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Immigration and Wages: An Open Economy Model

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  • Wang-Sheng Lee

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

Abstract

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.

Suggested Citation

  • Wang-Sheng Lee, 2007. "Immigration and Wages: An Open Economy Model," Melbourne Institute Working Paper Series wp2007n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2007n07
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2007n07.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pouliakas, Konstantinos & Roberts, Deborah & Balamou, Eudokia & Psaltopoulos, Dimitris, 2008. "Modelling the Effects of Immigration on Regional Economic Performance and the Wage Distribution: A CGE Analysis of Three EU Regions," MPRA Paper 14157, University Library of Munich, Germany.
    2. Ted Mouw, 2016. "The Impact of Immigration on the Labor Market Outcomes of Native Workers: Evidence using Longitudinal Data from the LEHD," Working Papers 16-56, Center for Economic Studies, U.S. Census Bureau.

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    Keywords

    Immigration; Heckscher-Ohlin; multi-cone; general equilibrium.;

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