LABOUR MOBILITY
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LABOUR MOBILITY
Types of labour mobility
Change of employer/firm
Change of occupation
Change of geographical location*
Question
What influences an individual’s decision regarding migration?
(Migration: an investment in human capital)
Costs of migration• Transportation expenses
• Forgone income during the move
• Psychic costs
• Loss of seniority and pension benefits
Benefits of migration• Increase in the stream of future earnings
• If expected earnings gain exceeds the combined monetary and net psychic costs, the person will migrate.
N N
VP = E2-E1 - C - Z n=1 (1+i)n n=1 (1+i)n
VP= Present value of net benefits
E2 = Earnings from the new job in year n
E1 = Earnings from existing job in year n N = Length of time expected on new job i = interest rate (discount rate) n = year in which benefits and costs accrue C = direct and indirect monetary costs resulting
from move in the year n Z = net psychic costs of the move (psychic
costs minus psychic gains)
Question What are the determinants of migration?
• Age• Family factors• Education• Distance• Unemployment rate• Other factors
– Home ownership– Government policies (personal tax rates, government
spending on services, investment policies, etc.)– Language– Immigration quotas and emigration prohibitions– Political factors – Union membership– Quality of life (climate, crime rate etc.)
Wage Narrowing and Efficiency Gains
• Assumptions:• Two labour markets, each perfectly competitive and
each situated in a different geographical location• Each labour market contains a fixed number of
worker and there is no unemployment in either market.
• Non-wage job amenities and locational attributes are the same in both areas
• Capital is immobile• Workers possess perfect information about wages
and working conditions in both markets and migration is costless
Labour Market A Labour Market B
(1 A) (2 A) (3 A) (1 B) (2 B) (3 B)
L VMPA, Annual
wage
VTPA, Value of total product
L VMPB
Annual wage
VTPB,
Value of total product
1 $25000 $25000 1 $21000 $21000
2 23000 48000 2 19000 40000
3 21000 69000 3 17000 57000
4 19000 88000 4 15000 72000
5 17000 105000 5 13000 85000
6 15000 120000 6 11000 96000
7 13000 133000 7 9000 105000
8 11000 144000 8 7000 112000
9 9000 153000 9 5000 117000
10 7000 160000 10 3000 120000
• Labour will continue to relocate until VMPA=VMPB
Question
• State the direction of migration and the number of workers who migrate.
• What is the impact of migration on the total value of output?
• VTP before migration = $____
• VTP after migration = $____
Efficiency gains from migrationCOUNTRY A
COUNTRY B
L L
Wa
We
e f
b
W
0
DA
a
g c We
Wb
0
W
h
i
j
lk
mDB
Before migration: output A=Oabe; After migration: output A= OacfBefore migration: output B=OhjlAfter migration: output B=Ohik
External Effects Migration Externalities
Migration externalities
• Real negative externalities: e.g. Congestion, crime
• Pecuniary (Financial) Externalities
--Losses in the Origin Country
--Reduced Wage Income to Native Workers
--Fiscal impacts (government expenditure & taxes)
--Gains to Owners of Capital
COUNTRY A (destination) (before migration)
L
Wa
We
e f
b
W
0DA
a
g c
Before migration: Total output?Labour Share? Capitalists share?After migration: Total output?Labour Share? Capitalists share?
Wa
Wa
We
0
DA
b
g c
e f L
COUNTRY A (destination) (after migration)
g
Capital FlowsCOUNTRY A (USA) COUNTRY B (South Korea)
LL
S S
D
D1
D
D1
W W
0 0
WA
WE WE
WB
Initially: WA> WB
Capital flows shift the labour demand curve
The wage gap/differential between A and B is reduced. This reduces the extent of migration.
Product Flows (International Trade)
• Capital and labour are immobile• Workers in both countries are homogenous• Assume Wus<WKorea
• US Consumers will buy more Korean goods Labour demand in Korea↑ → WKorea↑
• Demand for US products decline. Labour demand in US↓→ Wus↓
COUNTRY A (USA) COUNTRY B (South Korea)
LL
S S
D
D1
D
D1
W W
0 0
WA
WE WE
WB
Effects of Illegal Immigration• Employment Effects
Do illegal immigrants decrease the employment of domestic workers on a one-for-one basis?
• Wage effects (substitutes or complements)• Fiscal effects (taxes, government expenditure)
Sd
St
DL=MRP
W
L0 Qd Qt
Wd
Wt
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