Wikileaks Says Secretive Trade Agreement Paves Way to ‘Corporatization of Public Services’ Soon

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5. Economic analyses of winners and losers

For a deeper understanding of how migration could equalize the price of labour in two trading
countries, consider figure one (from Senior Nello, 2005:145): There are two countries, Home
and Foreign. The total quantity of labour in the two countries is shown by the distance OhOf.
Before a fully free migration is allowed the distribution of labor is OhL in Home and OfL in
Foreign. The marginal product of labour is higher in Home than in foreign because the
capital/labor ratio is higher in Home. This is shown in the figure by the higher position of the
MPLh curve compared to the MPLf curve. Because of this the wage is higher in Home, at Wh
compared with the wage in Foreign at Wf. In short: Home symbolizes a developed country with
high automatization and high wages and Foreign a less developed country with abundant supply
of labour, low automatization and low wages. If migration is fully free between the two
countries and the workers are identical workers will migrate from Foreign to Home in pursuit of
higher wages. The migration will finally result in an equalized capital/labor ratio in the two
countries and thus equal marginal products of labor and equal wages, illustrated in the figure by
the wage level W' which could be seen as the world market price of labor as the world only
consists of the two countries Home and Foreign. The migration is illustrated in the figure by the
distance LL' which is the amount of workers that will move from Foreign to Home so that the
new distribution of labour becomes OhL' in Home and L'Of in Foreign.

Wages will thus decrease in Home and increase in Foreign resulting in a loss for the indigenous
workers in Home illustrated in the figure by the area a but a gain for the capital owners of the
areas a+b. In Foreign the workers get an increased income of areas c+d+e while the capital
owners lose areas d+e. The result in total is a net gain for the two countries by areas b+c which
is a gain resulting from higher efficiency in the use of the total resources of the two countries.
This simplified model of reality shows not only that there is a net gain but also that the
migration has clear redistributional effects, something that will be discussed below.