Common Markets Flashcards
So far we assumed FoP immobile within
CU and RoW
Add free movement of FoP to a CU, to get a CM/Single market
What do we experience with wages and interest rates between countries
We see convergence of wages and interest rates between countries
Why?
Factor price equalisation - given free movement of FoP
HO model
Assumptions
When does movement of labour stop
When MPL (N) = MPL (S)
Redistribution of rewards (from welfare gain)
Depends on…
Where migrant workers live, and where wages are spent.
Labour remaining in S receive higher wages, while real wages fall in N till they equalise.
2 extreme cases of redistribution
If migrant workers reside & spend in North and send no money to South - net gain is all the Norths.
If border workers live in S & spend no money in N, overall net gain area is shared equally
What happens in reality
Migrants will often live and work in N and send money home to S (like remittances)
Thus overall net gain of ABC majority goes to the North
Empirical evidence, we look at EU15 (N) v CEECs (S)
In 2004 Uk Ireland and Sweden allowed free movement of labour… what about other states
Other states had derogations up to 7 years i.e didn’t implement free movement - were wary of the effect of a free influx of migrants.
Where was most the migration
Poland’s to UK and Ireland
Impact on UK Ireland and Sweden
Growth of the working age population increased (as expected)
Job shortages in UK and UK were pragmatic so willing for migrants, but underestimated the amount.
There are migrants substitutes or complementary arguments:
If complementary (2)
Migration is beneficial
High skilled migrants are complementary, and likely to lead to wager rises
Skill level of A8 migrants overtime
1998-2003 - 45.4% were high skilled
But 2004-2006 - only 11.2% skilled, 62.6% low skilled.
(So got worse overtime)
Effect on wages and unemployment
Little effect on employment and wages.
