Neoclassical economic theory

Neoclassical economic theory, which assumes free flows of factors of production, predicts that workers will migrate from low-wage to high-wage areas. Over the past several decades, the gap in gross domestic product per capita* between rich and poor countries has continued to develop.

Macro level Neoclassical economic theory

At the Macro level, the neoclassical economic theory simply suggests that international migration is caused by differences in wage levels between countries and labor markets. Therefore, in theory, if wage differences were eliminated, labor migration would stop.

It also suggests that high skilled workers move from capital-rich to capital-poor countries in order to reap higher returns on their skills.

Labor markets are the main mechanisms that influence international migration. Therefore, governments can regulate migration through labor market policies (e.g. through wage increase in sending countries*)

Micro level Neoclassical economic theory

This refines arguments at the macro level by suggesting that international labor migration is caused by differences in wage, differences in employment rates and that the potential migrants EXPECT their wage to be higher in the destination country.

The theory argues that potential migrants estimate the costs and benefits of moving to alternate locations. In theory, they migrate where they expect the greatest returns over a specific period of time.

The analysis not only includes wage differentials but also the individual features that determine employment and wages, as well as the general social conditions and technologies which lower the cost of migration. All of these factors can raise the probability of a person migrating.

Migration decisions according to this theory are taken by the individual, and from differences in labor markets. Therefore, the government can influence immigration primarily though policies that affect expected earnings in origin and destination countries.

• sending countries — a country whose citizens leave to migrate to other countries :generally to find employment
• gross domestic products per capita — shows a country’s economic output per person