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