Nannestad (2007) suggests a further problem that may increase migrants’ propensities
to depend on welfare. The incentives to acquire costly host-country-specific skills
will be dulled by availability of welfare benefits to those unsuccessful in host country
labour markets and this may inhibit acculturation. This is just the extension of the
standard moral hazard argument regarding the effect of social insurance schemes on
any worker to encompass a particular aspect of costly labour market effort that is
distinctive to immigrants. Like the selectivity argument above, this is raised in the
context of welfare payments but is relevant to other forms of contingent cash transfer
such as labour taxes. As Nannestad points out, much evidence brought to bear on the
question of self-selection could equally well be interpreted as pertinent to moral hazard
and the conclusion that an intuitively plausible effect lacks compelling empirical
support fits correspondingly well.