Prosperity Versus Planning: How Government Stifles Economic Growth

By David Osterfeld | Go to book overview

8
Migration

Migration is the second way by which the "transfer of prosperity" can take place. While capital flows from areas where the capital/labor ratio is high, and thus returns to capital are low, to where the capital/labor ratio is low, and thus returns on it are higher, labor does the reverse. It flows from areas where the returns to labor are relatively low to areas where the returns are higher. More precisely, migration will occur as long as an individual's expected income, that is, the nominal wage X the probability of finding employment in the "foreign" area (minus the cost of immigration, monetary and psychic) exceeds that person's average actual income in the "domestic" area ( Nafziger, 1984, p. 238; Todaro, 1976, p. 372).

Assuming a world without trade and migration barriers, this process of capital and labor migration would cease once the returns to both were equalized. Wage rates are higher in the area the worker migrates to than in the area he or she emigrates from because, given the capital/labor ratios, one's marginal contribution to the productive process is higher in the former than the latter. Thus the equalization of returns would imply that factors have been allocated to their most valued productive point. However, due to the constant change in such conditions as birth rates, the rate of technological advancement, and so on, full equilibrium could never be achieved in the real world. Thus one can speak only of a continuing tendency toward equilibrium.

Migration barriers prevent workers in areas where there is a relative oversupply of labor, and thus where wage rates are low, from moving to areas where labor is relatively scarce, and thus where wage rates are higher. If workers do have the option of emigrating from areas with low wage rates but they choose to remain where they are, then "wage rates are equalized internationally only if we incorporate such psychic factors into the wage rate" ( Rothbard, 1970b, pp. 40-41). A far more common situation, however, is that citizens in overpopulated areas do not move abroad because the government of other countries will not admit them. Of course it is only high-wage areas that have to worry about immigration; in low-wage areas the incentive is to emigrate. Since immigration will, other things remaining equal, tend to reduce the amount of invested capital per head and thus lower wage rates, immigration barriers confer a gain on domestic workers at the expense of foreign workers ( Mises, 1985, pp. 138-139; Rothbard, 1970b, p. 40).

However, the disparity in the capital/labor ratio between the domestic market

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Prosperity Versus Planning: How Government Stifles Economic Growth
Table of contents

Table of contents

  • Title Page iii
  • Preface vii
  • Contents xi
  • I - Theoretical Framework 1
  • 1 - The Three Worlds 3
  • 2 - Economy, Government, and Culture 19
  • II - The Key Variables 59
  • 3 - Food 61
  • 4 - Resources 84
  • Notes 102
  • 5 - Population 104
  • III - Economic Development: Engines and Obstacles 137
  • 6 - Foreign Aid 139
  • 7 - Multinationals 162
  • 8 - Migration 194
  • 9 - Corruption 204
  • Note 218
  • IV - Conclusion: The Enabling Environment 219
  • 10 - Property, Law, and Development 221
  • Notes 245
  • References 247
  • Index 265
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