Abstract
In contrast to the skilled emigration and brain drain literature unskilled labour emigration and its impact on skill accumulation in the source country caught limited attention so far. While skilled emigration pushes up skilled wages and directly impacts the skilled stock of the source country, unskilled emigration pushes up the opportunity cost (unskilled wage) of skill acquisition. This further weakens the incentive to build skills. Economic agents make rational educational investment decisions based on their wealth (inheritance) and endogenous market returns (wages). The wealth distribution of an economy plays a deterministic role in the skill formation process. This is especially when the capital market is imperfect and skill acquisition is costly. Among unequal countries, the article identifies conditions and explains the possibilities of a decrease in skilled stock following emigration. This has significant policy implications. The restrictive immigration policies of the host countries specifically for unskilled immigrants make these unequal economies worse off. JEL: D31, F22, J24
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