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The welfare effects of labour force growth with internationally mobile capital


The effects of labour supply growth on the welfare of preexisting “destination” and non-emigrating “source” populations are analysed. This growth occurs in open economies where free trade in capital goods is possible. Traditional “small” economy arguments for population growth rely on the existence of priced though internationally immobile factors. When all factors are freely-traded and population grows naturally the case rests either on market distortions or common property within families. In an integrated world labour growth can lead to capital flight and increasing wage differentials. With international interactions, immigration increases preexisting welfare in destination countries but generally (not always) reduces it for non-emigrants in source countries. Immigration provides efficiency gains to all originally resident in source countries. Natural population growth anywhere promotes efficiency gains everywhere.

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Clarke, H.R. The welfare effects of labour force growth with internationally mobile capital. J Popul Econ 7, 79–98 (1994).

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  • Labour Supply
  • Capital Good
  • Wage Differential
  • Efficiency Gain
  • Destination Country