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Emigration and Labor Supply: The Effect on Wages in Source Country

Majority of the EU-13 countries have witnessed substantial emigration flows inthe years following EU accession or the end of the free movement (workers) restrictions. Croatia and especially ith eastern part has and still is witnessing a sizable emigration. Demographic literataure identifies most of the emigrant to be in working age and significant amount of them leaving with children and their families, thus substantially affecting labour supply. The main purpose of this paper is to identify and explain profound effects of changes in labour supply due to high emigration rates on source economies, focusing on wages. There is insufficient number of empirical findings on wage effect in source countries to give general conclusions but majority of them show significant positive correlation between emigration and wage level in source country. Nevertheless, that positive correlation is reported to be a short-term effect. In case of severe and prolonged emigration, especially that of high skilled workers even the short term positive effect may well miss. In the analysis of emigration's effect on wages, it is crucial to distinguish the effect of education, skill, producitiveity of other variables that could potentially lead to wage rise in source country. Overall effect of emigration on economic growth and human capital formation is still not unambiguous and needs further empirical research, particularly in the countries of interest - EU-13.

emigration, labour supply, wages, source country

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