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Labor market integration in the presence of social capital

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  • Schiff, Maurice

Abstract

Labor market integration is typically assumed to improve welfare in the absence of distortions, because it allows labor to move to where returns are highest. The author examines this result in a simple general equilibrium model in the presence of a common property resource: social capital. Drawing on evidence that social capital raises productivity and falls with labor mobility, the author's main findings are that: 1) Labor market integration imposes a negative externality and need not raise welfare. 2) The welfare impact is more beneficial (or less harmful) the greater the difference in endowments is between the integrating regions. 3) Whether positive or negative, the welfare impact is larger the more similar the levels of social capital of the integrating regions are and the lower the migration costs are. 4) Trade liberalization generates an additional benefit -- over and above the standard gains from trade -- by reducing labor mobility and the negative externality associated with it. Trade liberalization is superior to labor market integration. 5) The creation of new private or public institutions in response to labor market integration may reduce welfare. The author shows that the welfare implications depend on two parameters of the model, the curvature of the utility function and the cost of private migration.

Suggested Citation

  • Schiff, Maurice, 1999. "Labor market integration in the presence of social capital," Policy Research Working Paper Series 2222, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2222
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    References listed on IDEAS

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    Cited by:

    1. Jean-Marie Grether & Jaime de Melo & Tobias Müller, 2015. "The Political Economy of International Migration in a Ricardo–Viner Model," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 17, pages 411-437, World Scientific Publishing Co. Pte. Ltd..
    2. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. Lederman, Daniel, 2002. "Income, wealth, and socialization in Argentina : provocative responses from individuals," Policy Research Working Paper Series 2821, The World Bank.
    4. Leonardo Becchetti & Melania Michetti, 2008. "When Consumption Generates Social Capital: Creating Room for Manoeuvre for Pro-Poor Policies," Working Papers 88, ECINEQ, Society for the Study of Economic Inequality.
    5. Daniel Lederman, 2005. "Income Wealth, and Socialization in Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 3-30.
    6. Thierry BAUDASSE, 2006. "Governance and Migration in a South-North Partnership : the Teaching of Economic Analysis," LEO Working Papers / DR LEO 691, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    7. Antoci, Angelo & Sacco, Pier Luigi & Vanin, Paolo, 2008. "Participation, growth and social poverty: social capital in a homogeneous society," MPRA Paper 13661, University Library of Munich, Germany.
    8. Maurice Schiff, 2004. "Labor Mobility, Trade, and Social Capital," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 630-642, September.
    9. Antoci, Angelo & Sacco, Pier Luigi & Vanin, Paolo, 2001. "Economic Growth and Social Poverty: The Evolution of Social Participation," Bonn Econ Discussion Papers 13/2001, University of Bonn, Bonn Graduate School of Economics (BGSE).
    10. de Melo, Jaime & Müller, Tobias & Miguet, Florence, 2002. "The Political Economy of EU Enlargement: Lessons from Switzerland," CEPR Discussion Papers 3449, C.E.P.R. Discussion Papers.

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