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Capital-Skill Complementarity and the Immigration Surplus

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  • Michael Ben-Gad

    (University of Haifa)

Abstract

We build a neo-classical growth model with overlapping dynasties and capital-skill complementarities to evaluate changes in immigration policy. Calibrating the model using U.S. data, we quantify the differential effects of skilled and unskilled immigration on factor returns and on the welfare of different sectors of the population. An influx of high-skilled immigrants lowers the wages of skilled workers, raises the wages of unskilled workers, and because of the relative complementarity between capital and skilled labor, substantially raises the rate of return to native-owned capital. By contrast, an influx of unskilled immigrants produces an opposite effect on wages, and has only a negligible effect on the return to capital. Because of capital skill-complementarity, an increase in the number of skilled immigrants generates an immigration surplus---the overall welfare benefit accruing to the native population---that is approximately ten times larger than the immigration surplus generated by an identical increase in the number of unskilled immigrants. This differential welfare effect is far higher than can be accounted for by the disparity between the productivities of each type of worker. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.08.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 2 (April)
Pages: 335-365

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Handle: RePEc:red:issued:05-134

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Related research

Keywords: Immigration; Capital-skill complementarity; Overlapping dynasties;

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References

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  1. George J. Borjas, 1995. "The Economic Benefits from Immigration," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 3-22, Spring.
  2. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
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  5. Linnea Polgreen & Pedro Silos, 2005. "Capital-skill complementarity and inequality: a sensitivity analysis," Working Paper 2005-20, Federal Reserve Bank of Atlanta.
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Citations

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Cited by:
  1. Andri Chassamboulli & Theodore Palivos, 2013. "The impact of immigration on the employment and wages of native workers," Working Papers 160, Bank of Greece.
  2. Andri Chassamboulli & Theodore Palivos, 2012. "A Search-Equilibrium Approach to the Effects of Immigration on Labor Market Outcomes," University of Cyprus Working Papers in Economics 17-2012, University of Cyprus Department of Economics.
  3. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy - version 2," MERIT Working Papers 037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy," MERIT Working Papers 012, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  5. Junko Doi & Laixun Zhao, 2012. "Immigration Conflicts," Discussion Paper Series DP2012-29, Research Institute for Economics & Business Administration, Kobe University, revised Dec 2012.
  6. Andri Chassamboulli & Theodore Palivos, 2010. "“Give me your Tired, your Poor,” so I can Prosper: Immigration in Search Equilibrium," University of Cyprus Working Papers in Economics 12-2010, University of Cyprus Department of Economics.
  7. Ben-Gad, M., 2008. "Analyzing Economic Policy Using High Order Perturbations," Working Papers 08/07, Department of Economics, City University London.
  8. Ben-Gad, M., 2012. "On deficit bias and immigration," Working Papers 12/09, Department of Economics, City University London.
  9. Muysken, Joan & Ziesemer, Thomas, 2011. "The effect of net immigration on economic growth in an ageing economy: transitory and permanent shocks," MERIT Working Papers 055, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  10. Michael Ben-Gad, 2013. "Public Deficit Bias and Immigration," 2013 Meeting Papers 21, Society for Economic Dynamics.

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