Mobility of skilled labour and skill formation

Wolf, Andre-Rene

This work deals with the interplay of skilled worker emigration and school participation in small developing economies. We develop an Overlapping generations framework with talent heterogeneity, where agents make intertemporal decisions on schooling and emigration. The main innovation compared to previous frameworks is that emigration rates are modeled as the outcome of deterministic decision-making, where linkages to schooling decisions arise through domestic wage adjustments. We use this framework to analyze the consequences of facilitating outmigration for the evolution of labour supply and wages in the sending country. The first chapter presents the basic setup of a one-sector economy without borrowing restrictions. It is shown that in contrast to probabilistic models any decline of migration costs has to result into a long-run decrease of a sending country’s stock of human capital despite a positive impact on school participation. Results of a welfare analysis document that this decline is coupled with an increase of domestic inequality. The second chapter adds borrowing restrictions as well as intergenerational transfer to this setup. Under these circumstances, a temporary credit crunch is revealed to have a positive short-run impact on domestic human capital, while the long-run impact is ambiguous. The presence of intergenerational transfers is shown to exert a smoothing effect on the transition paths following a credit crunch. The third chapter finally extends the scenario to a multisector framework where consumption goods are produced with different degrees of skill intensity. In this setup, facilitating outmigration has the additional effect of a distraction of resources to less skill-intensive goods, which contributes to a weakening of the increase in school participation. It is shown that a higher degree of product differentiation in this context can mitigate the effects of outmigration on sectoral specialization.

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Wolf, Andre-Rene: Mobility of skilled labour and skill formation. 2013.

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