This paper extends the standard (two-factor, one-good) model of international factor movements, to include unemployment due to a minimum-income guarantee within the capital-abundant country. From this country's perspective, we establish important departures from previous (full-employment) results. Most notably, our analysis shows that: (1) free factor mobility is worse than no mobility; (2) the optimal degree of labour migration is zero; and (3) national welfare can always be maximized by an optimal flow of capital. The analysis is then extended to examine: (1) illegal migration; (2) subsidization of employment; and (3) alternative views of unemployment.

dx.doi.org/10.1016/0022-1996(87)90059-6
Journal of International Economics
Department of Economics

Brecher, R.A, & Choudhri, E.U. (1987). International migration versus foreign investment in the presence of unemployment. Journal of International Economics, 23(3-4), 329–342. doi:10.1016/0022-1996(87)90059-6