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Skill, Innovation and Wage Inequality: Can Immigrants be the Trump Card?

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  • Gouranga Gopal Das
  • Sugata Marjit
  • Mausumi Kar

Abstract

With the ensuing immigration reform in the US, the paper shows that targeted skilled immigration into the R&D sector that helps low-skilled labor is conducive for controlling inequality and raising wage. Skilled talent-led innovation could have spillover benefits for the unskilled sector while immigration into the production sector will always reduce wage, aggravating wage inequality. In essence, we infer: (i) if R&D inputs contributes only to skilled sector, wage inequality increases in general; (ii) for wage gap to decrease, R&D sector must produce inputs that goes into unskilled manufacturing sector; (iii) even with two types of specific R&D inputs entering into the skilled and unskilled sectors separately, unskilled labor is not always benefited by high skilled migrants into R&D-sector. Rather, it depends on the importance of migrants’ skill in R&D activities and intensity of inputs. Inclusive immigration policy requires inter-sectoral diffusion of ideas embedded in talented immigrants targeted for innovation. Empirical verification using a VAR regression model in the context of the USA confirms the conjectures, and the empirical results substantiates our policy-guided hypothesis that skilled immigration facilitates innovation with favorable impact on reducing wage-gap.

Suggested Citation

  • Gouranga Gopal Das & Sugata Marjit & Mausumi Kar, 2019. "Skill, Innovation and Wage Inequality: Can Immigrants be the Trump Card?," CESifo Working Paper Series 7794, CESifo.
  • Handle: RePEc:ces:ceswps:_7794
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    More about this item

    Keywords

    H1B; immigration; innovation; wage gap; skill; R&D; policy; RAISE Act; VAR;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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