Migration and income transfers in the presence of labor quality externalities

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Abstract

In this paper, a worker's productivity is assumed to depend on his own quality and on the average quality of other workers in the same country. The external effects associated with worker quality give rise to increasing returns to average worker quality. As a result, free migration generally reduces world output. Within each country, social benefits that induce low quality workers to leave the labor force can increase national income. Moreover, the operation of such a benefit scheme financed by a proportional income tax can increase everybody's net-of-tax income. The political economy of a system of transfers within a country is analyzed. In particular, the level of transfers is assumed to be determined by popular vote. In this setting, small migration flows can bring about large changes in transfer levels and in labor participation rates. The anticipation of migration generally reduces the level of transfers to the unemployed.
Original languageEnglish
PublisherUnknown Publisher
Volume1994-104
Publication statusPublished - 1994

Publication series

NameCentER Discussion Paper
Volume1994-104

Keywords

  • Labour Market
  • Migration
  • Productivity
  • National Income
  • Quality
  • labour economics

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