Analysis of Labour Movement Based on Island Model

Abstract

Abstract This paper describes and derives a Lucas-Prescott style island model, to model the location choices of the heterogeneous agents by utilising endogenous technology growth, which in turn influences personal human capital growth. It leads to the U-shape curve of the inequality of wage income with the technology of these islands but not in terms of total income. In the extended two-goods model, the magnitude of the implications is lessened by the impact the price of non-tradable goods has as an automatic stabiliser. We found that skilled labours with less endowed wealth tend to live in large cities for its high salary. On the other hand, those less-skilled labours but with more endowed wealth tend to live in cities with better environment, which drives up the price level of non-tradable goods in these cities. This explains the population concentration in the super cities and the high housing price-wage ratio in some beautiful cities.