Estimating the Impacts of a Reduction in the Foreign-born Labor Supply on a State Economy: A Nested CGE Analysis of the Idaho Economy

This analysis examines the effects of reducing the supply of foreign-born labor on the Idaho economy. We estimate effects on gross state product, state and local tax revenue, total economic output, employment, wages, and changes in household welfare measured as equivalent variation. Estimates of labor usage by industry sector are obtained from governmental and non-governmental data sources and are incorporated into a 14 sector nested computable general equilibrium (CGE) model with five primary factors of production consisting of capital and four different labor groups (foreign-born less educated, native-born less educated, foreign-born more educated, and native-born more educated). The results of the model indicate that at the expected elasticities of substitution between similarly educated native-born and foreign-born labor, the reduction of the foreign-born less educated labor supply modestly increases the demand for native-born less educated labor while causing reductions in state GDP, total economic output, and household utility. The importance of the elasticities of substitution between the various labor groups in influencing the impact results is discussed and a sensitivity analysis performed. The CGE results are then compared to the results of another common model for estimating impacts, an input-output model, and the differences are discussed.