- Exercise Consider A Situation In Which There Are Just Two Countries An Origin And A Destination Country Wages In The 1 (187.92 KiB) Viewed 10 times
Exercise Consider a situation in which there are just two countries: an Origin, and a Destination country. Wages in the origin country are given by: wo=1+2s Wages in the destination country are given by: wa=7+s. where s are years of schooling. Migrating from the Origin to the Destination country requires paying a fixed migration cost of 1. a. [2 points] Draw a figure in which the y-axis represents wages net of migration costs in each of the countries, and the x-axis represents years of schooling
The politicians in the Origin country are worried that too many people are moving outside of the country. To reduce the number of people emigrating, they are evaluating two alternative policy proposals: The first proposal is the introduction of an emigration tax of 4 (to be paid in addition to the fixed migration cost). c. [5 points] What would be the effect of the emigration tax on the number of immigrants? What would be the effect of the emigration tax on the years of schooling of immigrants? Show your work The second policy proposal is a subsidy to the earnings of residents in the origin country, so that wages in the origin country would now be given by: Wo=(1+t)(1+2s), where t represents the subsidy rate. d. [5 points] How large would the subsidy (t) need to be in order to result in the same number of emigrants as the emigration tax? Show your work