Chapter09

Report
Chapter 9
Labor Mobility
McGraw-Hill/Irwin
Labor Economics, 4th edition
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
9-3
Introduction
• Labor mobility is the mechanism that labor markets use to
improve the allocation of workers to firms
9-4
Geographic Labor Migration as Human
Capital Investment
• Mobility decisions are guided by comparing present value of
lifetime earnings in alternative employment opportunities
• A worker decides to move if the net gain from the move is
positive
- Improvements in economic opportunities available in a
destination (residence) increases (decreases) the net gains to
migration and raises (lowers) the likelihood a worker moves
- An increase in migration costs lowers the net gains to
migration, decreasing the probability a worker moves
• Migration occurs when there is a good chance the worker will
recoup his human capital investment
9-5
Internal Migration in the United States
• Probability of migration is sensitive to the income differential
between the destination and origin
• There is a positive correlation between improved employment
conditions and the probability of migration
• There is a negative correlation between the probability of
migration and distance, where distance is taken as a proxy for
migration costs
• There is a positive correlation between a worker’s educational
attainment and probability of migration
• Workers that have migrated are more likely to return to the
location of origin (return migration) and are more likely to
migrate again (repeat migration)
9-6
Probability of Migrating across State Lines in 20032004, by Age and Educational Attainment
8
Percent Migrating
6
College Graduates
4
2
High School Graduates
0
25
30
35
40
45
50
Age
55
60
65
70
75
9-7
Family Migration
• The family unit will move if the net gains to the family are
positive
• The optimal choice for a member of the family may not be
optimal for the family unit (and vice versa)
- Tied stayer – one who sacrifices better income opportunities
elsewhere because the partner is better off in their current
location
- Tied mover – one who moves with the partner even though
the employment outlook is better at their current location
9-8
Tied Movers and Tied Stayers
Private Gains to
Husband (PVH)
B
10,000
Y
C
A
-10,000
10,000
Private Gains to
Wife (PVW)
D
F
-10,000
X
E
PVH + PVW = 0
If the husband were single, he
would migrate whenever DPVH >
0 (or areas A, B, and C). If the
wife were single, she would
migrate whenever DPVW > 0 (or
areas C, D, and E). The family
migrates when the sum of the
private gains is positive (or areas
B, C, and D). In area D, the
husband would not move if he
were single, but moves as part of
the family, making him a tied
mover. In area E, the wife would
move if she were single, but does
not move as part of the family,
making her a tied stayer.
9-9
Immigration in the United States
- There has been resurgence of immigration to the
United States in recent decades
- The United States receives the largest immigrant flow
in the world
- The mix of countries of origin has altered substantially
• For example, in the 1950s only 6% of immigrants were
from Asia, whereas now 31% originated in Asia
9 - 10
Legal Immigration to the United States
by Decade, 1820-2000
Number of legal immigrants
(in millions)
10
8
6
4
2
0
1810s
1830s
1850s
1870s
1890s
1910s
Decade
1930s
1950s
1970s
1990s
9 - 11
Immigrant Performance in the U.S.
Labor Market
• Immigrants who can adapt well and are successful in new jobs
can make a significant contribution to economic growth
• The economic impact of immigration will depend on the skill
composition of the immigrant flow
9 - 12
The Age-Earnings Profiles of Immigrant
and Native Men in the Cross Section
Annual Earnings
(1970 Dollars)
9,000
Immigrants
8,000
Natives
7,000
6,000
5,000
4,000
20
25
30
35
40
45
Age
50
55
60
65
9 - 13
The Decision to Immigrate
• There will be a dispersion in skills among national-origin
groups because different types of immigrants come from
different countries
• The general rule: workers decide to immigrate if U.S. earnings
exceed earnings in the source country
9 - 14
Cohort Effects and the Immigrant AgeEarnings Profile
D ollars
C
P
1960 W ave
P*
P
Q
1980 W ave
and N atives
Q*
Q
R
2000 W ave
R
C
R*
20
40
60
A ge
The cross-sectional
age-earnings profile
erroneously
suggests that
immigrant earnings
grow faster than
those of natives.
9 - 15
The Wage Differential between Immigrant
and Native Men at Time of Entry
0
Log wage gap
-0.1
-0.2
-0.3
-0.4
1955-1959
1965-1969
1975-1979
Year of entry
1985-1989
1995-2000
9 - 16
Evolution of Wages for Specific Immigrant
Cohorts over the Life Cycle
Relative wage of immigrants who arrived
when they were 25-34 years old
0.1
Arrived in 1955-59
Log wage gap
0
-0.1
Arrived in 1965-69
-0.2
Arrived in 1975-79
-0.3
-0.4
1960
1970
1980
Year
Arrived in 1985-89
1990
2000
9 - 17
Roy Model
• This model considers the skill composition of workers in the
source country
- Positive selection – immigrants who are very skilled do
well in the U.S.
- Negative selection – immigrants who are unskilled do not
do well in the U.S.
- The relative payoff for skills across countries determines
the skill composition of the immigrants
9 - 18
The Distribution of Skills in the Source
Country
Frequency
Negatively-Selected
Immigrant Flow
Positively-Selected
Immigrant Flow
sN
sP
Skills
The distribution of skills in the source country gives the frequency of
workers in each skill level. If immigrants have above-average skills,
the immigrant flow is positively selected. If immigrants have belowaverage skills, the immigrant flow is negatively selected.
9 - 19
Policy Application: The Economic
Benefits of Migration
• The immigrant surplus is a measure of the increase in national
income that occurs as a result of immigrants (and the surplus
accrues to natives)
• Immigration raises national income by more than it costs to
employ them
9 - 20
The Self-Selection of the Immigrant
Flow
Dollars
Dollars
Positive Selection
Source
Country
U.S.
U.S.
Source
Country
Do Not
Move
Move
sP
(a) Positive selection
Do Not
Move
Move
Skills
sN
(b) Negative selection
Skills
9 - 21
The Impact of a Decline in U.S. Incomes
Dollars
Dollars
U.S.
Source
Country
U.S.
Source
Country
sP
(a) Positive selection

Skills
sN
sN
(b) Negative selection
Skills
9 - 22
Earnings Mobility between 1st and 2nd
Generations of Americans, 1970-2000
Relative wage, 2nd generation, 2000
0.6
Poland
Philippines
Cuba
Italy
Belgium
UK
China
India
Germany
Sweden
0
Honduras
Mexico
Dominican
Republic
Haiti
-0.6
-0.4
0
Relative wage, 1st generation, 1970
0.4
9 - 23
Job Turnover: Some Stylized Facts
• Newly hired workers tend to leave their jobs within 24 months
of hire, while workers with more seniority rarely leave their
jobs
• There is strong negative correlation between a worker’s age and
the probability of job separation
• The decline in the quit rate fits with the hypothesis that labor
turnover is a human capital investment
• Older workers have a smaller payoff period to recoup the costs
associated with job search,they are less likely to move
• The rate of job loss is highest among the least educated workers
9 - 24
The Job Match
• Each particular pairing of a worker and employer has its own
unique value
• Workers and firms can improve their situation by shopping for
a better job match
• Efficient turnover is the mechanism by which workers and
firms correct matching errors to obtain a better and more
efficient allocation of resources
9 - 25
Specific Training and Turnover
• When a given workers receives specific training, his
productivity improves only at the current firm
• This implies there should be a negative correlation between the
probability of job separation and job seniority
- As age increases, the probability of job separation decreases
9 - 26
Job Turnover and the Age-Earnings
Profile
• Young people who quit often experience substantial increases in
their wages
• Workers who are laid off often experience wage cuts
• A worker’s earnings depend on total labor market experience
and seniority on the current job
• Workers with good match employment will have low
probabilities of job separation and these workers will tend to
have seniority on the job
9 - 27
Probability of Job Turnover over a 2-Year
Period for Young and Older Workers
Young Workers
0.8
Probability
0.6
Separations
0.4
Quits
0.2
Layoffs
0
0
2
4
6
8
10
12
14
Years on the Job
Older Workers
0.5
Probability
0.4
Separations
0.3
Quits
0.2
0.1
Layoffs
0
0
5
10
15
Years on the Job
20
25
9 - 28
Incidence of Long-Term Employment
Relationships, 1979-1996
35
30
Percent
Men
25
20
15
Women
10
1975
1980
1985
1990
Year
1995
2000
9 - 29
The Rate of Job Loss in the United
States, 1981-2001
20
High school dropouts
Percent
16
12
All workers
8
College graduates
4
0
1981-83 1983-85 1985-87 1987-89 1989-91 1991-93 1993-95 1995-97 1997-99 1999-01
Year
9 - 30
Specific Training and the Probability of
Job Separation for a Given Worker
Probability
of
separation
Seniority
If a worker acquires specific
training as he accumulates
more seniority, the
probability that the worker
will separate from the job
declines over time. The
probability of job separation
then exhibits negative state
dependence; it is lower the
longer the worker has been
in a particular employment
state.
9 - 31
Impact of Job Mobility on Age-Earnings
Profile
Wage
Stayers
Movers
Quit
t1
Quit
Layoff
t2
t3
Age
The age-earnings profile of
movers is discontinuous,
shifting up when they quit
and shifting down when
they are laid off. Long jobs
encourage firms and
workers to invest in
specific training, and
steepen the age-earnings
profile. As a result, stayers
will have a steeper ageearnings profile within any
given job.
9 - 32
End of Chapter 9

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