Suppose a worker’s skill is captured by his efficiency units of labor. The distribution of efficiency units in the population is such that worker 1 has one efficiency unit; worker 2 has two efficiency units, and so on. There are 100 workers in the population. In deciding whether to migrate to the United States, these workers compare their weekly earnings at home (w0) with their potential earnings in the United States (w1).
The wage-skills relationship in each of the two countries is given by
w0= 700 + 0.5s
and
w1= 670 + s
where s is the number of efficiency units the worker possesses.
a) Assume there are no migration costs. What is the average number of efficiency units among immigrants? Is the immigrant flow positively or negatively selected?
b) Suppose it costs $10 to migrate to the United States. What is the average number of efficiency units among immigrants? Is the immigrant flow positively or negatively selected?