Chapter 10 Worker Mobility: Turnover, Migration, and Immigration

PROBLEMS

The Determinants of Worker Mobility

1. Consider a family where both the husband and wife work, and assume each spouse has three more years to work (after the current year) before retirement. Table 10-1 indicates the projected combined salary over the remaining work years if they each stay with their current employers. It also shows the combined salary they can expect if they relocate and change employers.

Table 10-1.

Year                 Combined Salary at Current Jobs                    Combined Salary at New Jobs

1                                         $80,000                                     $83,000

2                                          $82,000                                     $87,000

3                                          $85,000                                     $92,000

Suppose the total cost of moving, including direct expenses, foregone earnings, and psychic costs, totals $10,000. Assume all costs are incurred during the current year (year 0).

1a.   If the discount rate is equal to the market interest rate of 6 percent, is this investment in mobility worthwhile?

1b. What are the maximum mobility costs that could be and still make this investment worthwhile?

1c.  How reasonable is it to assume that the psychic costs of mobility all occur in the current year (year 0)?

1d.  Is it reasonable to expect that there will also be psychic benefits associated with moving?  If so, give some examples of such benefits.

1e. When a person moves without a new job already in hand, evidence suggests that the mobility may initially result in lower earnings compared to their current job.  This reduction is then more than overcome in future periods by faster earnings growth in the new location.   Holding all else constant, what is the lowest the new combined salary could be in year 1 and still have this be a worthwhile investment?

1f.  Is it reasonable to expect that both spouses will gain equally because of the move?

The Gain to Society from Mobility

2.  Mobility investments may lead not only to individual gains, but also to gains for society as a whole.  To see why this is true, consider the information in Table 10-2.  It shows the relationship between employment and output in two different labor markets.

Table 10-2.

Labor Market A                                                              Labor Market B

2a.  Compute the marginal product of labor for each unit of labor in market A.

2b.  Graph the marginal product of labor schedule for market A.

2c.  For an employment level of 5, show that the area under the marginal product schedule equals the total output associated with that output level.

2d.  Compute the marginal product of labor for each unit of labor in market B.

2e.  Suppose that there are 6 workers in this economy and that currently 3 work in market A and 3 work in market B. If each worker is paid in real terms, what will be the marginal product associated with the last worker hired, and what will the wage rates be in each market?  How much combined total output will be produced by the two markets?

2f. Assuming all other job characteristics are the same in both markets, where will workers tend to migrate?  What happens to total output if one worker migrates from market A to market B? What would happen to total output if more than one worker migrated from A to B?  Would there be an incentive for more than one worker to migrate?

The Consequences of Immigration

3.  Consider a labor market where the demand for a particular category of labor is given by the equation

LD = 20 - 2W.

Suppose that the supply curve of workers in this market who are also native-born citizens is given by

LN = 2W,

while the supply curve of immigrants in this market is given by

L1 = W,

where L represents the number of workers, W is the wage expressed in real terms, and the subscripts D, N, and I are used to distinguish between the quantity of labor demanded and the quantity of labor supplied by native-born and immigrant workers.

3a.  Find the market-clearing wage and employment level, assuming immigration is not allowed. Then find the market-clearing wage and employment level after allowing for immigration.  How many native jobs are lost to immigrants?

3b.  Compute the real income of native-born workers in this market before and after immigration. How much is the income flow reduced?

3c. Ignoring the cost of capital, compute the total profits ofthe firms before and after immigration. What is the change in total profits?

3d. Compute the total output of this market before and after immigration. How much total output does society gain because of immigration?

3e.  Taken as a whole, how much would immigrants be willing to pay in real terms for the right to work in this country (i.e., how much do immigrants earn in economic rent)?

3f. If immigration leads to a large enough increase in output, it is possible that native workers can be kept at least as well off as before immigration without hurting immigrants or the firms.  Give an example of a transfer payment scheme that would accomplish this.

3g. What other effects do immigrants have on labor markets that are not captured in this model?

APPLICATIONS

Migration After a Job Loss

4.  Consider a worker currently making $60,000 in a defense industry plant in the New England area.  Suppose the plant is closed because of government spending cutbacks and the worker loses his job.  After a prolonged search, the worker decides to change occupations and move to North Carolina.  His new job only pays $50,000.  Has not migration made this worker worse off?   Do such examples contradict the prediction of the human capital investment model that says people invest in mobility only when the present value of the benefits is at least as large as the present value of the costs?

The Causes of Higher Quit Rates for Women

5. According to the text, “It is well established that female workers have had higher propensities toward quitting than male workers.”  Empirical evidence also suggests that women's job tenure tends to be significantly lower than that of men, a finding consistent with the notion that women have higher quit rates.  The higher quit rates and shorter tenure are, in turn, attributed to the lower levels of firm-specific training that women obtain, a subject discussed in Chapter 5.

5a.  Using the lessons of Chapter 5, review why women are less likely to be offered firm-specific training.

5b.   Review why higher quit rates are expected when a worker does not receive firm-specific training.  Would eliminating general training also lead to higher quit rates?

The Effects of Reducing Immigration When a Minimum Wage Applies

6.  Consider a labor market where the demand for a particular category of labor is given by the equation

LD = 20 - 2W.

Suppose that the supply curve of workers in this market who are also native-born citizens is given by

LN = 2W,

while the supply curve of immigrants (including illegal immigrants) in this market is given by

LI = W.

(This is the same information given in problem 24 earlier in the chapter.)  Suppose the government imposes a minimum wage (in real terms) of 6 that applies to all workers.

6a.  Is the minimum wage binding?  What would the market-clearing wage be in the absence of the minimum wage (assuming there are no restrictions on immigration)?

6b. What is the quantity of workers demanded at the minimum wage?

6c.  What is the total quantity of workers supplied at the minimum wage?  How many are native- born workers?  How many are immigrants?

6d.   How  many  native workers will  actually be  employed?   How  many  immigrants  will be employed?

6e.  The 1986 Immigration Reform and Control Act (sometimes called the Simpson-Rodino Act) made it illegal for firms to hire illegal immigrants.  Employers are required to verify whether new employees are legal residents. Any firm consistently caught hiring illegal residents could face fines of up to $10,000.  Suppose the law, by reducing the expected benefits of migration, has the desired effect of reducing the number of illegal immigrants in this market.  In the context of this example, how many native workers will be hired for every immigrant that is not?  Would your answer be the same if the minimum wage were not binding?  (Based on the discussion in Chapter 5, how would the firm’s cost of complying with the immigration law be classified?)

6f. Another provision of the 1986 Immigration and Control Act was that illegal immigrants who had lived continuously in the United States since 1982 could apply for amnesty and legal resident status. After 5 additional years of continuous residence, these immigrants could then apply to be U.S. citizens.   Based  on the  human capital investment framework, what effect would such a program have on the flow of illegal immigrants?

6g.   According  to The  Wall  Street Journal (September  1,  1992,  p. A1),  in  California  alone, approximately 1.5 million illegal immigrants took advantage of the amnesty program, and the first wave of applicants were eligible for citizenship on November 6, 1993.  Citizenship also makes the former immigrants eligible for welfare assistance.   What effect does the expansion of welfare eligibility have on the likelihood that the aggregate income (the sum of earnings, profits, and net government subsidies) of the native-born population will fall?