EC1111 - International Economic Policy RHUL Vinay P. Nundlall Seminar 3 - Suggested Answers 1. The diagram below shows pre- and post-equilibria in the labour market due to migration in the Receiving (Home) Country. Draw the analogous diagram for the Sending (Foreign) Country and discuss the effects. e £/hour SLocal SLocal + Imm e 10 e' 7 DL 0 100 110 Employment (millions)
Wages F SL' X W2 SL e2 W1 Y A e1 B DL L2 L1 Employment The diagram above depicts the situation in the labour market in the sending country. Before migration, equilibrium is obtained at point e1, with wages W1 and level of employment L1. Capital Owners receive 'rent' represented by the triangle area A (e1W1F) and workers take total wages represented by the rectangle B (= L1 X W1). Mass Emigration causes a leftward shift in the supply for labour curve, to SL'. A new equilibrium occurs at e2, with higher wages W2 and lower level of employment L2. Capital Owners lose 'rent', represented by the shrunk triangle area X (e2W2F) and workers take wages represented by the rectangle Y (= L2 X W2). We cannot tell with precision whether workers are better off or worse off (is Y > B, or Y < B?). This will depend upon the elasticity of the demand function. However, the economy on the whole has shrunk, and the sending country is therefore worse off. Higher wages and demand from capital owners may spur the population (or government) to make a leap in training and education. There is a premium on the returns to education and a lot of people suddenly decide to invest in acquiring more skills and training at home. 2. For debate and discussion in the Seminar. a) What are the factors that attract migrants to the UK?
b) How do migrants from the A8 countries contribute to the UK economy? Do the costs outweigh the benefits of receiving migrants in the UK? The students could raise points such as: a) Mostly work, higher wages and better opportunities. There is an important category who come for education, and a smaller minority who come for reunification with the family. b). Think of the socio-economic effects affecting society in the Receiving Country of 'unbridled' migration. From the UK perspective, we have read that there is a strain on the NHS - the number of beds per patient available has dropped, waiting lists for interventions are long, and there is a scarcity of midwives and nurses in the hospitals. Some have suggested that high immigration level may be responsible. Now there is also evidence of further strain on school places for children, again caused by high migration levels (see Thursday 14th October 2010 BBC article, posted on Moodle). It will naturally follow that there may be problems in the housing sector as well in the near future. Other reports are unfortunately sensationalist e.g., that crime has increased because of migration. Further, the notion that migrants (even those form EU