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Capital-Skill Complementarity and the Immigration Surplus

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  • Michael Ben-Gad

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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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_047.

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Length: 43 pages JEL Classification: J61, O41
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:deg:conpap:c011_047

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Keywords: Immigration; Capital-Skill Complementarity; Overlapping Dynasties;

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References

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  1. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 693-732, August.
  2. Chiswick, Carmel U. & Chiswick, Barry R. & Karras, Georgios, 1992. "The impact of immigrants on the macroeconomy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37(1), pages 279-316, December.
  3. Lindquist, Matthew, 2001. "Capital-Skill Complementarity and Inequality in Swedish Industry," Research Papers in Economics 2001:2, Stockholm University, Department of Economics, revised 05 Mar 2003.
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  7. Ben-Gad, Michael, 2004. "The economic effects of immigration--a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 28(9), pages 1825-1845, July.
  8. Jan R. Skaksen & Anders Sorensen, 2005. "Capital-Skill Complementarity and Rigid Relative Wages: Inference from the Business Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 7.
  9. 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. Muysken, Joan & Ziesemer, Thomas, 2011. "The effect of net immigration on economic growth in an ageing economy: transitory and permanent shocks," UNU-MERIT Working Paper Series 055, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
  2. Chassamboulli, Andri & Palivos, Theodore, 2010. ""Give me your Tired, your Poor," so I can Prosper: Immigration in Search Equilibrium," MPRA Paper 32379, University Library of Munich, Germany.
  3. Ben-Gad, M., 2008. "Analyzing Economic Policy Using High Order Perturbations," Working Papers 08/07, Department of Economics, City University London.
  4. Chassamboulli, Andri & Palivos, Theodore, 2012. "A Search-Equilibrium Approach to the Effects of Immigration on Labor Market Outcomes," MPRA Paper 43297, University Library of Munich, Germany.
  5. Ben-Gad, M., 2012. "On deficit bias and immigration," Working Papers 12/09, Department of Economics, City University London.
  6. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy - version 2," UNU-MERIT Working Paper Series 037, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
  7. Junko Doi & Laixun Zhao, 2012. "Immigration Conflicts," Discussion Paper Series DP2012-29, Research Institute for Economics & Business Administration, Kobe University, revised Dec 2012.

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