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

  • Assaf Razin
  • Efraim Sadka

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.

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File URL: http://www.nber.org/papers/w7013.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7013.

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Date of creation: Mar 1999
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Publication status: published as Razin, Assaf and Efraim Sadka. "Unskilled Migration: A Burden Or A Boon For The Welfare State?," Scandinavian Journal of Economics, 2000, v102(3,Sep), 463-379.
Handle: RePEc:nbr:nberwo:7013
Note: IFM
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  1. Richard Hemming, 1998. "Should Public Pensions Be Funded?," IMF Working Papers 98/35, International Monetary Fund.
  2. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  3. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  4. George J. Borjas & Stephen J. Trejo, 1991. "Immigrant participation in the welfare system," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(2), pages 195-211, January.
  5. Peter S. Heller, 1998. "Rethinking Public Pension Reform Initiatives," IMF Working Papers 98/61, International Monetary Fund.
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