Theoretical models about the welfare magnet hypothesis postulate that individuals make location choices based on the provision of welfare benefits in the area of destination. The welfare magnet hypothesis has been empirically tested in the context of both national and international mobility. The empirical evidence suggests that there is no strong support for the hypothesis. Additionally, in those cases where researchers have found such an effect, its importance has often tended to be limited compared with other determinants of migration.

Analysis of the Public Use Microdata Sample of the 1980 census indicates that location choices of welfare recipients are in fact influenced by state differences in the provision of benefits. Migration was affected more by interstate differences in benefits than by interstate differences in wages. The effect was stronger for certain groups, such as single mothers with small children. However, in absolute terms, the welfare magnet effect was not large: A 10% increase in welfare was associated with an increase of migration by single mothers of less than 3% [2] . On the other hand, an analysis of microdata from the National Longitudinal Survey of Youth (NLSY), for the period 1979–1992, finds essentially no evidence of welfare migration. Poor single women with children, who were likely to be eligible for AFDC, were no more likely to move to more generous welfare states than poor single women without children, who were not eligible for AFDC [3] .

Much of the empirical evidence about national mobility comes from studies that examine the relationship between welfare programs and migration between US states. These studies primarily focus on programs that provide cash benefits, such as the Aid to Families with Dependent Children (AFDC) program, but some also consider programs such as the Supplemental Nutrition Assistance Program (formerly known as “food stamps”) and Medicaid. The hypothesis investigated in these studies is whether migration is more likely to occur between states that exhibit a larger difference in their welfare provisions.

International mobility

The theoretical rationale of the welfare magnet hypothesis in the case of international migration is somewhat different than for internal mobility. Since international migrants have already borne the “fixed cost” of moving to the host country, they should be more likely than natives to cluster in states with higher benefits [4].

In the case of the US, the empirical evidence is provided by comparing the geographic location of natives and immigrants who receive AFDC, Supplemental Security Income, and general assistance. Data from the Public Use Microdata Samples of the 1980 and 1990 censuses show that welfare participation rates increased for immigrants and decreased for natives in some states (notably California and New York), while the opposite pattern was observed in other large immigration destinations (such as Texas). Immigrants who received benefits were found to be more geographically clustered than immigrants who did not receive benefits. In 1990, the state of California alone attracted around 29% of recent immigrants who were not receiving benefits, compared with around 45% of new immigrants who were receiving AFDC or other welfare support. Such concentration is mostly explained by flows of low-skilled immigrants selecting California as their main destination. This raises the question of whether state characteristics such as macroeconomic conditions could confound the relationship between benefit generosity and migration [4].

This issue can be overcome by focusing on policy changes in welfare provisions. Such a scenario occurred in the US with the introduction of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) during the mid-1990s, which denied access to means-tested benefits for five years to immigrants who arrived after August 1996. Soon after the enactment of PRWORA at the federal level, however, several states decided to reinstate safety-net programs at the state level. Researchers have used these circumstances as a “natural experiment” in order to determine whether newly arrived immigrants were substantially more likely to settle in the states that restored benefits. Changes in the accessibility of means-tested programs, however, were found to affect only marginally the location choices of low-skilled unmarried immigrant women, arguably the group with the highest probability of welfare use. Results were rather similar for other groups analyzed (e.g. low-skilled married immigrant women, high-skilled unmarried immigrant women, and high-skilled married immigrant women) [5].

Europe provides an alternative set of circumstances in which to study the welfare magnet hypothesis. In the context of international migration, Europe’s mobility and social spending patterns differ substantially from the US’s. European countries are relatively “new” destinations for international migrants, while the US has experienced mass migration since the end of the 19th century. Furthermore, in contrast to the US, where immigration policy is largely set and enforced at the federal level, there is not yet a binding common immigration policy in the European Union (EU) regarding non-EU immigrants. Mobility within the EU is virtually free only for citizens of the member states.

This decentralization of immigration policy means that there are large differences among EU members in terms of the numbers and skill composition of non-EU immigrants. Furthermore, large differences exist between EU countries in terms of the level and composition of social expenditures. For example, nearly 60% of Italy’s expenditures on social programs went to pensions (a larger share than any of Europe’s OECD members). At the same time Italy devoted just about 10% of public spending to income support, including unemployment insurance benefits as well as active labor market policies. In Denmark, Sweden, and Finland, these patterns are reversed: Spending on income support was relatively high (from 24% to 29% of total social expenditures), while spending on pensions was comparatively low (between 27% and 29%).

When focusing on particular programs, such as unemployment benefits, the evidence of a welfare magnet in European countries is weak or nonexistent. Immigrants choose European destinations with a higher benefit replacement rate, which measures the relative amount of unemployment benefits compared with average wages [6]. But the “magnet effect” of the welfare program is rather low compared with the role played by the receiving country’s macroeconomic fundamentals, such as the unemployment rate and average wages. For example, some of the estimates show that the effect of wages is ten times larger than that of benefits.

An essentially null effect also emerges when looking at spending on unemployment benefits as a percentage of GDP [7]. Data from 19 EU countries for the period 1998–2008 show a small positive association between spending on unemployment benefits and immigration flows for immigrants from non-EU origins (see Figure 2). But the effect was essentially zero after taking into account that immigration itself affects the level of public expenditure. Factors such as income, unemployment rates, and the presence of previous immigrants in the receiving country were instead the major determinants of immigration flows.

Similar conclusions were reached by researchers who analyzed migration flows into 22 OECD countries from 129 different origins between 1990 and 2000 [8]. This comprehensive database, which allows for the accounting of similarities and differences of social/cultural and economic characteristics between each country, reveals that network effects (measuring the importance of other migrants already settled in the country), geographic distance, income per capita, and unemployment rates were the most important factors determining immigration. By contrast, social expenditures as a percentage of GDP had only a weak effect on immigration. However, when such an effect was identified, higher welfare spending was associated with migration flows from both the poorest and the richest countries of origin.