Human Capital Mobility II

Abstract

Migration from poorer to richer countries can produce a vicious circle from a gap in real wages through a gap in human capital causing a gap in productivity causing a gap in real wages again. This circle can be linked with another one (based on the effective wage theory) connecting the level of real wages to the prices of non-tradables. Lower wages impact through lower demand on lower prices of non-tradables. Having once lower prices of non-tradables and thus lower wages paid in the non-tradables sector, the real wages in the tradables sector and the general real wages as well are pulled to a lower level. Both circles influence the process of convergence of the Central and East European Countries (CEEC) to the European Union (EU). In this paper, we show different possibilities for the model specification of this basic mechanism, to cover different links between human capital migration to the real wage (equations 4a, b) and different possibilities for human capital formation in the old EU members (equations 5a-e). We show results of parameters’ estimation and some illustrations of model’s dynamics. In conclusions, we discuss where problems with parameters’ estimation may come from and show where farther changes in model’s specification could be done.human capital; mobility; estimation; dynamics