International Labor Mobility

Unemployment and Increasing Returns to Scale

Bharati Basu

• Publisher: Routledge
• Year: 2004
• Print ISBN:
  9780415655255
• eBook ISBN:
  9781134428229
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Migration of workers within and across national boundaries is an important issue in an age of increasing levels of innovation and invention which economizes cost and helps large scale production. This book analyses the implications of migration for the levels of unemployment and distinguishes between unemployment which can be attributed to government policy and that which can be generated by a particular behavior of employers and workers. The discussion also includes the issue of foreign workers' effects on unemployment levels - a salient issue in today's climate. With impressive clarity and a scholarly approach, Bharati Basu succeeds in explaining and analysing and important yet complicated topic. This book will be of use to students, academics and professionals interested in labor economics, industrial studies and international business.

1 International labor mobility with full employment

This chapter starts with an overview of the literature on the implications of migration between two countries when both of them are enjoying full employment. The chapter takes us from the one-good, one-factor model to the one-good, two-factor model and then finally to the two-good, two-factor model. In discussing the two-good, two-factor model, it makes a distinction between the case when both goods are traded goods and the case when one of them is a traded good and the other is a non-traded good. It reminds the reader about the result that, under full employment, constant returns to scale and perfectly competitive market structure, trade in goods and trade in factors might be substitutes for each other in the sense that both of them can accomplish the same objective. Finally, in an analysis with interconnected markets, the chapter shows that, even in the presence of a non-traded good, emigration can have favorable effects on those who are left behind not only through favorable terms of trade effects but also through capital enrichment. All these results are established when there is full employment in both the host and the source country.

The world economy is now experiencing an unprecedented level of openness where the term ‘globalization’ is taking a new form. This globalization, which started almost a century ago, is no longer inhibited by high transport cost, or imperfect information and a lack of a well-integrated global financial market.¹

During the last few decades, labor, capital, finance and all forms of resources have been flowing across national borders to take advantage of opportunities. New technology is spilling over the countries and the information system is getting more and more integrated. The volume of trade is growing, and more interestingly we are seeing more intra-industry trade. Goods that were considered non-tradable are entering the world market. The development of world organizations (such as the World Bank, International Monetary Fund, World Trade Organization and European Central Bank), and the increasingly active role of the United Nations during the twentieth century have only complemented the growth of this new world economy. In his study on technology spillover, Helpman concludes, ‘there are significant cross country links that are driven by foreign trade and investments’ (1999: 17–30).

In this new world environment international labor mobility creates new implications. International labor mobility is another form of trade among nations. It is trade in factors. Thus it is an important tool for world economic integration. Even when globalization was at its infant stage, labor mobility contributed significantly to nations' growth.² Of all different types of mobility across national borders, labor mobility is slightly different. Thus, although sometimes labor migration as a substitute for trade in goods has similar economic consequences, it meets radically different political acceptability. International labor migration faces more restriction than international trade in goods. During the 1980s, for instance, the European Union imposed serious restrictions on labor immigration while they followed free trade in goods.

Mobility of workers between nations is also different from movement of any other factors of production across national boundaries. For any other factors the owners of the factors of production do not have to move to another country. They can provide their services to the host country while staying in their resident country. This is also true for guest workers who, although they move in person to the host country, are not entitled to many amenities in that country. But international labor migration means a flow of workers together with their services between countries.

In this chapter, I will first present some tables and graphs to show the importance of international labor migration. Table 1.1 shows the migrant stock by region, and as a proportion of a region's total population, in 1965 and 1990. In Table 1.2, I present countries with the highest net immigration rates, 1990–1995. Table 1.3 shows the foreign or foreign-born population as a percentage of total population in selected OECD (Organization for Economic Co-operation and Development) countries.

These three tables suggest that international labor mobility is becoming more visible. In Table 1.3, we can see that the proportion of immigrants in a country's population is rising for most of the countries included and it is predicted to increase more in the twenty-first century. Since, in this book, my focus is on the relation between unemployment and labor mobility, it is helpful to look at the unemployment rates in different parts of the world and the employment level of foreigners and foreign-nationals in different sectors of the economy (Table 1.4 and 1.5).

Since international migration means movement of workers together with their services across national boundaries, the analysis of the effects of international migration needs some special attention. For example, the movement of capital and other resources affects only Gross Domestic

Table 1.1 Migrant stock by region, and as a proportion of a region's total population, 1965 and 1990

Product (GDP), which is the value of total production within the country, while the movement of labor affects both GDP and Gross National Product (GNP), which is the value of total product produced in the country minus the payment to the foreign workers/resources plus the earnings of the country's citizens residing in the foreign country. The level of GNP is usually used as an indicator of welfare as far as implications of factor mobility is concerned.

Table 1.2 Countri...

Table of contents

• Cover
• Half Title
• Full Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Foreword
• Preface
• 1 International labor mobility with full employment
• 2 International labor mobility with exogenously created unemployment
• 3 International labor mobility with endogenously created unemployment
• 4 Free trade versus free-labor mobility with increasing returns and unemployment
• 5 Labor mobility and a dual economy: a case of external economies of scale and unemployment
• 6 Labor migration in European Union countries
• 7 An empirical overview
• Appendices
• Notes
• Bibliography
• Index