Monetary Policies and Internatioal Migration of Labor

Assuming a two-country economy where nominal wages are determined by the efficiency wage hypothesis, we investigate how changes in the monetary policies affect the domestic economy and international migration of labor in order to infer how foreign worker inflow or domestic worker outflow are related to expansion or contraction of the domestic economy. For this purpose, we assume that the workers move between the home and foreign countries due to differences in the expected lifetime utilities of the two countries. We show that increases in the nominal money stock do not necessarily increase foreign worker inflow, although they always augment domestic employment and domestic income. Specifically, increases in the nominal money stock lead to larger foreign worker inflow if migration is very responsive to differences in the expected lifetime utilities, whereas they result to larger domestic worker outflow if migration is less responsive. This is because if migration is very responsive (less responsive), the consumer price index in the country where the nominal money stock is expanded becomes relatively lower (higher), leading to the relatively higher (lower) lifetime utility in that country. We can infer from our results that expansion of the domestic economy does not necessarily lead to increases in foreign worker inflow