Social Capital, Labor Mobility, and Welfare

It is generally assumed that a technological or political change resulting in greater labor mobility raises welfare because it allows labor to move to where returns are higher and exploit profit opportunities. This article argues that the impact on welfare is ambiguous because of a negative externality of migration. Society benefits from a common property resource. That resource is social capital and includes the network of relations among people. Someone who migrates imposes a cost on those left behind which is not internalized. Hence migration will be excessive, and an increase in labor mobility will not necessarily raise welfare. Several implications are examined, including the impact of changes in the size of the labor market and the impact of modern society and colonialism on the social structure of traditional societies.