David E. Wildasin Martin School of Public Policy and Department of Economics University of Kentucky Lexington, KY 40506-0027 USA
Abstract
This paper analyzes some of the implications of
North American labor market integration for fiscal policy. The economies
of Canada and the US are both characterized by highly integrated internal
markets for goods and services as well as for labor and capital, and
subnational governments in both economies play an important role in the
financing and provision of public goods and services, including higher
education. Despite theoretical insights from traditional trade theory that
suggest that "trade and migration are substitutes," labor markets in both
the US and Canada exhibit substantial and persistent interregional
migration, with gross migration rates that greatly exceed net migration
rates, especially for highly-educated workers. High gross migration rates
are consistent with the hypothesis that education contributes to
skill-specialization and worker heterogeneity, and that mobility provides a
form of insurance for investment in risky human capital. Mobility also
constrains the ability of competitive governments to engage in
redistributive financing of human capital investment, and recent trends in
both the US and Canada reveal a diminishing level of financial support for
public-sector institutions by subnational governments. The implications of
labor market integration for the efficiency of resource allocation, for
income determination, and for fiscal competition are important for
evaluations of tax and education policies both at the subnational and at
the international levels.
David Wildasin / dew@davidwildasin.us