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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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Cited by:
  1. Andri Chassamboulli & Theodore Palivos, 2014. "A Search‐Equilibrium Approach To The Effects Of Immigration On Labor Market Outcomes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 111-129, 02.
  2. Andri Chassamboulli & Theodore Palivos, 2013. "The impact of immigration on the employment and wages of native workers," Working Papers, Bank of Greece 160, Bank of Greece.
  3. Ben-Gad, M., 2008. "Analyzing Economic Policy Using High Order Perturbations," Working Papers, Department of Economics, City University London 08/07, Department of Economics, City University London.
  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. 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, University of Cyprus Department of Economics 12-2010, University of Cyprus Department of Economics.
  6. Ben-Gad, M., 2012. "On deficit bias and immigration," Working Papers, Department of Economics, City University London 12/09, Department of Economics, City University London.
  7. Michael Ben-Gad, 2013. "Public Deficit Bias and Immigration," 2013 Meeting Papers, Society for Economic Dynamics 21, Society for Economic Dynamics.
  8. Junko Doi & Laixun Zhao, 2012. "Immigration Conflicts," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2012-29, Research Institute for Economics & Business Administration, Kobe University, revised Dec 2012.

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