Human Capital Allocation and Policy Intervention when there is Externality in Cities

Neville Jiang () and Rui Zhao ()
Additional contact information
Neville Jiang: Department of Economics, Vanderbilt University
Rui Zhao: University of Illinois

No 325, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper studies the allocation of skilled and unskilled workers with different human capital levels between locations: city and rural area. In the city, activities are congregated thus there is externality in production. In rural area production is spread out and no externality exists. Given a distribution of workers with various human capital levels in an economy, the social optimal allocation gathers workers with higher human capital in each category in the city, which all competitive equilibria fail to achieve, As a result, any policies that keep workers with low human capital out of the city increase total output. We further demonstrate that in some cases it is necessary to impose direct and selective barrier on the rural-urban migration. However, such policy maintains the city premium for unskilled labor. Great incentives exist for illegal rural-urban labor flow.

Keywords: city externalities; human capital distribution; migration (search for similar items in EconPapers)
JEL-codes: H23 R13 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-geo and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/pubs/VUECON/vu03-w25.pdf First version, 2003 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0325

Access Statistics for this paper

More papers in Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by John P. Conley ().