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Inducing Human Capital Formation: Migration as a Substitute for Subsidies

Author

Listed:
  • 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.

Suggested Citation

  • Stark, Oded & Wang, Yong, 2001. "Inducing Human Capital Formation: Migration as a Substitute for Subsidies," Economics Series 100, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:100
    as

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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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    References listed on IDEAS

    as
    1. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A brain gain with a brain drain," Economics Letters, Elsevier, vol. 55(2), pages 227-234, August.
    2. Stark, Oded & Chau, Nancy H., 1998. "Human Capital Formation, Asymmetric Information, and the Dynamics of International Migration," Economics Series 52, Institute for Advanced Studies.
    3. Stark, Oded & Chau, Nancy H., 1998. "Human Capital Formation, Asymmetric Information, and the Dynamics of International Migration," Economics Series 52, Institute for Advanced Studies.
    4. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1998. "Human capital depletion, human capital formation, and migration: a blessing or a "curse"?," Economics Letters, Elsevier, vol. 60(3), pages 363-367, September.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Migration; Human capital formation; Externalities; Social welfare;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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