The author studies the effect of immigration on world welfare. The world consists of two areas, South and North, the former populated by low-skill workers, and the latter by low- and high-skill workers. Immigrants from the South to the North have two effects in the North: a mixed native-foreign working-class lowers union power, and immigrants also lower the solidarity of the employed citizens with the unemployed. Thus, the replacement ratio falls with the frequency of immigrants in the low-skill pool. The author calculates the optimal level of immigration, from an observer's point of view who maximizes world welfare, with a variety of social welfare functions. The interesting result is that the optimal level of immigration for an egalitarian observer is significantly less than the open-borders equilibrium level. This result is due to the model's two non-Walrasian features: the union bargaining problem and the political economy of the welfare state.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
97-02.
Length: 22 pages Date of creation: Mar 1997 Date of revision: Handle: RePEc:kud:kuiedp:9702
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Find related papers by JEL classification: D60 - Microeconomics - - Welfare Economics - - - General F22 - International Economics - - International Factor Movements and International Business - - - International Migration
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