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Capital-Skill Complementarity and the Immigration Surplus

  • Michael Ben-Gad

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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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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  1. Kjetil Storesletten, . "Sustaining Fiscal Policy Through Immigration," Homapage Papers _005, Stockholm University, Institute for International Economic Studies.
  2. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June.
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  5. Linnea Polgreen & Pedro Silos, 2008. "Capital-Skill Complementarity and Inequality: A Sensitivity Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 302-313, April.
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  8. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  9. George J. Borjas, 1994. "The Economic Benefits from Immigration," NBER Working Papers 4955, National Bureau of Economic Research, Inc.
  10. Galor, Oded, 1986. "Time preference and international labor migration," Journal of Economic Theory, Elsevier, vol. 38(1), pages 1-20, February.
  11. George J. Borjas, 2003. "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1335-1374, November.
  12. Chiswick, Carmel U. & Chiswick, Barry R. & Karras, Georgios, 1992. "The impact of immigrants on the macroeconomy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37(1), pages 279-316, December.
  13. Lindquist, Matthew, 2001. "Capital-Skill Complementarity and Inequality in Swedish Industry," Research Papers in Economics 2001:2, Stockholm University, Department of Economics, revised 05 Mar 2003.
  14. Jim Dolmas & Gregory W. Huffman, 1998. "On the political economy of immigration and income redistribution," Working Papers 9804, Federal Reserve Bank of Dallas.
  15. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 460-497, March.
  16. Skaksen Jan R & Sorensen Anders, 2005. "Capital-Skill Complementarity and Rigid Relative Wages: Inference from the Business Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-26, June.
  17. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  18. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
  19. Djajic, Slobodan, 1989. "Skills and the Pattern of Migration: The Role of Qualitative and Quantitative Restrictions on International Labor Mobility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 795-809, November.
  20. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
  21. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
  22. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  23. Ben-Gad, Michael, 2004. "The economic effects of immigration--a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 28(9), pages 1825-1845, July.
  24. Ortega, Francesc, 2005. "Immigration quotas and skill upgrading," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1841-1863, September.
  25. Chiswick, Carmel U, 1989. "The Impact of Immigration on the Human Capital of Natives," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 464-86, October.
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