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Immigration and Wages: An Open Economy Model

  • Wang-Sheng Lee

    ()

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

This paper shows how some simple modifications to the classical Heckscher-Ohlin model in international trade can be made so that it can be used to analyse the impact of immigration on wages. In particular, this is accomplished by constructing a model in which countries have very different endowments of factors, reside in different diversification cones and specialise in production. In such a model, it is not necessary that factor prices are equalised across countries. Based on simulation results of this modified Heckscher-Ohlin model, it is found that the actual immigrant flow in the U.S. from 1979 to 1995 is unlikely to be a major contributor to the observed high-skill/low-skill wage gap increase over the period. This paper shows how some simple modifications to the classical Heckscher-Ohlin model in international trade can be made so that it can be used to analyse the impact of immigration on wages. In particular, this is accomplished by constructing a model in which countries have very different endowments of factors, reside in different diversification cones and specialise in production. In such a model, it is not necessary that factor prices are equalised across countries. Based on simulation results of this modified Heckscher-Ohlin model, it is found that the actual immigrant flow in the U.S. from 1979 to 1995 is unlikely to be a major contributor to the observed high-skill/low-skill wage gap increase over the period.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2007n07.

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Length: 20 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:iae:iaewps:wp2007n07
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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  1. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
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  8. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
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  11. Ottaviano, Gianmarco I. P. & Peri, Giovanni, 2007. "Rethinking the effects of immigration on wages," HWWI Research Papers 3-8, Hamburg Institute of International Economics (HWWI).
  12. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
  13. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  14. Charles I. Jones, 2004. "The Shape of Production Function and the Direction of Technical Change," NBER Working Papers 10457, National Bureau of Economic Research, Inc.
  15. Christian Dustmann & Francesca Fabbri & Ian Preston, 2005. "The Impact of Immigration on the British Labour Market," Economic Journal, Royal Economic Society, vol. 115(507), pages F324-F341, November.
  16. John DiNardo & David Card, 2000. "Do Immigrant Inflows Lead to Native Outflows?," American Economic Review, American Economic Association, vol. 90(2), pages 360-367, May.
  17. George J. Borjas & Lawrence F. Katz, 2007. "The Evolution of the Mexican-Born Workforce in the United States," NBER Chapters, in: Mexican Immigration to the United States, pages 13-56 National Bureau of Economic Research, Inc.
  18. Gaston, Noel & Nelson, Douglas, 2000. "Immigration and Labour-Market Outcomes in the United States: A Political-Economy Puzzle," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 104-14, Autumn.
  19. Rachel M. Friedberg & Jennifer Hunt, 1995. "The Impact of Immigrants on Host Country Wages, Employment and Growth," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 23-44, Spring.
  20. 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.
  21. Slaughter, Matthew J, 1998. "International Trade and Labour-Market Outcomes: Results, Questions, and Policy Options," Economic Journal, Royal Economic Society, vol. 108(450), pages 1452-62, September.
  22. Daniel Trefler, 1997. "Immigrants and Natives in General Equilibrium Trade Models," NBER Working Papers 6209, National Bureau of Economic Research, Inc.
  23. Indro Dasgupta & Thomas Osang, 2007. "Trade, Wages, and Specific Factors," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 45-61, 02.
  24. 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.
  25. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  26. Peter K. Schott, 1999. "One Size Fits All? Specialization, Trade and Income Inequality," Yale School of Management Working Papers ysm132, Yale School of Management.
  27. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  28. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
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