Emigration and Wages in an Open Economy: Some Evidence fromPakistan

This paper examines the impact of labour emigration on thewages of both the skilled and unskilled workers. The paper is based on a3 X 3 trade-theoretic model, where a subset of the goods produced aretraded at internationally fIXed prices. The results of the model hingecruci~y on the intensities of the factors used ‘within’ the traded goodssectors of the economy. Using the Pakistani data, it is found thatunskilled labour is used extremely intensively in the agriculture sector(exportable), skilled labour is used extremely intensively in themanufacturing sector (importable), and capital is used as the middlefactor in both the traded goods sectors. Moreover, capital is usedsignificantly less intensively in the construction (non-traded) sectorrelative to both the traded sectors. Based on the estimated relativefactor intensities, the model predicts that emigration of either skilledor unskilled workers from Pakistan, in the long run, would benefit (innominal as well as real terms) both the skilled and unskilled workersand hurt the owners of capital. The results suggest that the higherwages to both the skilled and unskilled workers must be compensated by areduction in the rate of returns to capital if export-orientcd andimport-competing sectors in Pakistan are to remain internationallycompetitive.