Working Paper

How does labor mobility affect income convergence?

Abstract: 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.

Keywords: Labor mobility; Emigration and immigration; Income;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 1999

Number: 99-12