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  3. American Economic Review
  4. March 2000
  5. Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition

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

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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.

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

JEL Classification

  • 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