Does skill emigration hurt unskilled workers? Theory and cross-country evidence

Abstract

How does out-migration of skilled workers affect unskilled workers' wage in the source country? When skilled workers emigrate, unskilled wages tend to go down in some countries. If the sector that uses both skilled and unskilled workers shows a lower degree of capital intensity as compared to sectors that use only skilled workers in production, it is a common outcome. We use 19 years of cross-country data from the International Labor Organization (ILO) spanning Asia and Latin America to show that skill emigration reduces unskilled wage unambiguously for panel fixed effects and difference generalized method of moments (DGMM) estimates. The structure is also subjected to system GMM with endogenous covariates and allied robustness checks. Importantly, we find a critical level of tertiary education, such that countries generating more skill shall face weaker negative impact on unskilled wages.