Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy

Gupta, Abhay (2007): Skills Distribution, Migration and Wage Differences in Pure Service-Exchange Economy. Unpublished.

Abstract

This paper considers an economy with skilled agents exchanging their services. Using Cobb-Douglas preferences, the paper shows that there exists an optimal (average welfare maximizing) skills' distribution. This optimal distribution is independent of productivity and is welfare equalizing.

If the skill-distribution is not optimal, then some agents are better-off than others. In such a scenario, migration in some sectors is average-welfare improving while inviting skilled-agents in others reduces average welfare.

"Productivity increase of worse-o sector" without changing the overall skills' composition of economy increases the wage gap.

• Item Type: MPRA Paper
• Language: English
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration; L - Industrial Organization > L8 - Industry Studies: Services > L84 - Personal, Professional, and Business Services; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies

References

Massimiliano Tani, 2006. "Head-content or Headcount? Short-term Skilled Labour Movements as a Source of Growth," IZA Discussion Papers 1934, Institute for the Study of Labor (IZA).