TITLE:
Effects of Migration in a Basic Labour Market Model
AUTHORS:
Hannu Laurila
KEYWORDS:
Labour Migration, Nominal Wages, Prices, Taxation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.6,
August
2,
2019
ABSTRACT: This paper tackles the textbook message that free
migration of labour equalizes real wages between local labour markets, since
nominal wages should rise and prices should fall in emigrating localities and
vice versa in immigrating localities. Reverse price adjustments should thus
help in stabilizing migration. The paper investigates the idea in a basic
labour market model with sequential comparative statics, and gets conflicting
findings: both decreasing prices in the emigrating end and increasing prices in
the immigrating end foster emigration. Furthermore, common wisdom is that, if
emigration forces the locality to elevate tax rates, people’s voting with feet
should foster emigration. This paper shows that this is true only with notable
tax increases. In the other end, induced emigration appears if the initially
immigrating locality is forced to increase its taxes, even modestly.