The emigration of skilled labor is of great concern to most less developed countries as well as to some developed countries. One special category of the brain drain has been especially troublesome to LDC’s over the last twenty-five years. Indigenous college graduates frequently leave their countries for advance studies in the Western world, but only a handful return after completing their work. Migration of this type has been linked to several possible causes. The most frequently cited are lack of employment opportunities for returning graduates, lower salary levels in the indigenous country, the preference of graduates to live abroad, and asymmetric information in the labor market. The loss of their most educated workers abroad, the so-called brain drain, has been a major source to LDCs. At the same time that their development targets demand highly trained personnel, LDCs find that their younger intellectual elite accept employment in the country where they have received their advanced training, and do not return to their native land.
A number of reasons have been offered to explain the brain drain problem, including lack of employment opportunities in the home country, low pay, and student preference to remain abroad. These reasons are not empirically compelling in many developing countries. In Taiwan, for example, employment opportunities exist at real wages which are comparable to those offered abroad. And while some students may prefer to live abroad, it seems difficult to explain the brain drain by this reason alone. This paper has shown that the brain drain may exist even when students have a preference for returning home and employment opportunities exist at comparable average pay. The reason for the problem is related to the information employers have at the time of hiring.
We assume that employers in the country of education can more precisely determine a graduate’s potential productivity than can employers in the student’s native country. Employers in the native country are assumed to offer wages that reflect the average productivity of returning workers, but which are not precisely tailored to individual productivities. This difference in information can by itself lead to the brain drain problem. The extent of the problem was related to the average productivity of workers, and their bias towards returning home. Conditions under which the brain drain problem was complete, partial, and nonexistent were examined.