Emigration, Finite Changes and Wage Inequality

Abstract

Emigration leads to finite changes in structure of production and sectors vanish because they cannot pay higher wages. Does emigration of one type of labor hurt the other non-emigrating type in this set up? We demonstrate various scenarios when real incomes of the emigrating and the non-emigrating types do not move together. This generalizes some of the existing results in the literature. In particular, emigration can lead to a drastic change in the degree of inequality depending on which of the sectors survive in the post-emigration regime. JEL Classifications: D50, F2, J61,Keywords: Skill, emigration, wages, inequality, reallocation 3 IntroductionIn recent years a body of literature has emerged analyzing the impact of international labor mobility on wage distribution in the source country. 1 In particular, this literature addresses the question how emigration of skilled and unskilled labor from low wage to high wage countries affects the degree of wage inequality in the low wage country. Marjit and Kar (2005) provide a simple model and derive an intuitively appealing condition under which wage distribution may go against the residual workers of the emigrating group. Using a specific factor model, this study shows that regardless of the emigrating category -skilled or unskilled -return to capital declines following emigration and subsequently raises the return for workers of the non-emigrating type.Indeed, in some cases residual members of the non-emigrating factor may benefit more than the emigrating group affecting wage inequality in an unexpected manner. Thus, We offer a generalized model where many of these results should hold and hence help to synthesize issues related to emigration. In addition, we demonstrate that factor mobility can be critically responsible for 'finite changes' such that some sectors completely 'vanish' from the source country.Between two alternative occupations a factor will always choose the one that promises higher rate of return. As factors of production are allowed free entry and exit in a global space the general lesson from trade theory suggests that the set of goods produced in a country may change along with that. In particular, given world prices certain production activities/services 5 might turn out to be unprofitable for certain countries. Such 'finite' changes in trade theory do not receive much attention but surely opens up interesting possibilities. Jones (1996) In the present case, mobility of factors affect factor returns in such a way that production of certain commodities would no longer be viable. An example from the Indian tea industry demonstrates effect of domestic factor mobility. The tea industry in India depends heavily on garden laborers who develop a particular skill in plucking green leaves. Hand plucking of leaves have strong influence on quality and hence pricing of tea. However, in recent times higher industrial wages elsewhere have raised the opportunity cost of these workers resulting in large exodus from tea gardens. The tea gardens find i...

International Capital Flow, Vanishing Industries and Two‐sided Wage Inequality

“…Beladi et al . () accommodate such possibilities in the analysis of immigration and wage distribution in the source country by extending the earlier work of Marjit and Kar (). Theoretical implications of such finite changes are also discussed in Findlay and Jones () and in Jones () in the context of factor biased as well as sector‐biased technological progress.…”

“…Patterns of specialization with multiple goods and two factors of production are treated in Jones (1974) and related issues are discussed in Ethier (2005) and Feenstra (2001), among other papers. Beladi et al (2013) accommodate such possibilities in the analysis of immigration and wage distribution in the source country by extending the earlier work of Marjit and Kar (2005). Theoretical implications of such finite changes are also discussed in Findlay and Jones (2000) and in Jones (1996) in the context of factor biased as well as sector-biased technological progress.…”

Liberalized trade policy and inequality: Evidence from post-Multi-Fibre Arrangement India and some theoretical issues

“…For India and several other developing countries, the wage gap between the sectors that receive formal patronage or public support and the informal sectors, which usually accommodate extra workers entering the sector by adjusting wages downward, has increased significantly in recent years. The existence of two-sided wage inequality across trading nations is also discussed in light of these findings (see Marjit and Kar 2012;Beladi et al 2013).…”

Skill, Innovation and Wage Inequality: Can Immigrants Be the Trump Card?

“…In this paper, 'place premium' is more pertinent as driving force underlying inflows of foreign-born workers into rich hosts. 14 These kinds of models are plenty, such as, Marjit and Kar (2013) showing role of capital flows causing two-sided wage gaps between skill types as some industries disappear due to factor price changes; Beladi et al (2011Beladi et al ( , 2013 has considered trade and skill premium in the context of skill formation and finite changes; Mandal and Marjit (2010) has considered the role of engagements in corruption by skill and unskilled workers resulting in wage inequality; Kar and Beladi (2017), on a different note, modeled the case of illegal immigrant trafficking, and smuggling of unskilled workers and impacts on illegal wages of unemployment benefits. All these models demonstrated the elegance of a general equilibrium mechanism to arrest the effects of contemporary real world issues.…”