Labor Market Integration and Migration: Impacts on Skill Formation and the Wage Structure

We analyze the impacts of labor market integration and migration on skill formation, wage structures, and per capita GDP of host and source countries. To do so, we propose a model in which heterogeneous agents invest in the acquisition of skills, and in which final good production exhibits increasing returns to scale in the range of available skills. Labor market integration, by allowing for migration in response to wage differentials, changes the wage structures and, therefore, the incentives to become skilled in both host and source countries. We show that our model can largely replicate the empirical evidence concerning international migration, the widening international income dispersio…