Skill formation and international migration: welfare perspective of developing countries

We introduce skill formation in a Heckscher-Ohlin-Samuelson-specific factor model. A sector of a developing economy generates skill, Other sectors of the economy produce traditional goods and services. We set up a theoretical model to study the impact of trade openness and trade union activity on the rate of skill formation. We also study changes in the skilled-unskilled wage gap, pattern of migration and overall welfare conditions. Trade liberalization and skill formation show complementarity in our model. Skill formation suffers if price of traditional exports go up. We also show that larger trade volume and the rate of migration of skilled labor are complementary. Finally, if skilled labor union successfully raises wage level, migration of skilled workers increases. Contrary to traditional understanding, tariff-cut and higher skilled wage lower wage inequality in our framework. Based on these findings, we discuss conditions for measuring economic welfare. (C) 2003 Elsevier B.V. All rights reserved.