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American Economic Review: Vol. 90 No. 1 (March 2000)

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Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition

Article Citation

Wildasin, David E. 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition." American Economic Review, 90(1): 73-95.

DOI: 10.1257/aer.90.1.73

Abstract

This paper presents a general-equilibrium model where human capital investment increases specialization and exposes skilled workers to region-specific earnings risk Interjurisdictional mobility of skilled labor mitigates these risks; state-contingent migration of skilled labor also improves efficiency. With perfect capital markets, labor-market integration raises welfare and reduces ex post earnings inequality. If instead human capital investment can only be financed through local taxes, labor-market integration leads to interjurisdictional fiscal competition, shifting the burden of taxation to low-skilled immobile workers. Decentralized public provision of human capital investment creates earnings inequalities and is inefficient.

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Authors

Wildasin, David E. (Vanderbilt U)

JEL Classifications

R23: Urban, Rural, and Regional Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
J61: Geographic Labor Mobility; Immigrant Workers


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