Emigration, unemployment and welfare – The role of non-traded sector

In this paper we examine the consequences of skilled versus unskilled labor migration on the welfare of remaining residents (RR) in an economy characterized by unemployment of unskilled labor. It is established that emigration of unskilled workers necessarily raises both the level of employment and the welfare of RR. However, this result need not hold when skilled workers emigrate freely. In obtaining these results we emphasize the critical significance of the non-traded sector in an economy.