In this problem we consider the migration of labor from one country to another. To begin with, draw a graph that looks like Figure 2 in the Appleyard, Field, and Cobb text. The total length of the horizontal axis represents the total amount of labor in these two countries. The wage in country I is measured on the left-hand vertical axis, and the wage in country II is measured on the right-hand vertical axis.
Graph the following curves by clicking here
Draw country I’s demand curve for labor. Label it DI.
Draw country II’s demand curve for labor. Label it DII.
Label the wage at which the two demand curves cross as “W*.”
Suppose the wage in country I is higher than “W*.” Label this wage on the left-hand vertical axis as “WI.”
Assuming there are no labor market imperfections in country I, how much labor is employed in that country? On the horizontal axis, label this quantity “L2.”
How much labor is available in country II? If there were no labor market imperfections, what would the wage be there? Label this wage “WII.”
Suppose now that country II has a minimum wage that is above “WII,” but below “W*.” Label this wage “W**.” How much labor in country II is employed at this minimum wage? On the horizontal axis, label this quantity as “L1.”
If migration is not allowed, how many workers are unemployed?
If labor is free to migrate, what do you expect to happen to wages in each country?
In this problem, we consider the movement of capital from one country to another. To begin with, draw a graph that looks like Figure 1 in the Appleyard, Field, and Cobb text. The total length of the horizontal axis represents the total amount of capital in these two countries. The price of capital in country I is measured on the left-hand vertical axis, and the price of capital in country II is measured on the right-hand vertical axis.
Graph the following curves by clicking here
Draw country I’s demand curve for capital. Label it DI.
Draw country II’s demand curve for capital. Label it DII.
Label the price of capital at which the two demand curves cross as “r*.”
Suppose that initially the price of capital in country I is higher than “r*.” Label this wage on the left-hand vertical axis as “rI.”
How much capital initially is employed in Country I? On the horizontal axis, label this quantity “K2.”
How much capital initially is available in country II? What would the capital price be there? Label this capital price “rII.”
Suppose now that capital is permitted to move freely across international borders. From which country will capital flow, and into which country will it flow? What quantity of capital will move?
Draw a graph of the supply and demand for labor in a given country. Label the vertical axis “wage” and the horizontal axis “quantity of labor.”
Graph the following curves by clicking here
Label the initial equilibrium wage and quantity of labor as “w1” and “L1” respectively.
Suppose immigration occurs. How will this effect the labor supply curve?
If employers are unable to discriminate against migrants (that is, if they must pay them the same wage as domestic workers), what will happen to the equilibrium wage? Label the new wage “w2,” and the new equilibrium quantity of employment “L2.”
If, perhaps through a formal guest worker program, employers are permitted to pay migrant laborers the lower wage of w2, and domestic workers the original wage of w1, are the employers better off? What about domestic workers in this industry? What about the migrant workers?
