Legal Impediments to Migration

Even when legal impediments to migration are absent, there are cultural and language barriers. European Union citizens are legally free to live and work anywhere in the countries of the Union, and we saw at the beginning of this chapter that many young Polish workers take advantage of this by moving to the United Kingdom in search of work. But such examples notwithstanding, most European workers remain in the country of their birth. Migration from Portugal to Finland is very limited, for example, despite the higher wages paid in Finland. A Portuguese worker who wants to move to Finland must learn to cope with a completely different language and culture, not to mention a much colder climate. To summarize, while we do see some movement of labor across national borders, people remain, for the most part, in the country in which they were born. When we are analyzing national economies, the main determinant of labor hours is, in the end, the number of people in the economy and the number of hours that they choose to work. International migration plays a limited role. We can also turn this argument on its head. We observe huge differences in real wages in different economies. If people were truly able and willing to migrate across economies, we would expect most of those differences to disappear. So we can conclude that there must be substantial barriers to migration. Population Growth and Other Demographic Changes Over long periods of time, the amount of labor in the production function is affected by changes in population and other demographic changes. As a country’s population increases, it has more workers to “plug in” to the aggregate production function. Changes in the age structure of the population also have an effect. Much of the developed world has an aging population, meaning that the fraction of the population that is working is decreasing. [3] Changes in social norms can also affect the amount of labor that goes into the production function. For example, child labor is now uncommon, whereas a century ago it was much more usual. Another example is the increase in women’s participation in the labor force over the last half century, both in the United States and other countries. Public health matters as well. In some countries of the world, particularly in Africa, the HIV/AIDS crisis is having devastating effects. Quite apart from the human misery that the disease causes, the epidemic means that there is less labor available. The problem is particularly acute because working- age individuals are disproportionately affected. In an introductory economics textbook such as this one, we do not seek to explain such social changes. To be sure, these changes are studied by economists, as well as by sociologists and other researchers. But here we investigate the effects rather than the causes of such social changes. Explaining International Differences in the Real Wage Real wages differ markedly across countries: the typical worker in Australia is paid much more than the typical worker in Bolivia, for example. Suppose that we compare two countries, and we find that real wages are higher in one country (country A) than in the other (country B). This tells us that the marginal product of labor is higher in country A than in country B.