Model of international migration-average earnings

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Consider the following model of international migration. The potential migrants originate in country 0, the source country. Worker 1 has 1 efficiency unit of skill, worker 2 has 2 efficiency units of skill, and worker 3 has 3 efficiency units of skill and so on. There are 100 workers in the population. In deciding whether to migrate to the United States, these workers compare their earnings in the source country (w0) with their potential earnings in the United States (w1). Suppose it costs $10 to migrate to the United States.

The wage-skills relationship in each of the two countries is given by:

w0 = 350 + 0.75s

w1 = 300 + 1.50s (Where s is the number of efficiency units of skill the worker possesses )

a) Assume an indifferent person stays in the home country. How many people will choose to move to the U.S? What is their average skill level? What are their average earnings?

b) Assume an indifferent person stays in the home country. How many people will choose to stay in the home country? What is their average skill level? What are their average earnings?

Reference no: EM13770656

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