Labor migration and trade patterns in the presence of age composition differences across countries: an overlapping generations analysis

Abstract

This study examines various effects of population growth differentials across countries by using a two country overlapping generations (OLG) general equilibrium model and shows that the resulting differences in age composition of populations provide not only a basis for trade but also incentives for international migration of labor. The analysis starts by considering autarky equilibria of the countries that are assumed to be identical except for population growth rates initially, and shows that the country with the lower (higher) population growth rate will have higher (lower) capital per worker, wage rate and lifetime utility at all times. The cases of free trade and international mobility of labor are then simulated for a comparative investigation. The simulations with the considered migration scheme reveal that the steady state value of migration rate equalizes the post-migration population growth rates in both coimtries. When trade is also taken into consideration, the results indicate that the country that is attractive to the migrants would prefer trade to migration, if it is a large country relative to the other. If both countries are equal in size, on the other hand, trade turns out to be Pareto-inferior to migration for the host country, with autarky being Pareto-superior to both trade and migration.