Economic Integration, Factor Mobility, and Wage Convergence
AbstractThis paper studies the effect of economic integration of two regions on the mobility of skilled and unskilled workers across regions and on the resulting location of industrial activity. In particular, it studies what happens when wages in both regions are set by the unions of the ‘West’ – the region with a greater initial relative stock of human capital. We show that in some circumstances, it is in the interest of the West’s unions to set a speed of wage convergence greater than equilibrium, thereby generating unemployment in the ‘East’. This slows the migration of human capital towards the East, but quickens the migration of raw labour towards the West. A greater share of economic activity is eventually located in the western region. Unions in the West will benefit from this, provided human capital has low migration costs relative to raw labour.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1597.
Date of creation: Mar 1997
Date of revision:
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Other versions of this item:
- Gilles Saint-Paul, 1997. "Economic Integration, Factor Mobility, and Wage Convergence," International Tax and Public Finance, Springer, vol. 4(3), pages 291-306, July.
- Saint-Paul, G., 1997. "Economic Integration, Factor Mobility, and Wage Convergence," DELTA Working Papers 97-01, DELTA (Ecole normale supérieure).
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
- J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
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