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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)

Suggested Citation

  • Michael Ben-Gad, 2008. "Capital-Skill Complementarity and the Immigration Surplus," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 335-365, April.
  • Handle: RePEc:red:issued:05-134
    DOI: 10.1016/j.red.2007.08.001
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    Cited by:

    1. Ben-Gad, M., 2014. "On Deficit Bias and Immigration," Working Papers 15/08, Department of Economics, City University London.
    2. Parello, Carmelo Pierpaolo, 2021. "Migration and Growth in a Schumpeterian Growth Model with Creative Destruction," MPRA Paper 108701, University Library of Munich, Germany.
    3. Matteo Cacciatore & Giuseppe Fiori & Nora Traum, 2020. "Hours and Employment Over the Business Cycle: A Structural Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 240-262, January.
    4. 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, vol. 55(1), pages 111-129, February.
    5. Berger, Johannes & Strohner, Ludwig & Thomas, Tobias, 2017. "Auswirkungen der Fluchtmigration auf Wachstum und Beschäftigung in Österreich," Policy Notes 13, EcoAustria – Institute for Economic Research.
    6. Junko Doi & Laixun Zhao, 2012. "Immigration Conflicts," Discussion Paper Series DP2012-29, Research Institute for Economics & Business Administration, Kobe University, revised Dec 2012.
    7. David de la Croix & Frederic Docquier, 2015. "An Incentive Mechanism to Break the Low-skill Immigration Deadlock," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 593-618, July.
    8. Michael Ben-Gad, 2013. "Public Deficit Bias and Immigration," 2013 Meeting Papers 21, Society for Economic Dynamics.
    9. Busch, Christopher & Krueger, Dirk & Ludwig, Alexander & Popova, Irina & Iftikhar, Zainab, 2020. "Should Germany have built a new wall? Macroeconomic lessons from the 2015-18 refugee wave," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 28-55.
    10. 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.
    11. Cords, Dario, 2017. "Endogenous technology, matching, and labor unions: Does low-skilled immigration affect the technological alignment of the host country?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 20-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    12. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy - version 2," MERIT Working Papers 2011-037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    13. Chassamboulli, Andri & Palivos, Theodore, 2013. "The impact of immigration on the employment and wages of native workers," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 19-34.
    14. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2019. "Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy," MPRA Paper 95824, University Library of Munich, Germany.
    15. Khraiche, Maroula, 2015. "A Macroeconomic Analysis Of Guest Worker Permits," Macroeconomic Dynamics, Cambridge University Press, vol. 19(1), pages 189-220, January.
    16. Zainab Iftikhar & Anna Zaharieva, 2019. "General equilibrium effects of immigration in Germany: Search and matching approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 245-276, January.
    17. Weiske, Sebastian, 2019. "On the macroeconomic effects of immigration: A VAR analysis for the US," Working Papers 02/2019, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    18. Ben-Gad, M., 2008. "Analyzing Economic Policy Using High Order Perturbations," Working Papers 08/07, Department of Economics, City University London.
    19. Joan Muysken & Thomas Ziesemer, 2014. "The Effect of Immigration on Economic Growth in an Ageing Economy," Bulletin of Applied Economics, Risk Market Journals, vol. 1(1), pages 35-63.
    20. Ben-Gad, M., 2012. "On deficit bias and immigration," Working Papers 12/09, Department of Economics, City University London.
    21. Oscar Afonso & Susana Gabriel & Pedro Mazeda Gil, 2016. "Could immigration explain wage inequality in a skill-biased technological model?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(3), pages 559-577, August.

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    More about this item

    Keywords

    Immigration; Capital-skill complementarity; Overlapping dynasties;
    All these keywords.

    JEL classification:

    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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