LABOR ECONOMICS
LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 8, Problem 1RQ
To determine

Determine how the workers who wish to maximize the present value of lifetime earnings calculate the net gains to migration.

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Explanation of Solution

According to the trend, employees calculate the value of employment opportunities available in the each of the alternative destinations and subtract the cost of moving from the origin to the destination. They then determine which option maximizes the net present value of lifetime earnings. This means that if the net gain to migration is positive, then the workers will move to another destination to maximize the present value of lifetime earnings. Here, improving the economic opportunities available in the destination will increase the net gains from migration and increases the likelihood that the worker will migrate. On the other hand, improving economic opportunities in the current region of residence decreases the net gain from the migration and decreases the worker’s probability of moving. In addition, an increase in migration costs reduces the net gains and decreases the probability of switch.  

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