Education and Brain Gain Instead of Brain Drain

Abstract

This paper studies a two-region model in which unemployment, education decisions and interregional migration are endogenous. The poorer
region exhibits both lower wages and higher unemployment rates, and migrants to the richer region are disproportionally skilled. The brain drain
from the poor to the rich region is accompanied by stronger incentives to acquire skills even for immobile workers. Regional shocks tend to affect
both regions in a symmetric fashion, and skill-biased technological change reduces wages of the unskilled. Both education and migration decisions
are distorted by a uniform unemployment compensation, which justifies a corrective subsidization.