Ch 4 Flashcards
The Wage Effects of Immigration: Homogenous labor with fixed capital and labor
Capital is fixed and native owned.
Immigrants and native workers are perfect substitutes
Labor and capital and complements
Labor supply is perfectly inelastic (fixed)
Homogenous labor with fixed capital: the theory
Suppose that there is an exogenous increase in immigrant labor supply (push immigration).
This will lead to a fall in wages and an increase in total output and consumption.
Native capital owners gain from migration.
Native workers lose since their wages are now lower.
Native workers lose because they are substitutes and capitalists gain because capital is complementary to labor.
These studies may explain why many labor groups oppose immigration while business owners welcome it.
Homogenous labor with variable capital*
Suppose that there is perfectly elastic supply of capital, and capital is available domestically and internationally.
An increase in labor as a result of immigration initially lowers wages and raises returns to capital due to complementarity.
This leads to an increase in capital flows to the destination country.
Since capital and labor are complements, the demand for labor increases and wages rise attenuating the initial fall.
Capital rises to reduce the return to capital until we reach the pre-immigration capital/labor ratio.
As a consequence wages return to their initial levels.
Conclusion: with variable capital immigration does not alter factor prices (long run)
Heterogeneous labor
Suppose that there is skilled and unskilled labor
Suppose that skilled (unskilled) natives are perfect substitutes for skilled (unskilled) immigrants and that labor supply is perfectly inelastic.
Suppose that skilled and unskilled workers are complements.
If the share skilled/unskilled workers is equal among natives and immigrants, immigration has no impact on wages.
If immigrants are relatively more skilled, this changes the relative labor supply and causes the skilled wage to fall and the unskilled wage to rise.
If immigrants are relatively more unskilled, this leads to a fall in unskilled wages and to a rise in skilled wages.
Heterogeneous labor, evidence
Borjas (1995) shows that the immigration surplus depends on the disparity in skill distributions.
Following this argument, immigration should be restricted to those who differ from natives.
However this argument doesn’t take the impact of skilled migration on economic growth and public finances.
Heterogeneous labor with fixed capital
The arrival of immigrants increases the labor supply and if labor and capital are complementary, capital owners gain.
Suppose that the native workforce is mainly skilled. In this case unskilled immigration causes unskilled wages to fall and skilled wages to rise.
Thus owners of capital gain, skilled workers gain, and unskilled workers lose.
Borjas (1995) shows that the surplus depends on fraction of unskilled workers in the destination country.
Heterogeneous labor with elastic capital
If we allow for capital adjustments immigration will trigger capital inflows and the elastic supply of capital keeps wages invariant to changes in the relative supply of immigrant labor.
If the native force is mainly skilled, the surplus is the largest if immigrants are unskilled.
The main studies show that the immigrant surplus is very small relative to the size of the economy
The Johnson Model focuses on the distributional effects of low-skilled unauthorized migration on native workers.
is model suggests that high-skilled workers and capital owners are likely to be complementary with low-skilled migration and will therefore gain from illegal migration.
Low-skilled migration may also imply fiscal consequences, and high-skilled workers and capital owners may suffer the most since they pay higher taxes
Moreover, the higher the wage gap and the return to higher education, the greater the incentive to invest in higher education for native workers, leading to an increase in educational attainment.
As a consequence Johnson argues that the skill distribution may be endogenous to immigration.
distributional effect of immigratino altonji and Card
he Altonji and Card model extends the previous one by adding skill diversity to the migration pool (skilled & unskilled) and endogeneity of local product demand to immigration.
The model thus allows for immigrants to buy at least part of their output, which attenuates any adverse impact of immigration on wages and unemployment.
Natives and immigrants are substitutes within each skill category.
he model yields important insights:
Immigration need not always have negative effects on natives. Even if skills are identical native wages may not change much.
If all local output is consumed locally then the impact on wages is small.
The impact on wages is reduced the larger is the fraction of locally produced goods that are consumed locally.
The Demand Effect of Immigration
Immigration also shifts product demand in the destination country.
Immigration labor supply creates its own demand.
Bodvarsson Van den Berg and Lewer (2008) find that immigration induces four effects on local demand:
Three negative effects as a result of: outmigration, a drop in native earnings and a drop in immigrants’ earnings already living there
One positive: more consumers (new immigrants)
The net effect will depend on the strength of the different effects
For the positive demand effect to dominate there must be a large immigration shock, little out-migration (labor supply elasticities must be low) and the negative impact on wages must be low.
The demand effect helps to explain the mild effect of immigration on wages in the destination country.
The Demand of Immigration on Housing
Saiz (2003) analyzed the effects of unskilled immigration to Miami on wages and local rental prices, he finds that:
In the short run the unskilled experience greater rent hikes.
Unskilled renters displace skilled renters from dwellings popular with the unskilled
In the long run there are housing supply adjustments and out-migration which cause the impact of the immigration shock on rental prices to be less than in the short run.
Internal Migration Responses
An important adjustment that occurs as a result of immigration is that native workers react to wage and employment changes and may migrate out of the region where immigrants settle.
Borjas (2006) presents a model that includes native migration responses to immigration and shows how internal migration spreads the wage impact of immigration from the local to the national labor markets.
His model assumes that natives relocate in response to regional wage differences that occur in the absence of immigration and as a consequence of immigration-induced wage disparities.
He concludes that over time internal migration neutralizes the immigration shock on the regional wage structure.
Technology
Acemoglu (1998) argues that firms may adopt technologies that emphasize the factor of production (skilled or unskilled labor) whose relative supply has increased.
Lewis (2004) argues that the Mariel Boatlift occurred in Miami induced local employers to adopt more unskilled intensive technologies
In the period 1988-1993 manufacturing cities where low skilled labor supply grew faster adopted automated technologies at slower rates.
If technology is endogenous to factor endowments, immigration is likely to trigger changes in the choice of technology
Unexpected exogenous supply shock method
This approach assumes that there has been an exceptional period in terms of immigration inflows due to a push factor. ex russian jews to israel
Her results show that the Russian immigrant influx did not adversely affect the native Israeli labor market.
Friedberg speculates that there may be complementarities between the Russian immigrants and the native Israelis.
Moreover, it seems that the rapid growth of the high tech industry (increase in capital) in Israel is likely to have stimulated the demand for labor across many occupation.
