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This chapter discusses different types of labor mobility, including job changes, occupational changes, and geographic changes, and explores the determinants and consequences of migration. It also examines the costs and benefits involved in migration decisions.
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Chapter 9 Mobility, Migration, and Efficiency
Types of Labor Mobility 1. Job change/no change in occupation or residence • An executive switches working from UMW Toyota to Naza Motors. 2. Occupational change/no change in residence • Much occupational mobilityinvolves changes in closely related occupation. • Example: busboy to waiter 3. Geographic change/no change in occupation • Geographic mobilityinvolves movements of workers from one location to one location. 4. Geographic change/change in occupation • Movements of workers from one location to another (together with the change of occupation).
Net Present Value of Migration • Workers will migrate if the net present value of migration (Vp) is greater than zero. • Comparing between the benefits and costs of migration
Cont: Net Present Value of Migration Costs of migration (C): • Transportation • Forgone income during the move • Loss of seniority • Pension benefits Physic costs leaving families and friends (Z): • Roots in the present communities • Children in local school system • Extensive network of friends
Determinants of Migration • Age (-ve relationship) • Older individuals are less likely to migrate. • Have fewer years to recoup investment costs (e.g: 1-5 years of retirement). • Have greater firm-specific human capital. • The firm have invested a lot (trainings, education, etc) • Not transferable to other jobs • Have greater monetary and psychic costs of moving. • Hire professional mover (take into account the family members’ belongings) • Have roots in present communities • Extensive network of friends • Children in local school systems • Younger people are more likely to have just completed a human capital investment and to “job shop.”
Determinants of Migration 2. Family factors (-ve relationship) • The costs of migration rise with family size. • Married people are less likely to move since spouse may hold high wage job. • Psychic costs rise as number of family members rises 3. Education (+ve relationship) • Migration is more likely as education levels rise. • The market for more highly educated workers is regional/national rather than local. • The gain from migration may be greater due to greater variability in workers and positions. • College educated workers are more likely to be transferred and have lower psychic costs to moving. • Have experience in migration during school and university levels. • Easier to move again when new opportunities are available.
Cont: Determinants of Migration 4. Distance (-ve relationship) • The greater the distance, the lesser the probability of migrating. • Less information about the job opportunities available. • Transportation costs will be higher. • Psychic costs will be higher. • Migrants often follow routes taken by family, friends and relatives. • They provide job information, employment contacts, temporary living spaces, etc) 5. Unemployment rates (+ve relationship) • Families headed by unemployed persons are more likely to move. • The unemployment rate at the origin location positively affects the probability of out-migration.
Cont: Determinants of Migration 6. Other factors (-ve relationship) • Homeownership • Occupational licensing • High personal taxes at destination location • Immigration quotas • Political repression and war • Foreign language at destination location • High crime rates
CONSEQUENCES OF MIGRATION
1. Personal Gains • Empirical evidence suggests that the rate of return from migration is 10% to 15%. • Caveats: • Uncertainty and imperfect information • Migration decisions are based on expectednet benefits and sometimes don’t occur. • Costs at destination may be higher than expected and earnings may be lower. • Return migration is common and provides information to those at origin. • Timing of earnings gains • Higher lifetime gains don’t necessarily imply the gains occur immediately.
1. Personal Gains • Caveats: 3. Earnings disparities • Not necessarily receive the same earnings as people already at destination. • Skills that the migrants possess are NOT ALWAYS PERFECTLY TRANSFERABLE due to: • Occupational license (different between regions) • Specific training (different between employers) • Language / culture (different between nations) • Due to a lack of skill transferability across employers or locations, migrants may earn less than similar workers at the destination. 4. Earnings of spouses • A gain in family income from migration does not necessarily imply a income gain for both spouses.
1. Personal Gains • Caveats: 5. Wage reductions from job losses • A positive return to migration does not necessarily imply higher earnings • Migrants are pushed into moving due to a job loss or political repression (not voluntary)
2. Wage Narrowing and Efficiency Gains Assumptions: • Two labor markets (US and Mexico) • Both are perfectly competitive • Both are situated at different geographic locations • No unemployment occur in both markets • Capital is immobile • Workers have perfect information Mexico – low wage US – high wage Mexican people are attracted to migrate into US. What will happen to the wage rate? Is it still remain the same?
Wagerate b Wu Wagerate i We c We g j Wm m Du Dm e f k l Quantity of Labor Quantity of Labor U.S. Mexico 2. Wage Narrowing and Efficiency Gains The migration of labor from low-wage Mexico to high-wage U.S. will increase the domestic output and reduce the average wage in the U.S and produce the opposite effects in Mexico. The output gain of ebcf in the U.S. exceeds the loss of kijl in Mexico. The value of combined outputs from the two nations rises. Migration will continue until the wage advantage in US is totally eliminated.
3. External Effects Though migration has positive efficiency gains, it has positive and negative third-party effects called externalities. 1. Real negative externalities • Example: migration to a “boom town”: • Creates congestion and crime. • Waste • More public services must be provided 2. Pecuniary externalities • Pecuniary externalities are actions that redistribute income among individuals and groups. • Brain drain problem • Reduce wage income to native workers • Gains to owners of capital (due to cheap labor among immigrants) • Fiscal impacts • If immigrants are illiterate / low skilled, the government have to spend more especially on transfer payments and social service programs (leads to high tax on local citizens)
CAPITAL AND PRODUCT FLOWS
Capital Flows In LR, capital is mobile. So, what’s the impact on migration? Example: Korea (middle income) vs USA (high income) • Migration from Korea to USA • Cost of production in Korea is lower, induce US firms to abadon their production facilities in USA. • Demand for labor in USA declines • Reduce market wage • Start to construct new facilities in Korea. • Demand for labor in Korea increases • Increase market wage Conclusion: Capital mobility has removed the wage disparity – eliminate the incentive for labors to migrate
Product Flows Assumptions: • Capital and labor are immobile • US and Korea workers are homogeneous • The cost of transportation goods between 2 nations are zero. • US will demand more goods from Korea (cheaper) due to cheap labor. • More demand especially for imported products from Korea • Increase derived demand for Korean labor • Increase in wage rate in Korea
S S Wagerate Wagerate Wu We We D Wk D1 D1 D Quantity of Labor Quantity of Labor South Korea U.S. Impact of Capital and Product Flows • A high wage rate in the U.S. and a low wage in South Korea may cause either (1) flows of capital from the U.S. toward South Korea or (2) a price advantage for Korean-produced goods. • In either case, the demand for labor is likely to rise in South Korea and fall in the U.S. • Thus, the wage rate differential will narrow, and thus no migration will occur.
