CHAPTER 10

Worker Mobility: Turnover, Migration, and Immigration

SUMMARY

Chapter 9 introduced the human capital investment framework and applied it to a wide
variety of issues related to education and training. In this chapter the framework is used
as a starting point for a more complete analysis of worker mobility, an issue closely
intertwined with just about every major topic encountered so far in the text.

The ability of the labor market to bring about Pareto efficient outcomes (Chapter 1) and
quickly resolve labor shortages and surpluses (Chapter 2) depends on there being a
reasonable degree of labor mobility. Conclusions regarding the applicability of the
monopsony model (Chapter 3), the effects of the minimum wage law (Chapters 3 and 4),
and the effects of technological change and international trade (Chapter 4) also depend on
the degree of worker mobility. The amount of firm-specific training offered to workers
(Chapter 5) depends in part on the willingness of workers not to leave the firm. In turn,
the amount of firm-specific training a worker receives will affect the likelihood of the
worker quitting.

Assumptions regarding worker mobility also played a central role in the discussions
pertaining to compensating differentials and the hedonic wage models presented in
Chapter 8 and Appendix 9B. While the issue of worker mobility did not directly
influence the conclusions drawn in Chapters 6, 7, or 9, the issue of mobility is closely
connected to the labor supply discussions undertaken in those chapters. After all, the
issue of where labor is supplied is a natural extension of the issues concerning the
quantity and quality of labor supplied taken up in those chapters.

Worker mobility occurs when an individual makes a decision to voluntarily change either
jobs and/or geographic locations. Such decisions are costly, but are made in the hopes of
receiving greater benefits in the future. In that sense, these decisions are every bit as
much investments in human capital as are the education and training decisions discussed

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Chapter 10: Worker Mobility
in Chapter 9. Such investments will add to an individual’s wealth provided the present
value of the benefits exceeds the present value of the costs.

In the case of mobility decisions, the costs of the investment include direct expenses for
moving if a change of residence is involved, and psychic losses due to the difficulty,
stress, and anxiety of leaving friends, family, and familiar surroundings. The benefits of
the investment include higher future earnings, access to more interesting, challenging, or
pleasant jobs, and the psychic benefits that come from leaving problems behind and
starting over in a new environment.

Letting r be the rate at which the yearly net benefits of mobility (B) are discounted, and
assuming the direct costs of mobility (C) all occur in the initial year (year 0), the present
value method suggests that employer and/or geographic changes should be undertaken
provided
B1 B2 BT
+ + K + ³C.
1+ r ( 1+r )2 ( 1+r )T

The subscripts refer to different years along an interval 1 to T with 1 being the first year
after the initial year and T the last. Each value of B represents, for a particular year, the
difference between the total compensation associated with the new position and the total
compensation associated with the old position (where total compensation refers to both
pecuniary and nonpecuniary compensation). It is also possible to evaluate mobility
investments using the internal rate of return method discussed in Chapter 9. The annuity
formula, also presented in Chapter 9, can be helpful in calculating the present value of the
benefit stream when the yearly benefits are constant.

The present value method predicts that mobility investments are more likely (holding all
else constant) the lower the values of r and C, and the higher the values of B and T.
Evidence on geographic mobility within the United States has been consistent with the
human capital investment framework since most studies have indicated that people are
attracted to areas where the real earnings of full-time workers is highest (and are “pulled”
toward higher earnings rather than “pushed” out of low-earnings areas). Areas with
higher real earnings translate into higher levels of B for prospective migrants. Most
moves also involve a relatively short distance, a finding consistent with prediction that
higher levels of C discourage migration. But workers who live in the lowest-earning
areas, who might be expected to have the greatest incentives to move, tend to also be the
least willing or able to move, often because they have lower levels of wealth, education,
and skills.

Evidence on the personal characteristics of migrants also supports the model, with the
most important predictor of migration being age. The tendency for migrants to be young
is consistent with the model since higher values of T increase the present value of the
stream of benefits. Also, since younger people are less likely to have strong community
ties, the costs of migration for them should be lower.

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 Chapter 10: Worker Mobility
Another important factor in the migration decision, particularly migration involving long
distances, is the level of education. Occupations involving higher levels of education are
more likely to have national, rather than localized, labor markets. In national labor
markets information about employment opportunities is much easier to obtain.
Therefore, this finding is also consistent with the predication that lower levels of C make
migration more likely.

In addition to the above predictions, the human capital model also suggests that when
analyzing international migration, the distribution of earnings in the sending country,
relative to that in the receiving country, will play an important role. In countries where
the distribution of earnings is more equal than in the United States, skilled workers will
gain the most by migrating since human capital investments have little payoff in their
home countries. Immigrants from these countries are likely to be more skilled than the
average worker remaining in that country. In countries with a less equal distribution of
earnings, immigrants may be unable to make human capital investments in their own
countries, and thus migration becomes a form of human capital investment. Immigrants
from such countries will tend to be largely unskilled.

What is the rate of return on domestic migration? Studies of migration within the United
States have generally confirmed that there is a substantial increase in family income that
comes with migration, although the increase may take time. Workers who migrate for
economic reasons tend to earn more, but some workers migrate for family reasons. The
increase in family income may also occur despite a decrease in one of the spouse’s
income if the migration decision was based primarily on earnings prospects of the other
spouse. Evidence of such gains, however, does not guarantee that migration will be
beneficial. The fact that 20 percent of all moves occur to areas where people had
previously lived suggests that comparisons of benefits and costs are often overly
optimistic. Such return migration serves as an important reminder that mobility
decisions are made based on individual expectations of benefits and costs formed in
environments of uncertainty and incomplete information.

What is the rate of return on international migration decisions? Because it is often very
difficult to assemble data on what migrants would have earned in the sending country,
most studies have focused on how immigrant earnings compare to the earnings of U.S.
natives. Such studies typically show that the age-earnings profiles of immigrants are
initially lower, but then rise more steeply than those of comparable native-born workers.
That is, earnings of immigrants are typically lower than natives initially, even controlling
for age and education. However, earnings rise quickly (even faster than native workers)
as immigrants learn English and invest in human capital. This is less true where
immigrants live in “enclaves” in which business is conducted in their native tongue (or
when immigrants expect to return to their native land) and thus there is less investment in

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Chapter 10: Worker Mobility
learning English. Additionally, over time, each cohort of immigrants has tended to do
less well upon entry than previous immigrants.

How much faster international immigrant earnings rise is a difficult question to answer
since inferences drawn from cross-section data can be misleading if changes occur in the
skills, work habits, and learning abilities of immigrants over time. Even with the faster
earnings growth, however, the present value of lifetime earnings for immigrants is
typically less than that of native-born workers. Still, the differences are relatively
modest, so that given the low living standards many immigrants leave behind, the
migration decision seems to have a large payoff for most immigrants. It is, however, a
risky choice, and about 20% of all immigrants (presumably those who receive lower-
than-expected payoffs) return to their place of origin.

While the human capital model suggests that mobility decisions can be analyzed and
explained within the context of a very analytical and dispassionate framework, one
mobility issue guaranteed to stir up passions is immigration policy. What fears do
people have about immigration? Are these fears well founded? What are the
consequences of immigration? These are the kinds of questions taken up in the latter part
of Chapter 10.

Immigration into the United States was largely unrestricted until the 1920s when the first
laws limiting the number of immigrants were passed. Since 1965, there has been an
annual ceiling on the total number of immigrants and on the number that can come from
any one country. Preference is given to those with family already residing in the United
States, and to those who have particular skills that may be valuable in filling labor
shortages. Immigrants that are spouses, children, or parents of U.S. citizens are exempt
from the ceilings. Many that are shut out by this system, however, find ways to enter
illegally. To discourage the flow of illegal immigrants, in 1986 Congress made it illegal
for firms to hire illegal immigrants, and set up a system of fines for those that do. Due to
proximity and differences in standards of living, illegal immigration from Mexico to the
United States is particularly large. Although Mexican workers are, on average, less
educated than American workers, most recent illegal immigrants are more likely to be
from the middle of Mexico’s educational distribution, as the costs of attempting to cross
the border are likely to be prohibitive for the least-educated workers.

Restrictions on immigration often arise out of the fear that immigrants will harm the labor
market prospects of American citizens and cost the government more than the economic
benefits that they may generate. Careful analysis of the issue, however, reveals that
while some workers may be hurt initially, the overall gains to society are likely to
outweigh the losses.

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Example

Consider a labor market where the demand curve for unskilled workers is given by the
equation
LD = 18 - W.

Suppose that the supply curve of unskilled workers who are also native-born citizens is
given by
LN = W - 2,

while the supply curve of unskilled immigrants (including those illegal immigrants that
are unskilled) is given by
LI = 2W - 4,

where L represents the number of workers, W is the wage expressed in real terms, and the
subscripts D, N, and I are used to distinguish between the quantity of unskilled labor
demanded and the quantity of unskilled labor supplied by native-born and immigrant
workers. These curves appear as lines D, SN, and SI in Figure 10-1. (The focus on
unskilled labor in this problem is not meant to imply that all immigrant labor is
unskilled.)

Figure 10-1.

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Chapter 10: Worker Mobility
If immigration were totally prohibited, the market clearing wage and employment level
would occur where
LD = LN

 18 - W = W - 2

 W* = 10  L* = 8.

The market clearing wage (W*) and employment level (L*) associated with the native
supply curve are indicated by point b in Figure 10-1. The total income flowing to native
workers is 80 and can be represented by the area of rectangle dbj0.

Allowing immigrants to enter this labor market would create a total supply curve given
by the equation
LT = LN + LI

 LT = W - 2 + 2W - 4

 LT = 3W - 6,

where the subscript T stands for the total quantity of workers supplied. This curve
appears as line ST in Figure 10-1. Given the two groups of workers, the market clearing
wage occurs where
LD = LT

 18 - W = 3W - 6

 W* = 6  L* = 12.

These values are denoted by point c.

Note that at the new market clearing wage of 6, the total employment of native-born
workers will be
LN = 6 - 2 = 4,

(indicated by point f) while the employment of immigrants will be

LI = 2(6) - 4 = 8,

(indicated by point g or the difference between points c and f). Immigration leads to
lower wages and employment levels for unskilled native workers, with the total income
flowing to this group decreasing from 80 to 24 (the area of rectangle efi0). Note,
however, that the decrease in native employment does not consist of the 8 jobs now held

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 Chapter 10: Worker Mobility
by immigrants, rather the decrease is only 4. Immigration does not reduce jobs for
native-born workers on a one-to-one basis (unless there was a binding minimum wage set
above point b in Figure 10-1).

If the above example is a reasonable depiction of the consequences of immigration for a

particular category of labor, where do the gains from immigration come from? Would it
not be better for native workers to restrict immigration? The reason the native population
can gain from immigration is that total output also increases as a result of the
immigration.

When labor demand is presented as a function of the real wage, the demand curve
represents the horizontal summation of the individual firm’s marginal product of labor
curves, and so the area under the demand curve yields the total output associated with any
particular employment level. In the above example, immigration increases output from
112 (the area of trapezoid abj0) to 144 (the area of trapezoid ack0). This increase in
output makes sense because the United States now has more labor resources.

How is the distribution of output (real income) changed because of immigration? Before
immigration, 80 of the 112 units flowed to native workers as real income, while the
remaining 32 units accrued to the owners of the firms (area of triangle abd). This area, if
one ignores the fixed costs of capital, equals the total profits of the firms. After
immigration, 72 of the 144 units flow to workers (area of rectangle eck0) with 24 flowing
to native workers and 48 flowing to immigrants (area of rectangle egj0 or rectangle fcki).
After immigration, the remaining 72 of the 144 units flow to the owners of the firms.

While the distribution of output has been altered substantially, note that the increase in
output is large enough to create a window of opportunity to keep native workers as well
off as before without hurting any one else. For example, since the supply curve
represents the minimum workers are willing to accept for supplying an additional unit of
labor, immigrants should be willing to give up the area represented by the difference
between the wage they receive and their supply curve. This area, represented by triangle
egh, was defined as economic rent in Chapter 2. It has an area of 16. If this amount,
along with the 40 in increased profits of the firms (recall that the area accruing to the
firms went from 32 to 72) were transferred to native workers, it would give native
workers the same income they had before immigration (24 + 16 + 40 = 80). Firms would
also have the same profits as before, and immigrants would gain the balance, just enough
to make their migration investment worthwhile. When a potential exists for some
workers to gain and no one else is hurt, the original situation can not be considered to be
Pareto efficient (see Chapter 1), and so the change to the new equilibrium may make
sense from a normative perspective.

The above analysis also ignores potential shifts in the demand for products (and
ultimately in the demand for labor) that the new income of immigrants is sure to bring

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Chapter 10: Worker Mobility
about. Such shifts would bring about increases in the employment and wages of any
workers who were gross complements with unskilled labor. The lower wages received
by unskilled workers would also help to put downward pressure on the prices paid by
consumers.

One important complication in the above analysis, of course, is the extent to which the
transfers needed to keep native workers from being hurt actually take place, and whether
these transfer programs also subsidize immigrants. There is little debate over the
question of whether low-income native workers receive income transfers, since programs
such as food stamps, welfare, unemployment insurance, public housing, and job
retraining are fairly accessible and automatic. The key question remains the extent to
which immigrants also receive net subsidies (subsidies greater than the amount they
contribute in taxes) through these programs. Attempts to deny such subsidies to
immigrants, particularly illegal immigrants, makes sense in the context of this model,
although such exclusions raise certain ethical dilemmas that can not be resolved through
economic analysis. Additionally, empirical analysis of the wage effects on natives have
led to unclear results, although they do suggest that effects on native wages have been
small.

Another type of employee mobility, turnover or separations, can take place without
geographic mobility, but evidence related to voluntary turnover (quits) also supports the
predictions of the human capital investment framework. The evidence clearly shows that
workers in low wage industries have higher quit rates than those in high-wage industries.
This is consistent with the prediction of the human capital model since, holding all else
constant, the lower the wage paid by the current employer, the greater the benefit
associated with changing jobs.

Quit rates also tend to decline as firm size increases. Larger firms tend to pay higher
wages and may offer more opportunities for transfers and promotions. It may also be
more beneficial for large firms to attempt to reduce quit rates because they may have
mechanized production processes that rely on team efforts, and thus quits may be more
costly.

Other support for the human capital model comes from the observation that quit rates
vary inversely over time with the unemployment rate and the layoff rate. This suggests
that workers are more likely to quit when employment opportunities are better,
suggesting that the decision to change jobs is directly related to the expected benefits.

Costs of job changing may also vary internationally. American workers tend to be more
mobile than workers in Japan and Europe. This may be due to difference in housing
policies that make costs of moving higher in those areas or to cultural differences.

Finally, is job mobility socially desirable? It may promote economic efficiency by

leading to better job matches. In Chapter 8, it was shown that the possibility of job
mobility was necessary to create compensating wage differentials.

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 Chapter 10: Worker Mobility

REVIEW QUESTIONS

Choose the letter that represents the BEST response.

The Determinants of Worker Mobility

1. Voluntary mobility is predicted when

a. The monetary benefits of mobility exceed the monetary costs.
b. A new job is available that pays more than the old one.
c. The present value of the benefits from mobility is at least as large as the
present value of the costs.
d. All of the above.

2. Suppose that a baseball player eligible for free agent status signs a contract with a new
team that promises to pay him $100,000 more than his current team for each of the next
three years. Assuming the discount rate is 6 percent, what is the maximum the current
costs of moving could be and still have this investment be worthwhile?
a. $251,886
b. $267,301
c. $283,019
d. $283,339

Geographic Mobility

3. Holding all else constant, higher rates of geographic mobility are exhibited by
a. Older workers
b. Married couples
c. Highly educated workers
d. Both a and b

4. Age is an important factor in determining whether a person migrates because

a. Age affects the length of the benefit stream associated with migration.
b. Age affects the psychic costs of migration.
c. Age determines whether a person participates in a local or national labor
market.
d. Both a and b.

5. Lack of education appears to be a bigger deterrent to long-distance migration than age.

This evidence supports the hypothesis that the primary deterrent to long-distance
migration is
a. the psychic costs of moving.
b. the lack of information about employment prospects elsewhere.
c. the monetary cost of the move.
d. the difficulty of return migration.

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Chapter 10: Worker Mobility
6. Immigrants from other countries are more likely to be positively selected with respect
to skills if
a. the immigrants practice chain migration, i.e., the tendency to follow previous
immigrants to particular geographic locations.
b. the earnings distribution in the sending country is more equal than in the
United States.
c. the earnings distribution in the sending country is similar to that in the United
States.
d. both a and b.

7. Evidence suggests that the earnings of immigrants start at a lower level than the
earnings of native-born workers, but then grow faster over time, and eventually meet or
exceed the earnings of comparable native-born workers. This evidence demonstrates that
a. the rate of return on an immigrant’s mobility investment is likely to be high.
b. immigrants are more productive than the average native-born worker.
c. the present value of an immigrant’s lifetime earnings is likely to exceed that of
a comparable native-born worker.
d. many immigrants set aggressive financial goals for themselves so that they can
return to their homeland when the goal is met.

8. Data showing that 20 percent of all geographic moves are to an area in which the
household had previously lived (return migration) supports the hypothesis that
a. individual expectations about the costs and benefits of mobility are often
wrong.
b. on average, migration does not appear to be a good investment.
c. while individuals may gain from migration, family income (the earnings of the
husband and wife) tends to fall.
d. all of the above.

Voluntary Turnover
9. Holding all else constant, workers in industries that pay higher wages have lower quit
rates. This finding is consistent with the view that
a. quits are a form of worker-initiated mobility.
b. workers make mobility decisions based on costs and benefits.
c. a low quit rate is a reliable sign of an above-equilibrium wage.
d. all of the above.

10. Quit rates tend to vary over the business cycle as general labor market conditions
change. Holding all else constant, the quit rate tends to decrease when
a. labor market conditions are considered to be tight (jobs are more plentiful
relative to job seekers).
b. the unemployment rate rises.
c. the layoff rate decreases.
d. both b and c.

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 Chapter 10: Worker Mobility
11. Based on the human capital investment framework, quit rates should be expected to
fall with age because
a. older workers are more mature and face lower psychic costs when changing
jobs.
b. older workers have longer job tenures.
c. older workers have a shorter time over which to recover the costs associated
with quitting.
d. all of the above.

12. Holding all else constant, voluntary turnover is lower in rural areas because
a. the costs associated with quitting tend to be higher in rural areas.
b. rural residents tend to be less present-oriented and so have lower discount
rates.
c. wages tend to be higher in rural areas.
d. all of the above.

The Consequences of Immigration

In answering questions 13-19, please refer to Figure 10-2 which depicts the demand and
supply curves for a particular category of labor. D refers to the market demand, SN to the
supply of native-born workers, SI to the supply of immigrant workers, and ST to the total
supply.

Figure 10-2.

13. How many jobs for native-born workers are lost because of immigration?
a. Native employment would not be reduced since Americans are unwilling to
perform the kind of work that immigrants do.
b. 4
c. 8
d. 12

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Chapter 10: Worker Mobility
14. How much is the total real income of native-born workers reduced because of
immigration?
a. 16
b. 32
c. 48
d. 64

15. Ignoring the cost of capital, how much of an increase in total profit (in real terms) is
generated because of immigration?
a. 8
b. 16
c. 32
d. 40

16. How much total output does society gain because of immigration?
a. 8
b. 16
c. 24
d. 32

*17. How much would immigrants be willing to pay in real terms for the right to work in
this country (i.e., how much do immigrants earn in economic rent)?
a. 4
b. 16
c. 32
d. 48

18. If immigration leads to a large enough increase in output, it is possible that native
workers can be kept at least as well off as before immigration without hurting immigrants
or the firms. For such an outcome to occur, it is necessary that
a. programs exist to transfer income to native workers.
b. immigrants do not receive more in government subsidies than they pay in
taxes.
c. all illegal immigrants be denied any form of government assistance.
d. both a and b.

19. An important consequence of immigration not shown in Figure 10-2 is

a. the downward pressure on consumer prices that results from the lower wages
associated with immigration.
b. the employment and wage gains by those categories of labor that are gross
complements with the labor in this market.
c. the migration of natives away from areas experiencing an influx of immigrants.
d. all of the above.

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 Chapter 10: Worker Mobility

PROBLEMS

The Determinants of Worker Mobility

20. Consider a family where both the husband and wife work, and assume each spouse
has three more years to work (after the current year) before retirement. Table 10-1
indicates the projected combined salary over the remaining work years if they each stay
with their current employers. It also shows the combined salary they can expect if they
relocate and change employers.

Table 10-1.
Year Combined Salary at Current Combined Salary at New
Jobs Jobs

1 $80,000 $83,000
2 $82,000 $87,000
3 $85,000 $92,000

Suppose the total cost of moving, including direct expenses, foregone earnings, and psychic
costs total $10,000. Assume all costs are incurred during the current year (year 0).

20a. If the discount rate is equal to the market interest rate of 6 percent, is this
investment in mobility worthwhile?

20b. What is the maximum mobility costs could be and still make this investment
worthwhile?

20c. How reasonable is it to assume that the psychic costs of mobility all occur in the
current year (year 0)?

20d. Is it reasonable to expect that there will also be psychic benefits associated with
moving? If so, give some examples of such benefits.

*20e. When a person moves without a new job already in hand, evidence indicates that
the mobility may initially lead to lower earnings than in the current job. This reduction is
then more than overcome in future periods by faster earnings growth in the new location.
Holding all else constant, what is the lowest the new combined salary could be in year 1
and still have this be a worthwhile investment?

20f. Is it reasonable to expect that both spouses will gain equally because of the move?

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Chapter 10: Worker Mobility
The Gain to Society from Mobility

21. Mobility investments may lead not only to individual gains, but also to gains for
society as a whole. To see why this is true, consider the information in Table 10-2. It
shows the relationship between employment and output in two different labor markets.

Table 10-2.
Labor Market A Labor Market B

Labor Output Labor Output

1 12 1 17
2 20 2 30
3 25 3 40
4 28 4 48
5 30 5 55

21a. Compute the marginal product of labor for each unit of labor in market A.

21b. Graph the marginal product of labor schedule for market A.

21c. For an employment level of 5, show that the area under the marginal product
schedule equals the total output associated with that output level.

21d. Compute the marginal product of labor for each unit of labor in market B.

21e. Suppose that there are 6 workers in this economy and that currently 3 work in
market A and 3 work in market B. If each worker is paid in real terms the marginal
product associated with the last worker hired, what will the wage rates be in each market?
How much combined total output will be produced by the two markets?

21f. Assuming all other job characteristics are the same in both markets, where will
workers tend to migrate? What happens to total output if one worker migrates from
market A to market B? What would happen to total output if more than one worker
migrated from A to B? Would there be an incentive for more than one worker to
migrate?

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 Chapter 10: Worker Mobility
The Consequences of Immigration

22. Consider a labor market where the demand for a particular category of labor is given
by the equation
LD = 20 - 2W.

Suppose that the supply curve of workers in this market who are also native-born citizens
is given by
LN = 2W,

while the supply curve of immigrants in this market is given by

LI = W,

where L represents the number of workers, W is the wage expressed in real terms, and the
subscripts D, N, and I are used to distinguish between the quantity of labor demanded and
the quantity of labor supplied by native-born and immigrant workers.

22a. Find the market clearing wage and employment level assuming immigration is not
allowed. Then find the market clearing wage and employment level after allowing for
immigration. How many native jobs are lost to immigrants?

22b. Compute the real income of native-born workers in this market before and after
immigration. How much is the income flow reduced?

22c. Ignoring the cost of capital, compute the total profits of the firms before and after
immigration. What is the change in total profits?

22d. Compute the total output of this market before and after immigration. How much
total output does society gain because of immigration?

*22e. Taken as a whole, how much would immigrants be willing to pay in real terms for
the right to work in this country (i.e., how much do immigrants earn in economic rent)?

*22f. If immigration leads to a large enough increase in output, it is possible that native
workers can be kept at least as well off as before immigration without hurting immigrants
or the firms. Give an example of a transfer payment scheme that would accomplish this.

22g. What other effects do immigrants have on labor markets that are not captured in this
model?

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Chapter 10: Worker Mobility

APPLICATIONS

Migration After a Job Loss

23. Consider a worker currently making $60,000 in a defense industry plant in the New
England area. Suppose the plant is closed because of government spending cutbacks and
the worker loses his job. After a prolonged search, the worker decides to change
occupations and move to North Carolina. His new job only pays $50,000. Has not
migration made this worker worse off? Do such examples contradict the prediction of the
human capital investment model that says people invest in mobility only when the
present value of the benefits is at least as large as the present value of the costs?

The Causes of Higher Quit Rates for Women

*24. According to the text “It is well established that female workers have had higher
propensities toward quitting than male workers.” Empirical evidence also exists which
shows that the job tenure of women tends to be significantly lower than that of men, a
finding consistent with the view that women have had higher quit rates. The higher quit
rates and shorter tenure, in turn, are attributed to the lower levels of firm-specific training
obtained by women, a subject discussed in Chapter 5.

*24a. Using the lessons of Chapter 5, review why women are less likely to be offered
firm-specific training.

*24b. Review why higher quit rates are expected when a worker does not receive firm-
specific training. Would eliminating general training also lead to higher quit rates?

The Effects of Reducing Immigration When a Minimum Wage Applies

25. Consider a labor market where the demand for a particular category of labor is given
by the equation
LD = 20 - 2W.

Suppose that the supply curve of workers in this market who are also native-born citizens
is given by
LN = 2W,

while the supply curve of immigrants (including illegal immigrants) in this market is
given by
LI = W.

(This is the same information given in problem 24 earlier in the chapter.) Suppose the
government imposes a minimum wage (in real terms) of 6 that applies to all workers.

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 Chapter 10: Worker Mobility
25a. Is the minimum wage binding? What would the market clearing wage be in the
absence of the minimum wage (assuming there are no restrictions on immigration).

25b. What is the quantity of workers demanded at the minimum wage?

25c. What is the total quantity of workers supplied at the minimum wage? How many
are native-born workers? How many are immigrants?

25d. How many native workers will actually be employed? How many immigrants will
be employed?

25e. The 1986 Immigration Reform and Control Act (sometimes called the Simpson-
Rodino Act) made it illegal for firms to hire illegal immigrants. Employers are required
to verify if new employees are legal residents, and any firms consistently caught hiring
illegal residents could face fines of up to $10,000. Suppose the law, by reducing the
expected benefits of migration, has the desired effect of reducing the number of illegal
immigrants in this market. In the context of this example, how many native workers will
be hired for every immigrant that is not? Would your answer be the same if the
minimum wage was not binding? (Based on the discussion in Chapter 5, how would the
firm’s cost of complying with the immigration law be classified?)

25f. Another provision of the 1986 Immigration and Control Act was that illegal
immigrants who had lived continuously in the United States since 1982 could apply for
amnesty and legal resident status. After 5 additional years of continuous residence, these
immigrants could then apply to be U.S. citizens. Based on the human capital investment
framework, what effect would such a program have on the flow of illegal immigrants?

25g. According to The Wall Street Journal (September 1, 1992, p. A1), in California
alone, approximately 1.5 million illegal immigrants took advantage of the amnesty
program, and the first wave of applicants were eligible for citizenship on November 6,
1993. Citizenship also makes the former immigrants eligible for welfare assistance.
What effect does the expansion of welfare eligibility have on the likelihood that the
aggregate income (the sum of earnings, profits, and net government subsidies) of the
native-born population will fall?

Estimating the Earnings Growth of Immigrants

*26. Suppose that the earnings growth for an individual immigrant over time can be
represented by the equation
ln YE = ln Y0 + rE,

where ln is the natural logarithm function, Y 0 is the earnings level an immigrant can
expect upon arrival, and YE represents the immigrant’s earnings after spending E years in
the new country. The variable E is best thought of as the immigrant’s current age minus

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Chapter 10: Worker Mobility
the age of arrival (e.g., 20 years). The rate of growth of an immigrants earnings (r) is
assumed to be constant over time. (See question 37 in Chapter 9 for a derivation of this
equation in the context of educational investments.)

Consider a situation where there has been three waves of immigrants over time. Suppose
that individuals in group A arrived at age 20 in 1950, while group B arrived at age 20 in
1970, and group C arrived at age 20 in 1990. The earnings growth for each group, as
well as for native-born workers (group N), can be represented by the equations

Group N: ln YE = 14 + 0.1E,
Group A: ln YE = 12 + 0.1E,
Group B: ln YE = 11 + 0.1E,
Group C: ln YE = 10 + 0.1E.

Each group’s earnings are expected to grow at the same rate (r = 0.1) over time.
However, holding all else constant, the later groups are assumed to have lower earnings
prospects because of lower levels of productivity. Immigrants are also assumed to
always earn less than native-born workers. These earnings schedules are show in Figure
10-3.

*26a. Suppose that in 1990 a cross-section sample of immigrants is selected that

contains one person who is 20 years old, one person who is 40, and one person who is 60.
What growth rate of immigrant earnings will be inferred from this data?

*26b. Will the growth rate give an accurate impression of the growth rate of immigrant
earnings relative to that of native-born workers? Based on this estimate, what conclusion
are people likely to draw?

Figure 10-3.

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 Chapter 10: Worker Mobility
*27. As in the previous problem, consider a situation where there has been three waves
of immigrants over time. Suppose that individuals in group A arrived at age 20 in 1950,
while group B arrived at age 20 in 1970, and group C arrived at age 20 in 1990. Also
suppose the earnings growth for each group can be represented by the equations

Group A: ln YE= 10 + 0.1E,

Group B: ln YE= 12 + 0.1E,
Group C: ln YE= 14 + 0.1E.

Each group’s earnings are expected to grow at the same rate (r = 0.1) over time.
However, holding all else constant, the latter groups are assumed to have higher earnings
prospects because of higher levels of productivity. These earnings schedules are shown
in Figure 10-4.

*27a. Suppose that in 1990 a cross-section sample of immigrants is selected that

contains one person who is 20 years old, one person who is 40, and one person who is 60.
What growth rate of immigrant earnings will be inferred from this data?

*27b. What changes in methodology could be made to eliminate the bias that occurs in
these situations?

Figure 10-4.

*27c. In what sense does the bias illustrated in this problem relate to the problems of
ability bias and selection bias discussed in Chapter 9?

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