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A General Equilibrium Model with Labor-Leisure and Domestic-Abroad Choice for Assessment of Labor Migration in a Small Open Economy

Bahalou, Marziyeh and Haqiqi, Iman (2016): A General Equilibrium Model with Labor-Leisure and Domestic-Abroad Choice for Assessment of Labor Migration in a Small Open Economy.

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Abstract

This paper studies the macroeconomic and sectoral impacts of labor migration. We employ LMGE, a multi-sector, multi-labor Computable General Equilibrium model. We have distinguished between “skilled-labor” and “unskilled-labor” which may be employed in the domestic labor market or abroad. Labor supply is determined endogenously by leisure decision. The Household’s optimization behavior determines the demand functions for commodities and leisure. Finally, time allocation between leisure and work determines the labor supply. The model is calibrated based on the 2001 Labor Micro Consistent Matrix (L-MCM) of the Iranian Economy. The L-MCM is a modified Social Accounting Matrix (SAM) which includes 147 commodities and 99 production activities. We find that labor inflow increases GDP as well as the consumption of households. But, employment may not rise in some sectors. Skilled labor migration increases the employment of unskilled labors in Agriculture, Oil and Gas, and Energy, while it decreases unskilled employment in other sectors. We also find that the labor category with the highest population has a stronger effect on GDP and consumption. Our sensitivity analysis proves the robustness of the results.

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