6. Consider the selection of immigrant flows from the US to the UK in a simplified Roj model. Suppose that wages in the US and the UK are linear functions of an individual's skill level:

w = 16+s,

w hat = 20+0.5s,

where w are earnings in the US (the origin country), w hat are earnings in the UK (the destination country), and s are years of education (which vary between 0 and 20). Assume, for simplicity, that migration costs are zero. US workers choose to migrate if their earnings are higher in the UK than in the US. Skills are perfectly transferable across countries.

1. (a)At what level of s is a person indifferent to moving from the US to the UK? Is migration from the US to the UK positively or negatively selected? Use a graph to explain your answer.

(b)Explain briefly how you could test empirically the theoretical prediction you made in part (a).

(c)Suppose the US is hit by an economic crisis that (permanently) decreases wages of all workers in the US by two units. Re-calculate the level of s at which a person is indifferent to moving from the US to the UK. How does the economic crisis in the US affect the direction of selection and the number of immigrants? Use a graph to explain your answer.

(d)Consider the selection of immigrant flows from Germany to the UK, in addition to immigrant flows from the US to the UK. Suppose that wages in Germany are given by w = 26 + 0.1 s, and that the US has not yet been hit by the economic crisis (so that wages in the US are w = 16 + s). On average, will immigrants from Germany or immigrants from the US earn higher wages in the UK? Explain your answer. Assume that skills are perfectly transferable across the three countries and that there is no migration between the US and Germany.