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Wages and international factors’ mobility

  • E. Podrecca
  • G. Rossini
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    The labor wage is the result of market variables and institutional settings of a country. In an open economy the determination of the market wage rate may be further affected by the extent of international mobility of both factors of production, labor and capital. Labor mobility is represented by migration in and out of a country, while capital mobility relates mostly to the extent of foreign direct investment (FDI) outflows and inflows. Migrants may represent an addition to the native labor force of a country and, in some cases, play a substitute role with respect to incumbent workers. FDI, in particular of the greenfield category, represents either a supplement to or a reduction of the domestic capital and, by and large, changes the opportunity set of a firm’s CEO with respect to the corresponding company operating in a closed economy. International factor mobility and domestic market variables, such as unemployment and productivity, interact in the wage setting process. In this paper, we derive a theoretical wage equation following the above premises, and perform pooled mean group estimates of its parameters on panel data for a group of 13 European countries with quarterly time observation over the period 1996-2007. We find that capital outflows have a robust negative effect on the wage rate. The effects of migration inflows, on the other hand, are not so clear-cut, as they can be nullor negative depending on the sample of countries considered.

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    Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp826.

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    Date of creation: May 2012
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    Handle: RePEc:bol:bodewp:wp826
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    1. Frederic DOCQUIER & Çaglar OZDEN & Giovanni PERI, 2010. "The Wage Effects of Immigration and Emigration," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010044, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2008. "The Euro and Structural Reforms," NBER Working Papers 14479, National Bureau of Economic Research, Inc.
    3. Sari Pekkala Kerr & William R. Kerr, 2011. "Economic Impacts of Immigration: A Survey," Finnish Economic Papers, Finnish Economic Association, vol. 24(1), pages 1-32, Spring.
    4. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 215-35.
      • David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, June.
    5. Abdurrahman Aydemir & George J. Borjas, 2010. "Attenuation Bias in Measuring the Wage Impact of Immigration," NBER Working Papers 16229, National Bureau of Economic Research, Inc.
    6. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
    7. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    8. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "Rethinking the Effects of Immigration on Wages," NBER Working Papers 12497, National Bureau of Economic Research, Inc.
    9. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F., 2007. "Does Immigration Affect the Phillips Curve? Some Evidence for Spain," IZA Discussion Papers 3249, Institute for the Study of Labor (IZA).
    10. Gianmarco I.P. Ottaviano & Giovanni Peri & Greg C. Wright, 2010. "Immigration, Offshoring and American Jobs," NBER Working Papers 16439, National Bureau of Economic Research, Inc.
    11. David Hummels & Rasmus Jørgensen & Jakob R. Munch & Chong Xiang, 2011. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," NBER Working Papers 17496, National Bureau of Economic Research, Inc.
    12. Luca Nunziata, 2001. "Institutions and Wage Determination: a Multi-Country Approach," Economics Series Working Papers 2001-W29, University of Oxford, Department of Economics.
    13. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
    14. Eckel, Carsten & Egger, Hartmut, 2012. "The Dilemma of Labor Unions: Local Objectives vs. Global Bargaining," CEPR Discussion Papers 8784, C.E.P.R. Discussion Papers.
    15. Francesc Ortega & Giovanni Peri, 2009. "The Causes and Effects of International Migrations: Evidence from OECD Countries 1980-2005," NBER Working Papers 14833, National Bureau of Economic Research, Inc.
    16. Timothy J. Hatton & Jeffrey G. Williamson, 2008. "Global Migration and the World Economy: Two Centuries of Policy and Performance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582775, June.
    17. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
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