This paper investigates the effects of internal migration in developed countries on widening wage inequality and high unemployment, and it addresses the geographical dimension of both problems. A two-region dynamic model is developed, which accounts for the skill composition of recent internal migration flows; it also innovates on the existing literature on migration by introducing capital-skill complementarity in the production function. The main conclusion is that migration can actually aggravate labor market imbalances. In a competitive set-up, migration temporarily amplifies the geographical dispersion of unskilled workers wages and raises the average wage premium of the economy. When wage rigidities are introduced, labor mobility increases regional dispersion of unskilled workers employment. In the short-run it may even reduce the total employment of the economy.
Interregional Migration and Labor Market Imbalances
DEVILLANOVA, CARLO
2004
Abstract
This paper investigates the effects of internal migration in developed countries on widening wage inequality and high unemployment, and it addresses the geographical dimension of both problems. A two-region dynamic model is developed, which accounts for the skill composition of recent internal migration flows; it also innovates on the existing literature on migration by introducing capital-skill complementarity in the production function. The main conclusion is that migration can actually aggravate labor market imbalances. In a competitive set-up, migration temporarily amplifies the geographical dispersion of unskilled workers wages and raises the average wage premium of the economy. When wage rigidities are introduced, labor mobility increases regional dispersion of unskilled workers employment. In the short-run it may even reduce the total employment of the economy.
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