Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition
American Economic Review · 2000 · Volume 90 · Issue 1
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.
Keywords
Urban, Rural, and Regional Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics, Human Capital, Skills, Occupational Choice, Labor Productivity, Wage Level and Structure, Wage Differentials, Geographic Labor Mobility, Immigrant Workers
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