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Inducing Human Capital Formation: Migration as a Substitute for Subsidies

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Author Info

  • Stark, Oded

    (Department of Economics, University of Oslo)

  • Wang, Yong

    (Department of Economics, The Chinese University of Hong Kong)

Abstract

When productivity is fostered by an individual's own human capital as well as by the economy-wide average level of human capital, individuals under-invest in human capital. The provision of subsidies for the formation of human capital, conditional on the subsidy being self-financed by tax revenues, can bring the economy to its socially optimal level of human capital. Yet a strictly positive probability of migration to a richer country, by raising both the level of human capital formed by optimizing individuals in the home country and the average level of human capital of non-migrants in the country, can enhance welfare and nudge the economy toward the social optimum. Indeed, under a well-controlled, restrictive migration policy the welfare of all workers is higher than in the absence of this policy.

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File URL: http://www.ihs.ac.at/publications/eco/es-100.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 100.

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Length: 18 pages
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:ihs:ihsesp:100

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Related research

Keywords: Migration; Human capital formation; Externalities; Social welfare;

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  1. Stark, Oded & Chau, Nancy H., 1998. "Human Capital Formation, Asymmetric Information, and the Dynamics of International Migration," Economics Series 52, Institute for Advanced Studies.
  2. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A brain gain with a brain drain," Economics Letters, Elsevier, vol. 55(2), pages 227-234, August.
  3. Stark, Oded, 1995. " Return and Dynamics: The Path of Labor Migration When Workers Differ in Their Skills and Information Is Asymmetric," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(1), pages 55-71, March.
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