Unskilled Migration with Remittance and Welfare Analysis

Abstract

Given the increasing prominence of unskilled migrants with remittances moving from developing countries to developed ones, this research investigates the degree of trade freeness on their migration pattern, welfare, and income inequality. To address the unskilled migration issue, we first introduce the concept of “attachment cost,” which means that workers suffer when they leave their home countries. Second, we prove the existence of an equilibrium that unskilled workers migrate from the developing South to the developed North and send part of their wages back to support their families. Third, we examine its impacts on the welfare of each country and study the implications of the migration policy. We find that when unskilled migration is allowed, the welfare of both countries improves. Also, the lower the attachment cost of the unskilled migrants is, the higher the incentive for members of each household in the South to migrate to the North. Moreover, the real wages of both entrepreneurs and unskilled workers in the North also rise. Finally, the trade liberalization deepens (eases) income inequality between entrepreneurs and unskilled workers within the North when the remittances sent back are sufficiently large (small).