Question

Migration between North Korea and South Korea has been prohibited since the end of the Korean War in \(1953 .\) South Korea is now much richer than North Korea and has a much higher marginal product of labor and a much higher wage rate than North Korea. If workers could migrate from North Korea to South Korea, we would expect: a. Output to fall in South Korea but rise in North Korea. b. Output to rise in each country. c. Total combined output in the two countries to fall. d. Total combined output in the two countries to rise.

Short answer

d. Total combined output in the two countries to rise.

Step-by-step solution

Understanding the Context

The exercise revolves around the idea of migration from North Korea to South Korea and how it would affect economic output. South Korea, being richer, offers higher wages due to its higher marginal product of labor.

Identifying the Effect of Migration on South Korea

If workers migrate from North Korea to South Korea, South Korea would gain labor resources. With more workers, South Korea can produce more goods and services, thus increasing output. Generally, additional labor leads to a rise in total output until a point of diminishing returns is reached.

Identifying the Effect of Migration on North Korea

When workers leave North Korea, the remaining workers may become more productive if the labor force was initially too large for the available capital resources. This reallocation can lead to increased efficiency and potentially increase output per worker. However, overall output might still decrease due to fewer laborers.

Evaluating Total Combined Output

The total combined output of both countries would likely rise due to the more efficient allocation of labor. South Korea can utilize the additional labor to produce more, and North Korea may become more efficient. Thus, combined output tends to increase with free movement of labor where resources are better utilized.

Key concepts

Marginal Product of Labor

The concept of the Marginal Product of Labor (MPL) is essential to understand the dynamics of labor migration and its effects on the economy. In simple terms, the MPL refers to the additional output that results from employing one more unit of labor, while keeping other inputs constant.
For instance, if South Korea hires more workers, those workers contribute to the country's production capacity, reflected by an increase in total output. The reason behind this is that additional workers can help produce more goods or services. However, this increase in output occurs only up to a certain point due to the law of diminishing returns.

• When a firm hires more workers, initially, the MPL is high because each additional worker adds significantly to output.
• Eventually, as more workers are hired, the MPL begins to decrease because the proportion of capital and resources to labor reduces, leading to less productivity from each added worker.

South Korea's higher MPL compared to North Korea indicates greater economic efficiency and productivity, which translates into higher wages. This encourages workers from regions with lower MPL and wages, like North Korea, to migrate in search of better employment opportunities.

Labor Migration Effects

Labor migration can have various effects on both the originating and receiving countries. On the one hand, South Korea, the receiving nation, would benefit significantly from an influx of workers migrating from North Korea. These additional workers can help increase economic output as they contribute their labor to an already efficient economy.
Meanwhile, for North Korea, the origin country, the impact of labor migration might initially seem negative due to the decreased size of its labor force. However, the remaining workers might end up being more productive because they have more capital per worker to work with, hinting at increased efficiency.

• South Korea gains additional labor resources, helping expand production capabilities and economic growth.
• North Korea potentially sees increased productivity per worker, but overall output may still decrease if too many workers leave.

Overall, labor migration tends to lead to more balanced resource distribution between countries, aiding in overall global productivity.

Economic Output

Economic output refers to the total value of goods and services produced in an economy. Migratory movement between nations like North and South Korea can impact this in several ways. If labor is allowed to flow freely, it typically results in higher total combined output.
South Korea, with its higher productivity levels, could effectively utilize the labor influx to increase its production capabilities, boosting the country's economic output. In contrast, North Korea might experience a decrease in its total economic output due to a smaller workforce. Still, it may see better efficiency per worker, which can slightly cushion the impacts.

• The overall economic output tends to increase when labor is efficiently allocated between regions.
• South Korea's economy could grow stronger with additional labor, while North Korea might need to adjust but could still see improved worker efficiency.

Thus, allowing labor to migrate freely between countries can lead to a net gain in overall economic production for both countries involved, as resources are used more optimally within each economic system. This highlights the importance of recognizing migration not just as a labor issue, but as an essential element of economic strategy.