International Migration of Skilled and Unskilled Labour, Welfare and Skilled-Unskilled Wage Inequality: A Simple Model

Abstract

The paper shows that in a reasonable production structure for a developing economy a brain drain of skilled labour may raise the welfare of the economy while an emigration of unskilled labour is welfare reducing. Also an emigration of skilled / unskilled labour lowers the urban unemployment of unskilled labour and widens the skilled-unskilled wage-gap. The paper provides an alternative explanation for the increasing wage inequality in many less developed countries in the regime of liberalized trade and investment in terms of higher international mobility of skilled and unskilled labour in this period using a simple variant of the H-O model where the central principle of the S-S theorem holds.

Keywords: Skilled labour, Unskilled labour, Emigration of labour, Welfare, Urban unemployment, Skilled-unskilled wage gap

JEL Classification: F2, F20, F22