Abstract
This paper tackles the textbook message that free migration of labour equalizes real wages between local labour markets, since nominal wages should rise and prices should fall in emigrating localities and vice versa in immigrating localities. Reverse price adjustments should thus help in stabilizing migration. The paper investigates the idea in a basic labour market model with sequential comparative statics, and gets conflicting findings: both decreasing prices in the emigrating end and increasing prices in the immigrating end foster emigration. Furthermore, common wisdom is that, if emigration forces the locality to elevate tax rates, people’s voting with feet should foster emigration. This paper shows that this is true only with notable tax increases. In the other end, induced emigration appears if the initially immigrating locality is forced to increase its taxes, even modestly.
Highlights
People’s everyday welfare is highly place-dependent, and residential choice is an important part of individual welfare maximization
The triggering of migration is treated in terms of exogenous market parameters, that is nominal wages and consumption prices that enter into the budget constraint
The migration equilibrium between two localities was constructed according to nominal wage adjustment, and second, price adjustment and the effects of taxation were studied sequentially in that equilibrium setting
Summary
People’s everyday welfare is highly place-dependent, and residential choice is an important part of individual welfare maximization. 102-105) of that choice is a partial equilibrium analysis of people’s migration between labour markets. Migration reflects people’s residential choices as responses to differences in real wages between local labour markets. The triggering of migration is treated in terms of exogenous market parameters, that is nominal wages and consumption prices that enter into the budget constraint.
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