If there is diminishing marginal productivity of labor in production (with other inputs held constant), an outmigration of labor from low-wage country A to higher-wage country B will lead, other things equal, to a __________ in per capita income in country B and __________ in per capita income in country A.

Question

Quizplus · Accepted Answer

Diminishing marginal productivity of labor implies that as more labor is added (with other inputs constant), the additional output produced by each additional worker decreases. Therefore, if labor migrates from country A to country B, country A, with now fewer workers, would see an increase in per capita income due to less dilution of productivity. Conversely, country B, with an influx of workers, would likely see a decrease in per capita income as the additional labor leads to diminishing returns.

If There Is Diminishing Marginal Productivity of Labor in Production