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Wages and International Factors’ mobility
Podrecca, Elena
Rossini, Gianpaolo
2012
Abstract
The labor wage is the result of market variables and institutional settings of a country. In an
open economy the determination of the market wage rate may be further affected by the
extent of international mobility of both factors of production, labor and capital. Labor
mobility is represented by migration in and out of a country, while capital mobility relates
mostly to the extent of foreign direct investment (FDI) outflows and inflows. Migrants may
represent an addition to the native labor force of a country and, in some cases, play a
substitute role with respect to incumbent workers. FDI, in particular of the greenfield
category, represents either a supplement to or a reduction of the domestic capital and, by and
large, changes the opportunity set of a firm’s CEO with respect to the corresponding
company operating in a closed economy. International factor mobility and domestic market
variables, such as unemployment and productivity, interact in the wage setting process. In
this paper, we derive a theoretical wage equation following the above premises, and perform
pooled mean group estimates of its parameters on panel data for a group of 13 European
countries with quarterly time observation over the period 1996-2007. We find that capital
outflows have a robust negative effect on the wage rate. The effects of migration inflows,
on the other hand, are not so clear-cut, as they can be null or negative depending on the
sample of countries considered.
Series
Working paper series - Dipartimento di scienze economiche, aziendali, matematiche e statistiche "Bruno de Finetti"
4 (2012)
Publisher
EUT Edizioni Università di Trieste
Source
Elena Podrecca, Gianpaolo Rossini, "Wages and International Factors’ mobility", Working Paper Series 4, 2012
Languages
en
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