Firms and Markets Seminar
 
Abstract: 
How does labour mobility interact with education investment in an imperfect monetary union? This paper investigates the interplay between labour mobility, education and transfers with a tractable two-country overlapping generation model comprising labour mobility, heterogeneous agents and fluctuations. It allows deducing a distribution of skills, in a similar fashion as Yeapple (2005), and also to define a migration distribution according to skills, a TFP shock and a moving cost. First, I find that in presence of economic fluctuations education increases migration. Second, as the possibility to migrate provides an outside option for agents in a depressed economy, it should add up to incentives to educate. Third, I study the effects of simple international transfers aiming at absorbing asymmetric shocks. On one hand it leads to a direct positive effect on education due to risks inducing precautionary investment in education, but on the other hand it tempers the positive effect of migration on education level as the transfers reduce economic fluctuations.