Economic Integration, Factor Mobility, and Wage Convergence

INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 4, No. 3, 1997

Posted: 18 Jun 1997

See all articles by Gilles Saint-Paul

Gilles Saint-Paul

University of Toulouse I - GREMAQ-IDEI; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

This paper studies the effect of economic integration of two regions on the mobility of skilled and unskilled workers across regions and on the resulting location of industrial activity. In particular, we study what happens when wages in both regions are set by the unions of the "West"--the region with a greater initial relative stock of human capital. We show that under some circumstances, it is the interest of the West's unions to set up a speed of wage convergence greater than equilibrium, thus generating unemployment in the East. This slows the migration of human capital toward the East but quickens the migration of raw labor toward the West. A greater share of economic activity is eventually located in the Western region. Unions in the West will benefit from this provided human capital has low migration costs relative to raw labor.

JEL Classification: J61, J31, J51

Suggested Citation

Saint-Paul, Gilles, Economic Integration, Factor Mobility, and Wage Convergence. INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 4, No. 3, 1997. Available at SSRN: https://ssrn.com/abstract=8584

Gilles Saint-Paul (Contact Author)

University of Toulouse I - GREMAQ-IDEI ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
+33 5 6112 8544 (Phone)
+33 5 6122 5563 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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