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Labor market integration in the presence of social capital

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  • Schiff, Maurice

Abstract

Labor market integration is typically assumed to improve welfare in the absence of distortions, because it allows labor to move to where returns are highest. The author examines this result in a simple general equilibrium model in the presence of a common property resource: social capital. Drawing on evidence that social capital raises productivity and falls with labor mobility, the author's main findings are that: 1) Labor market integration imposes a negative externality and need not raise welfare. 2) The welfare impact is more beneficial (or less harmful) the greater the difference in endowments is between the integrating regions. 3) Whether positive or negative, the welfare impact is larger the more similar the levels of social capital of the integrating regions are and the lower the migration costs are. 4) Trade liberalization generates an additional benefit -- over and above the standard gains from trade -- by reducing labor mobility and the negative externality associated with it. Trade liberalization is superior to labor market integration. 5) The creation of new private or public institutions in response to labor market integration may reduce welfare. The author shows that the welfare implications depend on two parameters of the model, the curvature of the utility function and the cost of private migration.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2222.

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Date of creation: 30 Nov 1999
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Handle: RePEc:wbk:wbrwps:2222

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Keywords: Economic Theory&Research; Public Health Promotion; Banks&Banking Reform; Decentralization; Labor Policies; Poverty Assessment; Health Economics&Finance; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies;

References

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  1. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262561476, December.
  2. Narayan, Deepa & Pritchett, Lant, 1997. "Cents and sociability : household income and social capital in rural Tanzania," Policy Research Working Paper Series 1796, The World Bank.
  3. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  4. Lederman, Daniel & Loayza, Norman & Menendez, Ana Maria, 2002. "Violent Crime: Does Social Capital Matter?," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 50(3), pages 509-39, April.
  5. Iannaccone, Laurence R, 1992. "Sacrifice and Stigma: Reducing Free-Riding in Cults, Communes, and Other Collectives," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 271-91, April.
  6. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1251-88, November.
  7. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, Elsevier, vol. 14(3-4), pages 341-356, May.
  8. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(2), pages 318-336, May.
  9. Rosenbloom, Joshua L., 1990. "Labor Market Institutions and the Geographic Integration of Labor Markets in the Late Nineteenth-Century United States," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 50(02), pages 440-441, June.
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Citations

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Cited by:
  1. Maurice Schiff, 2004. "Labor Mobility, Trade, and Social Capital," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 12(4), pages 630-642, 09.
  2. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," Working Papers 70, Barcelona Graduate School of Economics.
  3. de Melo, Jaime & Grether, Jean-Marie & Müller, Tobias, 2001. "The Political Economy of International Migration in a Ricardo-Viner Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2714, C.E.P.R. Discussion Papers.
  4. Antoci, Angelo & Sacco, Pier Luigi & Vanin, Paolo, 2008. "Participation, growth and social poverty: social capital in a homogeneous society," MPRA Paper 13661, University Library of Munich, Germany.
  5. de Melo, Jaime & Miguet, Florence & Müller, Tobias, 2002. "The Political Economy of EU Enlargement: Lessons from Switzerland," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3449, C.E.P.R. Discussion Papers.
  6. Lederman, Daniel, 2002. "Income, wealth, and socialization in Argentina : provocative responses from individuals," Policy Research Working Paper Series 2821, The World Bank.
  7. Daniel Lederman, 2005. "Income Wealth, and Socialization in Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 3-30.
  8. Leonardo Becchetti & Melania Michetti, 2008. "When Consumption Generates Social Capital: Creating Room for Manoeuvre for Pro-Poor Policies," Working Papers, ECINEQ, Society for the Study of Economic Inequality 88, ECINEQ, Society for the Study of Economic Inequality.

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