UNIVERSITY OF GRADUATE

SANTO TOMAS SCHOOL

LABOR MOBILITY
ANG, DANTE F BALUYOT, E CORRIGE, MARIE DUNGO, ELE GROSPE, DIANE RANCIS MILY MICHELLE ANOR FRANCINE

A REPORT ON

A. TYPES OF LABOR MOBILITY B. BENEFITS VS. COSTS OF MIGRATION C. KEY DETERMINANTS OF MIGRATION D. BACKFLOWS OF MIGRATION E. PERSONAL GAINS FROM LABOR MIGRATION F. ALLOCATIVE EFFICIENCY GAINS (AND EQUALIZATION OF WAGES) FROM LABOR MOBILITY G. EXTERNAL EFFECTS OF TOPICS MIGRATION

LABOR MOBILITY

LABOR M OMovementIof workers ; TY BIL

Workers tend to switch employers , occupations , geographical locations , or some combination of all three ; Employers , on the other hand , respond to changing economic circumstances by hiring , transferring , or discharging workers ; closing or expanding present facilities ; or moving operations to new location . Combined , these actions of workers and employers produce much movement of labor from employer to employer , DE INITI occupation to occupation , Fand place O N

PES OF LABOR MOBILIT

LOCATION
SAME DIFFERE NT

OCCUPATION

SAME

II I

DIFFERE NT

I I

I V

TYPES OF LABOR MOBILITY

Box I : Job Change / No Change in Occupation or Residence

Includes transfers of employees from one of a firms units to another in the same local area Ex . Branch re - assignment for Bank employees , workers switch employers but within the locality ( but with the same job )

TYPES OF LABOR MOBILITY

Box II : Occupational Change / No Change in Residence

Changes in occupation not accompanied by changes in residence . Occupational Mobility: involves moves to closely related occupations or characterized by a significant occupational change Ex . a part - time technician who completes college TY E might accept a job as an PIT S O F LABOR MOBILITY Specialist in

Box III : Geographic Change / No Change in Occupation

Geographic Mobility pertains to movements of workers from a job in one city , state , or nation to another . In many cases , geographic moves result in changes in jobs but not changes in occupation . Ex . Nurses who leave Philippine hospitals to join one abroad , Professional basketball player TYPES OF get traded from Los Angeles to LABOR MOBILITY Chicago .

Box IV : Geographic Change / Change in Occupation

Geographic job - related moves are being accompanied by changes in occupation ; represents both geographic and occupational mobility . Ex . Nurses from other regions ( in the Philippines ) might move to NCR to take other available jobs ( e . g . call center jobs ), teachers and other T Y to professionals transfer P E S O F L A become OFWs other nations to B O R M O B I L I. T Y

BENEFITS VS. COSTS OF MIGRATION

One way of understanding geographic mobility is through the development and testing of the human capital model of migration . Human Capital consists of income producing skill , knowledge , and experience embodied within individuals . This stock of capital can be increase by specific actions investment in human capital obtaining more education and additional training : That requires present sacrifices but increase the stream of future earnings BENEFITS VS. over oneCsO S T S O F .M I G R A T I O N lifetime Migration to a higher - paying

Will migration occur in all situations where a potential exists for increased lifetime earnings? No . Because there are costs associated with the migration investment that must be weighed against the expected gains . The main costs are transportation expenses , forgone income during the move , psychic cost leaving family and friends , and the loss BENEFITS VS. of seniority andO Spension M I G R A T I O N C TS OF benefits .

If the present value of the expected of the expected increased earnings exceeds the present value of these investments costs , the person will choose to move . If the opposite is true , the individual will conclude that it is not worthwhile to migrate , even though the earnings potential in the destination area may be higher than in the present BENEFITS VS. location . COSTS OF MIGRATION

EQUATION

Where : year n

V p = present value of net benefits E 2 = earnings from new job in E 1 = earnings from existing job N = length of time expected on i = interest rate ( discount

in yea r n new job rate )

n = year in which benefits and costs accrue C = direct and indirect Imonetary . BENEF TS VS cost resulting from CmoveT in O F year R A T I O N O S S the M I G n Z = net psychic costs of move

If V p > 0, implying that the expected earnings gain exceeds the combined monetary and net psychic investment costs , the person will migrate . If V p < 0, the person will remain in his or her present job and location . All else equal , the greater the annual earnings differential ( E 2 -E 1 ) between the two jobs , the higher will be the present value of the net benefits ( V p ), and the more likely it will be than an individual will migrate .

COSTS

BENEFITS VS. OF MIGRATION

KEY DETERMINANTS OF MIGRATION

AGE

All else being equal , the older that person is , the less likely he or she is to migrate .
KEY DETERMINANTS OF MIGRATION

AGE
Older migrants have fewer years to recoup their investment costs ; the shorter the time period one has to gain the annual earnings advantage , the smaller the Vp term in the equation Older people tend to have higher levels of human capital that are specific to their present employers ; the longer a person s KEY job tenure , the greater the amount of on - the - job training D E T E R M I N A N T S and OF MIGRATION employer financed investment of

AGE
Older people often have higher migration costs than younger people ; psychic cost may rise with age ; The higher these net psychic costs , the lower the value of Vp and the less likely one is to migrate Inverse relationship between age and migration exists partially because people are most mobile KEY after completing lengthy DETERM investments in human capitalI N A N T S OF MIGRATION

FAMILY FACTORS

The potential costs of migrating multiply as family size increases .

FAMILY FMarriedOworkers RS ACT

have less tendency to migrate than single people , other factors such as age and education being constant Married workers have higher migration rates whose spouses either do not work or work at low pay If both spouses earn a high wage , the family s cost in forgoing KEY income during the move EwillM I N A N T S D TER be high OF MIGRATION

FAMILY FTheCpresence of TORS A

school - age children can reduce the likelihood of migration ; psychic costs associated with the move are to great relative to the expected monetary gain

KEY DETERMINANTS OF MIGRATION

EDUCATION

The higher one s educational attainment , all else being equal , the more likely it is that one will

KEY DETERMINANTS OF MIGRATION

EDUCATION
College graduates and those with postgraduate training search for employment in regional and national labor markets in which employers seek qualified employees ; Wide disparities of pay for professional and managerial employees provide more opportunity to move to jobs KE entailing greater responsibility Y DETERMINANTS and pay OF MIGRATION

DISTANCE

The probability of migrating varies inversely with the distance a person must move .
KEY DETERMINANTS OF MIGRATION

DISTANCE
The greater the distance , the less information a potential migrant is likely to possess about the job opportunities available . Transportation costs usually increase with distance . The longer the physical distance of the move , the more probable it is that psychic costs will be substantial .

KEY DETERMINANTS OF MIGRATION

UNEMPLOYMENT RATES

High unemployment rates in an origin location should increase the net benefits from migrating and push

KEY DETERMINANTS OF MIGRATION

UNEMPLOYMENT RFamilies headed by unemployed ATES

persons are more likely to migrate than others The rate of unemployment at the origin positively affects out migration

KEY DETERMINANTS OF MIGRATION

OTHER FHome T O R S A C ownership

deters migration . Occupational licensure reduces migration by impeding the flow of licensed practitioners among states having differing licensing requirements . State and local government policies may influence labor migration . Federal defense contracts appear E Y K DET M the to shift labor regionallyE RinI N A N T S OF MIGRATION United States .

OTHER FIn C T O R S A international

migration , the language spoken at the destination is a prime factor affecting mobility . Union membership may be a determining factor . Some scholars suggest that people increasingly have placed a high priority on environmental quality and climate in their migration KEY decisions . DETERMINANTS

OF

MIGRATION

ACKFLOWS OF MIGRATIO

BACKFLOWS OF MIGRATION

PERSONAL GAINS FROM LABOR MIGRATION

PERSONAL GAINS FROM LABOR MIGRATION

LOCATIVE EFFICIENCY GAIN FROM LABOR MIGRATION

ALLOCATIVE E F F I C I EEfficiency Allocative N C Y

can be defined as a condition in the market structure where all of resources are allocated in the best systematic way so as to maximize the net profit achieved through their use . It is synonymous to Pareto efficiency which was put forward by Italian economist VilfredoPareto . Pareto noticed that 80 % of the AlandC AandV E LLO TI wealth in Italy was F owned N by 20 %N S E FICIE CY GAI FR LABO MOBILIT of the population .O MParetoR analyzedY

ALLOCATIVE EIn F I C, Iallocative ENCY F short

efficiency is all about having more benefits while producing relatively few liabilities . ALLOCATIVE EFFICIENCY IN LABOR Economic Efficiency exists when a nation achieves greatest possible real domestic output or income from its available land , labor , capital and entrepreneurial ALLOC VE resources . LABOR F F IMOBILITYA T Iis E CIENCY GAINS crucial in approaching B this O B I L I T Y F R O M L A O R M goal .

ALLOCATIVE MOBILITY

EFFICIENCY

IN

LABOR

Let us look at the numerical illustration below and assume the following :

1 . There are only 2 labor markets , each perfectly competitive and each is situated in a different geographic location . 4 . Each labor market has fixed number of workers and there is no unemployment . AL 7 . Non - wage job amenities C I andL O C A T I V E EFFI ENCY GAINS locational attributesB O R MtheI L I T Y F R O M L A are O B same in both areas .
2. 5.

ALLOCATIVE MOBILITY

EFFICIENCY

IN

LABOR

Let us look at the numerical illustration below and assume the following :
5.

4 . Capital is immobile . 7 . Workers possess perfect information about wages and working conditions in both markets . 6 . Migration between the two markets is costless .
8.

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

Columns 1 A and 2 A in the Table display the demand for labor in market A while columns 1 B and 2 B show it for market B . The wages are given in annual terms , and because of our assumption of perfect competition in the product and labor markets , these wages equal the value of the marginal product ( VMP ). Columns 3 A and 3 B cumulate the VMP data to show the value of the total product ( VTP ) associated with each level of employment . The VMP is greater for each labor market A than in B and this L O C A T I V E A L arises FF IENCY GAINS from greater capital E andI Ctechnological F R O M than O RB M O B I L I T Y LAB endowments of A so the

In the example let us suppose that 2 workers are employed in market A and each earns US$23 , 000 ( boxed figure ) while 8 workers , earning US$ 7 , 000 each are working in B ( boxed figure ). Given our assumptions , workers in B will migrate to A in pursuit of higher earnings .

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

WHAT HAPPENS TO ANNUAL EARNINGS IN BOTH MARKETS MIGRATION OCCURS?

WHEN

The number of workers in A will increase and this will cause the market wage to fall while in B , the decline in number of workers will increase the equilibrium wage . MIGRATION will continue until the wage advantage in A is totally eliminated and this occurs in the circled box . At this annual wage , employers in the highly capital - endowed A will hire 6 workers while in B , 4 workers will be hired . Assuming perfect competition , costless LOCATIV , information , and costless A L migrationE market wages will F R O E F F I C Ivalue BofA I T S equal L A B O E N C Y G L I N Y M the R M O I the marginal product of labor ( W = VMP ) and

DOES MIGRATION OF LABOR ENHANCE THE TOTAL VALUE OF OUTPUT OF A NATION? Before migration , the value of the total product ( VTP ) was $48 , 000 in market A and $112 , 000 in market B . Thus the combined pre - migration VTP was $160 , 000 ( $48 , 000 + $112 , 000 ). After migration , the total VTP of 6 workers in market A was valued at $ 120 , 000 while the 4 workers in market B produced $72 , 000 . Combined , this output corresponds to a total of $ 192 , 000 ( $120 , 000 + $ 72 , 000 ).

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

CONCLUSION
The simple model above shows that wage differentials create an incentive for labor to move from one market to another . This mobility , or migration equalizes wages and results in allocativeefficiency . It generates the highest possible value of total output from available resources .
ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

GRAPHICAL PWage S E N T A andI O efficiency N R E narrowing T

gains from migration can be shown graphically . For variety let us use an international example . The graph A shows the demand of labor in the US and graph B portrays the labor demand in the Philippines .

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

GRAPHICAL P R E S E N T A T I O Nlevels Employment and wage

in the US and Philippines are represented by points 0 e , W u and 0 l , W m . Because of the assumption of perfect information and costless migration , labor will move from the Philippines to the US until equilibrium wage W e is achieved in each nation . Positive efficiency gains will accrue to the world from this migration . The US gains domestic output equal to the area of ebcf in graph A and Philippines loses domestic A OCA VE output equivalent to the L L areaT I of E F F I the US gain kijl in graph B . Because C I E N C Y G A I N S FROM LABOR MOBILITY EXCEEDS the Philippine loss , the total

GRAPHICAL PState Sdifferently , I O N E N T A T the RE

sum of areas 0acf in A and 0hik in B exceeds the PRE - MIGRATION areas 0abe plus 0hjl , leading us to the conclusion that wage - induced labor migration - whether internal or international - increases the total income and output in the combined origin and destination . MIGRATION therefore enables a larger total output to be achieved from a given available amount of resources .

ALLOCATIVE EFFICIENCY GAINS FROM LABOR MOBILITY

EXTERNAL EFFECTS OF MIGRATION

TRENDS BEHIND MOBILE WORLD

A .Demographic trends C .Economic disparities between developing and developed countries E . Trade liberalization necessitating a more mobile labor force G .Communication networks linking all parts of the world I Transnational migration .
D. F. H.

EXTERNAL EFFECTS OF MIGRATION

SOME DEMOGRAPHIC TRENDS

Population of developed countries growing at 0 . 3 %

The rest of the world is growing six times as fast

Rapid growth , along with economic difficulties , pushes people out of their habitat

EFFECTS OF Based UN population forecasts, O N MIGRATI Japan and Europe an countries

Declining and aging population of developed countries pressure them to accept migrants E X T E R N A L

ECONOMIC FACTORS
Economic liberalization

Rising demand for labor in the developed economies and availability of labor in underdeveloped economies has set global labor migration in motion G lobalization has increased the mobility of labor across borders, E R N A L EXT reinforcing the movement O F EFFECTS M of skilled workers I G R A T I O N

ECONOMIC FACTORS
Economic decline

A declining global economy produces a downward pressure on the movement of labor , especially in the information technology ( IT ), construction , and manufacturing sectors
EXTERNAL EFFECTS OF MIGRATION

TRANSNATIONAL M Emergence of Othe transnational IGRATI N

migration space created by advances in transportation and communication technologies that link places and people globally In this space , migrants shuttle between more than one home The gaps geographic space and migration space have shrunk, causing far - reaching consequences on international migration X ERNAL Some of the outcomes E Tgrowing acceptance of dual E F F E C T S O F M citizenship , multiple I G R A T I O N

INTERNATIONAL LABOR MIGRATION

214 MILLION MIGRANT WORKERS

Over the past decade , the number of international migrants increased from 150 million in 2000 31 % of the world s population are migrant workers If they lived in one country , it would be the fifth - most populous in the world today 49 % of all the migrant workers are women INTERNATIONAL

LABOR

MIGRATION

214 MILLION MIGRANT WORKERS

Current annual growth rate is 2 . 9 % From 1965 to 1990 , the growth rate was 2 . 1 % ( increase by roughly 45 million )

INTERNATIONAL LABOR MIGRATION

WHERE DO MIGRANTS WORK?

Countries with a high percentage of migrants include Qatar (87%), United Arab Emirates (70%), Jordan ( 46 %), Singapore (41%), and Saudi Arabia ( 28 %) Countries with a low percentage of migrants include South Africa ( 3 . 7%), Slovakia ( 2 . 4%), Turkey ( 1 . 9%), Japan ( 1 . 7%), Nigeria ( 0 . 7%), Romania ( 0 . 6%), India ( 0 . 4%) and Indonesia ( 0 . 1%).

INTERNATIONAL LABOR MIGRATION

$414-B REMITTED IN 2009

Increased exponentially from US$ 132 billion in 2000 to about US$ 414 billion in 2009 Actual figures may be higher , because it does not take into account unrecorded remittances through formal channels and money sent through informal channels Top reciepients i n 2009 , India , China , Mexico , Philippines, N and O N A L INTER ATI Poland LABOR MIGRATION

$414-B REMITTED IN 2009

Main sources US ( largest with US$46 billion recorded outward flows in 2008 ) followed by Russia, Switzerland, and Saudi Arabia

INTERNATIONAL LABOR MIGRATION

$317-B OF TOTAL WAS REMITTED TO DEVELOPING COUNTRIES

INTERNATIONAL LABOR MIGRATION