Does competition for (human) capital discipline governments? The role of commitment
We argue that labor mobility does not lead to a ''race to the bottom,'' where countries drastically cut redistributive transfers in order to attract skilled workers. The basis of our argument is that these cuts are not credible policies. We propose a two country model where competition for mobile factors is limited to credible policies. Both countries end up with positive redistribution, and the country with a technological advantage can sustain more redistribution. The model can address the interaction of redistribution and migration policies. In particular, we show that when countries have similar skill endowments but different technologies, migration policies enabling unskilled labor mobility lead to higher global welfare than policies enabling skilled labor mobility
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|Date of creation:||03 Dec 2006|
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