An Optimal Selective Migration Policy in the Absence of Symmetric Information, and in the Presence of Skill Formation Incentives

In this chapter we study the selection policy of incoming migrant workers when the receiving country’s own welfare guides the formation of policies, when selection is made under asymmetric information, and when workers differ in terms of their level of human capital. Informational asymmetry arises when employers in the receiving country (in contrast to employers in the sending country) cannot decipher the true skill level of individual workers (who, however, know well their own skill levels). Selection is achieved via levying a proportional tax on migrants’ earnings. (An equivalent way of conceptualizing the selection tool is to think of it as an entry fee to be paid in the form of a tax on earnings.1) We calculate the optimal tax when human capital is fixed — ‘a fixed human capital framework’ — and in the presence of a human capital formation incentive — ‘an adjustable human capital framework’.