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How does labor mobility affect income convergence?

  • Jordan Rappaport

The neoclassical growth model is extended to allow for mobile labor. Following a negative shock to a small economy's capital stock, capital and labor frictions effect an equilibrium transition path during which wages remain below their steady-state level. Outmigration directly contributes to faster income convergence but also creates a disincentive for gross capital formation. The net result is that across a wide range of calibrations, the speed of income convergence is relatively insensitive to the degree of labor mobility.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 99-12.

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Date of creation: 1999
Handle: RePEc:fip:fedkrw:99-12
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