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Unskilled Migration: A Burden or a Boon for the Welfare State

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  • Assaf Razin
  • Efraim Sadka

Abstract

In a static setup, migration of unskilled labor may be resisted by the entire native-born population because, being relatively low earners, migrants are net beneficiaries of the fiscal system. However, the paper shows that with a pay-as-you-go pension, an important pillar of the welfare state, the dynamics are such that migration is beneficial to low and high income groups and the old and the young, provided that the economy has a good access to the world capital markets. This overall gain holds even though the migrants are net consumers of the pension system; they give to it less than they take from it. The pro-migration feature of the dynamic model is however weakened and possibly overturned when access to the world capital market is limited. In the case of low elasticity of substitution between capital and labor, earnings of native-born may be significantly affected, and the factor price effects can dwarf the effects of the migrants' giving to or taking from the welfare state on the native-born population.

Suggested Citation

  • Assaf Razin & Efraim Sadka, 1999. "Unskilled Migration: A Burden or a Boon for the Welfare State," NBER Working Papers 7013, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7013 Note: IFM
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    References listed on IDEAS

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    1. Peter S. Heller, 1998. "Rethinking Public Pension Reform Initiatives," IMF Working Papers 98/61, International Monetary Fund.
    2. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-656, August.
    3. Razin, Assaf & Sadka, Efraim, 1995. "Resisting Migration: Wage Rigidity and Income Distribution," American Economic Review, American Economic Association, vol. 85(2), pages 312-316, May.
    4. Richard Hemming, 1998. "Should Public Pensions be Funded?," IMF Working Papers 98/35, International Monetary Fund.
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    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H1 - Public Economics - - Structure and Scope of Government

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