Factor rewards and the international migration of unskilled labor: A model with capital mobility

Conventional economic wisdom holds that the migration of unskilled labor from less developed countries to neighboring developed countries should be expected to narrow the wage gap between those countries, and thereby reduce the incentive for further migration. If capital is mobile internationally this reasoning may be inappropriate. Instead, emigration of unskilled labor out of the less developed country provides an incentive for capital to leave the country, too. As a consequence, wage rates move in the same direction in each country, and the gap between wage rates across countries even may increase.