Migration II

Question 1

When immigrants and natives are perfect substitutes, what happens when immigrants enter the labour market?

Answer 1

1 - Supply curve shifts out

2 - Total employment increases, wages decrease

3 - Employment of natives decreases: fewer natives want to work for wage w1

Question 2

When immigrants and natives are complements, what happens when immigrants enter the labour market?

Answer 2

1 - Marginal product of natives increases

2 - Shifts demand curve out

3 - Native employment and wages increase

Question 3

Outline SR vs LR effects of immigration (assuming migrants and natives are perf subs)

Answer 3

Short-run: Immigrants lower the wage, but raise returns to capital

Over time the increased returns to capital will attract capital to the region

Increase in capital will stock will shift the labour demand curve out and attenuate the negative effects of the initial labour supply shock

Question 4

Outline: Long-Run Effects with Constant Returns to Scale Technology

Answer 4

Short run: supply curve shifts out, wages fall to w1

Long run: Demand curves shifts out, wages move back to w0
→ the economy just duplicates itself in the long run