International Macroeconomic Interdependence and International Migration of Labour

George Agiomirgianakis

International Journal of Finance & Economics, 1996, vol. 1, issue 2, 133-47

Abstract: International migration of labour (IML) has been very little analysed in the context of a macroeconomic framework. This paper incorporates IML into a macroeconomic model and examines its policy implications. We extend a standard macroeconomic model by allowing real consumption-wage differentials to affect labour supply flows. Our analysis shows that even in the case of an inelastic labour supply with market clearing, IML generates interdependence by allowing fiscal disturbances to be transmitted between countries. More specifically, we show that a foreign fiscal contraction, by reducing the foreign consumption wages, induces out-migration of labour which, over time, reduces foreign output and raises domestic output. We also show that the higher the degree of IML, the shorter the period during which real wage differentials between countries persist. Copyright @ 1996 by John Wiley & Sons, Ltd. All rights reserved.

Date: 1996
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