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Fiscal Policy, Human Capital, and Canada-US Labor Market Integration

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Author Info
David E. Wildasin (University of Kentucky)

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Abstract

This paper analyzes some of the implications of North American labor market integration for fiscal policy. The economies of Canada and the US are both characterized by highly integrated internal markets for goods and services as well as for labor and capital, and subnational governments in both economies play an important role in the financing and provision of public goods and services, including higher education. Despite theoretical insights from traditional trade theory that suggest that ``trade and migration are substitutes,'' labor markets in both the US and Canada exhibit substantial and persistent interregional migration, with gross migration rates that greatly exceed net migration rates, especially for highly-educated workers. High gross migration rates are consistent with the hypothesis that education contributes to skill-specialization and worker heterogeneity, and that mobility provides a form of insurance for investment in risky human capital. Mobility also constrains the ability of competitive governments to engage in redistributive financing of human capital investment, and recent trends in both the US and Canada reveal a diminishing level of financial support for public-sector institutions by subnational governments. The implications of labor market integration for the efficiency of resource allocation, for income determination, and for fiscal competition are important for evaluations of tax and education policies both at the subnational and at the international levels.

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Paper provided by EconWPA in its series Public Economics with number 0309006.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 54 pages
Date of creation: 29 Sep 2003
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Handle: RePEc:wpa:wuwppe:0309006

Note: Type of Document - .pdf; prepared on linux pc/LaTeX; pages: 54; figures: included. Also posted at www.iza.org and author's home page davidwildasin.us
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Related research
Keywords: Migration; human capital; fiscal competition; economic integration;

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Find related papers by JEL classification:
J0 - Labor and Demographic Economics - - General
R0 - Urban, Rural, and Regional Economics - - General
F2 - International Economics - - International Factor Movements and International Business

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Riddell, W.C., 1999. "Canadian Labour Market Performance in International Perspective," UBC Departmental Archives 99-25, UBC Department of Economics.
  2. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185. [Downloadable!] (restricted)
  3. George J. Borjas, 1991. "Immigration Policy, National Origin, and Immigrant Skills: A Comparison of Canada and the United States," NBER Working Papers 3691, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. James R. Melvin, 1985. "The Regional Economic Consequences of Tariffs and Domestic Transportation Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 237-57, May. [Downloadable!] (restricted)
  5. Barrett, Alan & FitzGerald, John & Nolan, Brian, 2002. "Earnings inequality, returns to education and immigration into Ireland," Labour Economics, Elsevier, vol. 9(5), pages 665-680, November. [Downloadable!] (restricted)
    Other versions:
  6. Finnie, Ross, 2001. "The Effects of Inter-provincial Mobility on Individuals' Earnings: Panel Model Estimates for Canada," Analytical Studies Branch Research Paper Series 2001163e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  7. John Bound & Jeffrey Groen & Gabor Kezdi & Sarah Turner, 2001. "Trade in University Training: Cross-State Variation in the Production and Use of College-Educated Labor," NBER Working Papers 8555, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Laurence J. Kotlikoff & Bernd Raffelhuschen, 1999. "Generational Accounting around the Globe," American Economic Review, American Economic Association, vol. 89(2), pages 161-166, May. [Downloadable!] (restricted)
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  9. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December. [Downloadable!] (restricted)
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  10. Alan Barrett & Philip J. O’Connell, 2001. "Is There a Wage Premium for Returning Irish Migrants?," The Economic and Social Review, Economic and Social Studies, vol. 32(1), pages 1-21. [Downloadable!]
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  11. W. Craig Riddell, 2001. "Education and Skills: An Assessment of Recent Canadian Experience," The State of Economics in Canada: Festschrift in Honour of David Slater, in: Patrick Grady & Andrew Sharpe (ed.), The State of Economics in Canada: Festschrift in Honour of David Slater, pages 485-517 Centre for the Study of Living Standards. [Downloadable!]
  12. Richard B. Freeman & Karen Needels, 1993. "Skill Differentials in Canada in an Era of Rising Labor Market Inequality," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 45-68 National Bureau of Economic Research, Inc. [Downloadable!]
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  13. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  14. Hamilton, Bob & Whalley, John, 1984. "Efficiency and distributional implications of global restrictions on labour mobility : Calculations and policy implications," Journal of Development Economics, Elsevier, vol. 14(1), pages 61-75. [Downloadable!] (restricted)
  15. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February. [Downloadable!] (restricted)
    Other versions:
  16. Riddell, W.C. & Sweetman, A., 2000. "Human Capital Formation in a Period of Rapid Change," UBC Departmental Archives 00-06, UBC Department of Economics.
  17. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October. [Downloadable!] (restricted)
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  18. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March. [Downloadable!] (restricted)
  19. Richard Sturn & Gerhard Wohlfahrt, 2000. "Who Pays for Higher Education?. A Note on the Neglected Role of Income Tax Progression," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 126-, September.
  20. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S111-43, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Wildasin, 2008. "Public Finance in an Era of Global Demographic Change: Fertility Busts, Migration Booms, and Public Policy," Working Papers 2008-02, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  2. David E. Wildasin, 2005. "Global Competition for Mobile Resources: Implications for Equity, Efficiency, and Political Economy," Working Papers 2005-08, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
    Other versions:
  3. James B. Davies & Stanley L. Winer, 2008. "Closing the 49th Parallel: An Unexplored Episode in Canadian Economic and Political History," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20083, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
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