Migration and Development

4/9/2018: “Does moving for a job pay?”

Wage determination in a perfect market

In a highly competitive labour market wage rates are determined by demand for and supply
of labour. If demand for labour will exceed supply, there would be an upward pressure on
wage rate or if supply will exceed demand wage rate will go down. Wage rates will only
remain stable if demand is equal to supply.
Demand for labour:  is basically derived demand which means labour is demanded because
goods and services are demanded. The greater the demand for goods and services the greater
the demand for labour. Demand for labour is also dependent on productivity and prices of
other factors of production. For example, if price of capital falls or productivity increases
demand for labour may fall.
Marginal Revenue Productivity Theory:  According to the theory demand for labour is
dependent on its Marginal Revenue Product (MRP). MRP is the additional revenue from the
additional output of an additional worker employed. Any profit maximizing firm will employ
a quantity of labour where MRP is equal to MC (marginal cost). MC is the wage paid to the
additional labour employed. MRP is calculated by the equation MRP = MPP ( P ) where MPP
is the marginal physical product and P is the price of the good which the firm is selling (we
are assuming  P = MR throughout). MRP curve of a firm shows revenue on Y-axis and No. of
workers on X-axis. MRP curve is initially upward sloping because of increasing MPP
(increasing marginal returns) and downward sloping later on due to decreasing MPP
(diminishing marginal returns) of labour. MRP curve is actually demand for labour curve of
an individual firm because at what wage rate what quantity of workers would the firm
employ is determined by the MRP curve. This is because any profit maximizing firm would
employ that quantity of workers where MRP = MC.

Derivation of Individual Firms D-Curve of Labour:

For derivation of the curve we assume that the labour market is perfect. In the perfect labour
market all the workers are homogenous which means their mental and physical capabilities
are similar and they are equally productive. There are large number of workers because there
are no barriers to entry in the form of occupational immobility, geographical immobility and
imperfect knowledge. We also assume that there are no trade unions and no government
intervention. All the firms employing workers are small firms and there are no oligopolies
and monophonies. Due to the above mentioned features, all of the firms and the workers in
the market are in no position to influence the wage rate therefore they are wage takers .Wage
rates are determined in the market by demand supply forces and whatever wage rates are
prevailing in the market all the workers have to supply themselves on the same wage rate
.Due to the same reason supply curve of labour faced by an individual firm is horizontal .All
the workers being supplied at the same wage would mean that average cost of employing is
equal to marginal cost.
Plotting the MRP curve on the supply curve of labour of individual firm we can find out the
profit maximizing quantity of labour which the firm will employ.

It can be seen from the diagram that the wage rate is determined in the market. Labour supply
curve is horizontal (workers being wage takers) and firm is employing quantity Q at the
intersection of MRP and MCF curve.
Now lets suppose that the market supply of labour increases fro S1 to S2 and then S3 due to
which wage rate goes down to W2 and then W3. As a result, individual firms supply curve
shifts downward to S2 and then S3. Profit maximizing quantity moves to Q2 and then Q3.
This shows that every time the wage rate changes, MRP curve determines what quantity of
the workers would the firm employ. We can see that along the MRP curve when wage rate
falls quantity demanded of workers increase and if wage rate rises quantity demanded falls
(abiding by the law of demand). Therefore, we can say that MRP curve of a firm is its
demand for labour curve. According to MRP theory the wage rate of a worker in a given
supply condition is dependent on MPP of the labour and the Price of the good. IF MPP or P
increases MRP will increase therefore MRP curve would shift upward and wage rate would
increase. On the contrary if MPP or P falls, MRP falls therefore MRP curve would shift
backward and wage rate would fall.

Supply of Labour:
In a specific labour market supply of labour, is dependent on “Pecuniary & Non Pecuniary”
(monetary & non monetary) incentives offered by the firms. For instance, in Karachi after
1990s tertiary sector grew faster and so increased demand for commerce graduates. Increased
demand drove up monetary and non monetary incentives and more people entered the
industry after doing ACCAs , CAs, MBAs and related courses.
Market supply curve of labour is upward sloping abiding by the law of supply, when wage
rate would go up supply of labour would extend and when wage rate goes down supply
contracts.

Equilibrium or Market Wage Rate: is the wage rate at which quantity demanded of labour is
equal to quantity supplied. At this quantity there is no excess demand or supply therefore no
tendency of a change. diagrammatically it is the quantity at which demand and supply curve
intersect each other.
 Economic geography perspectives; Human capital; Equilibrium and disequilibrium
theories of migration. Convergence and Divergence (1)
Tuesday, September 11 2018 (2nd meeting)

Equilibrium and disequilibrium theories of migration. Convergence and Divergence (2)

Wednesday, September 12, 2018 (3rd meeting)

- The demand for bilateral migration flow data that can be the basis for robust
comparisons has led researchers to develop indirect estimates.

- Disequilibrium models (Neoclassical, but also Krugman, NEG):

 People move in reaction to the availability of jobs

- Spatial Equilibrium Model (Glaeser and others):

 People move in reaction to the availability of amenities.

 They go to nice places!

- Agglomeration economies are the benefits that come when firms and people locate
near one another together in cities and industrial clusters.

- Three sources of agglomeration economies: (1) local tacit knowledge spillovers (2)
non-traded local specialist input (3) local skilled labour pool

- Non-traded local inputs: The provision of such services is very expensive (e.g.
paying a lawyer – accountant etc.). Average cost of service provision to each market
participant will be low – costs of setting us such services will be spread over a large
number of customer firms.
- Local skilled labour pool: Flexibility – work extra hours if needed – capacity (e.g.
Uni example – research project funding – local skills – students PhD student’s post-
docs etc. Professors – And local pool of populations to recruit from

- Agglomeration economies has three types: (1) internal returns to scale / location

specific (2) economies of localization (3) economies of urbanization

- Localisation economies are the agglomeration economies that accrue to a group of

firms within the same industrial sector located at the same place. Local supply firms
benefiting from close proximity to their major customer firms.

- Urbanisation economies are those economies of agglomeration which accrue to firms

across different sectors. Example: all people who live and work in the area will
require legal, real estate, retail, educational, health care and leisure services etc...
Similarly, firms require services such as marketing advertising, catering, etc.

- There are two forces in the base NEG model that promote agglomeration: (1) the
home market effect and (2) the price-index effect (Brakman et al., 2009a; Chapter 3).
The home market effect occurs because, as more firms and workers locate in one
region, additional firms move there to take advantage of serving a larger market with
lower transportation costs—i.e., there is a more than proportionate increase in
production as home income rises (Head and Mayer, 2004). The price index effect
occurs as a region increases in size, resulting in a greater number of varieties of the
monopolistically competitive product. Workers are then willing to accept a lower
wage in the region—i.e., the love of variety. An offsetting third effect, the extent of
competition effect, implies that increasing competition in the larger region will
depress output prices—which pressures firms to relocate to the smaller region.

- So, clustering is trade-off between:

 Increasing returns to scale as a result of agglomeration (+, up to a point)

 Increasing competition (-)

 And transportation costs (-)

- If transportation low enough, total clustering of manufacturing and workers in that
sector will occur.

Happy people or happy places?

13/09/2018 (4th meetings)

- Life expectancy is an objective tool to judge the wealth of certain region. The highest
life expectancy in Europe is in Madrid
- Factors affecting happiness: income, family security, good values, mobility, and it all
relates to economic theory.
- Multilevel analysis modelling enables the analysis of data with complex patterns of
variability-suitable to explore the variability of happiness at the different level
 Population Studies Perspectives: Macro, micro, and meso views of migrations
18/9/2018 (5th meetings)

- Population studies  the main aims are to explain and predict change and continuity
in structure and composition of population of individuals, households, and families in
a geographical area
- Migration vs residential mobility  theoretical distinction located on :
 The daily activity space
- Migration: move involving major change in Daily Activity Space (DAS)
- International migration can be divided into: Crypto International Migration & Pseudo
International Migration
- The human-capital model of migration is gathered by education or work experience
- The concept of human-capital model is: Migration = investment
 …. To increase return on (revenues of)
hc
 …..to increase human capital itself
Migration = undertaken if benefits exceed cost
 Presupposes migration works out
positively
- A-life course approach to relocations
In macro context: opportunities and constraints are impacted on education, labor
market, housing, etc.
- Short-distance moves (residential mobility) are mainly changing in household /
nuclear families.
- Long-distance moves (migration) are mainly changes of jobs or education

China’s Internal Migration: Development Perspectives and Policy Response

(2-10-2018)

- What triggers migration in China  beside income and deprivation, the reason of
education also triggered the people in China to move and find a better opportunity in
other country.
- China is in the midst of of an urban revolution, with hundreds of millions of rural-to-
urban migrants every year in the last three decades. The appalling condition of
migrant housing, in sharp contrast to the significant housing improvement among
permanent urban residents, is increasingly considered a potential threat to social
stability.

- It has been well documented that, since the fiscal reform in 1994, local governments
have kept an increasingly smaller share of tax income while shouldering increasingly
larger fiscal responsibility for public services and welfare benefits (Lin and Yi, 2011;
Man, 2010; Su and Tao, 2010; Tsui and Wang, 2004). As the de facto landowner and
the sole land proprietors to convert rural land into urban land (Ho and Lin, 2003;
2004), local governments have turned this monopolistic power into a revenue-
generating business, and have depended on land- related revenues such as land
conveyance fees to meet their budgetary needs.
- Local governments have few incentives to provide subsidized housing to migrants,
since this would not only reduce the residential land leasing revenue but also increase
local spending in public housing construction and management. To maximize land
leasing revenue, local governments undersupply residential land (Tao et al, 2010).
This accounts in part for the skyrocketing land and housing prices in Chinese cities,
which in turn encourages developers to provide expensive ‘commodity housing’
(shang pin fang) for sale instead of affordable rental housing.

Migration along the life course

(9-10-2018)

- The life course: reasons and triggers  economist have tended to focus on wage
differentials
- The life course defined as a sequence of socially defined events and roles that the
individual enact over time
- Linked lives happen in family migration. Family dissolution is a context where ties
come to the fore---mean continued coordination of location of parents (such as
children who come visiting their parents/ or even want to live nearby with their
parents)
- Human agency  decisions that people make in their life  these decisions bounded
by opportunity and constraint structures (e.g. housing markets)  housing market can
affect how people decide whether they want to live near their family or live separately
due to the housing market.
- Historical time and geographical location: people born in different years and different
historical locations face different opportunities and constraints
- International migration  cost so much for natives
- Two useful concepts for life events  1) state: any (usually changeable) position in
the life course or any attribute of it (e.g. married) 2) transition: “changes in state that
are more or less abrupt” (e.g. from employed to unemployed)
- Life-course perspective for migrations has a general view by migration researchers:
while migration is affected by job opportunities, it is as much affected by household
considerations for subject wellbeing
- Life course events & transitions change the evaluation of one’s residential
environment
- Current limitations and future potential: In particular, research has often ignored the
multilevel interdependencies (the multilevel nature of the life course)  Capitalism
(housing market, technology), The Family (such as Divorce, LAT), Culture
(integration and assimilation), and The Environment (Physical amenities, climate
change)

Hypothesis of Mobility Transition

10-10-2018

- Mobility transition  future sustainability global digital  keyword “modernity”

- Mobility is good. More mobility is more modernity
- The tendency of mobility transition is depending upon at the level of regional or state
socio-economic progress
- Ravenstein’s law of migration doesn’t mention demographic transition
- Modernization of societies affects patterns of mobility
- The assumption in “Migration to cities” table in PPT (D+C+G) is that people who
have come to the city will likely to stay at the city