Post-Reform East and West: Capital Accumulation and the Labor Mobility Constraint
AbstractAssuming that economic reforms are successful in Eastern Europe, what will be the effects on Western Europe? The focus is on the wage pressure that the threat of migration from East to West is likely to impose. The paper adopts a Ramsey model of intertemporal choice, for both individuals and firms. Costs of adjustment in the rate of capital accumulation allow for a study of both the transition period and the long-run equilibrium which arises when the East's productivity of capital has reached the Western level. The effects on the West take the form of an initial rise in the real interest rate, an early slow-down in investment and temporarily declining real wages. In the long run, Western wealth rises through lending to the East. All these effects are reduced by the migration-induced wage pressure as less capital is accumulated in the East, with a correspondingly higher level of unemployment, both during the transition and in the long run. Conversely, wage rigidity in the West leads to more capital accumulation in the East as the rise in the world-wide real interest rate is met in the West by higher unemployment.
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Bibliographic InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 91-07.
Length: 33 pages
Date of creation: 1991
Date of revision:
economic reform ; wages ; migration;
Other versions of this item:
- Wyplosz, Charles, 1991. "Post-Reform East and West: Capital Accumulation and the Labor Mobility Constraint," CEPR Discussion Papers 528, C.E.P.R. Discussion Papers.
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- Horst Siebert, 1993. "Internationale Wanderungsbewegungen - Erklärungsansätze und Gestaltungsfragen," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 129(III), pages 229-255, September.
- Siebert, Horst, 1993. "Internationale Wanderungsbewegungen: Erklärungsansätze und Gestaltungsfragen," Kiel Working Papers 571, Kiel Institute for the World Economy.
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