Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

Economics of Migration and Job Search: Problem Set 1

January 23, 2023

Consider the Roy model where log earnings for individual i in the immigration and emigration country are given by Yji  = uj + bj1S1i + bj2S2i, where j = E ,I denote the emigration and immigration country respectively, i is an index for individual i and S1 and S2are cognitive and manual skills, with prices bj1 , bj2 in country j. Assume that S1and S2 are standard normally distributed with zero covariance. Finally, uj = lnRj where Rj is the rental rate of human capital in country j.

1. Suppose the moving cost k is zero, and the skill prices for cognitive and manual skills are the same, but differ across country, i.e. bE1 = bE2 = c and bI1 = bI2 = b where E = Mexico and I = the US.     (a) Suppose c > b, what does the Roy model predict about the selection of immigrants from Mexico  to the US? Provide the economic intuition.

(b) Assume c > b and the mean income in the US is higher than the mean income in Mexico. If the

mean income in Mexico increases, what would happen to the average quality of Mexican immigrants

in the US and why? Draw a diagram. Hint: YE  = uE − uI + YI . Also, explain what would happen if the mean income in Mexico increases a lot so that uE  > uI .

(c) Suppose ’in addition to’the increase in the mean income of Mexico (and assuming still uE  < uI ), there is now a subsidy for migrants to move from Mexico to the US. Compare to the case without the subsidy and the increase in uE , what would happen to the average quality of Mexican immigrants in the US and why? Draw diagrams.

2. Using the Roy model, explain when migration between countries I, E would lead to an increase in human capital in both countries.