fall in real GDP.
[iii] Austerity - difficult economic conditions created by government measures to reduce public expenditure.
[iv] Emigrant - a person who leaves their own country in order to settle permanently in another.
[v] Remittance - a sum of money sent in payment or as a gift.
Bibliography:
Investopedia – Brain Drain: Definition, Causes, Effects and Examples
