Welfare Effects of Labor Migration
CERGE-EI Working Paper Series No. 491
38 Pages Posted: 12 Oct 2013 Last revised: 14 Oct 2013
Date Written: October 1, 2013
The developed theoretical model analyzes the welfare effects of labor migration. I find that for the receiving country immigration enhances welfare as long as the marginal benefits to the natives’ income exceed the social costs of immigration. Over-emigration of workers generated by free mobility is welfare detrimental to the source country because of the diaspora effect – migrants negatively affect their own income. The source country prefers to coordinate the immigration quota with the destination country, because the coordinated solution internalizes the negative diaspora effect. Contrary to popular opinion, under certain conditions unilateral enforcement of the immigration quota benefits the source country also, because it reduces the extent of the migrants’ income decline.
Keywords: migration costs, wage effect, immigration policy, coordination
JEL Classification: F22, J15, D61, E61
Suggested Citation: Suggested Citation