Skill-Upgrading and the Saving of Immigrants
This note derives positive implications about the effect of immigration on labor income and the skill composition of the labor force in receiving economies. The novel mechanism through which immigration affects labor-market outcomes is the availability of new loanable funds for human-capital investment, which results in endogenous skill upgrading. Given their higher training costs in the host economy, immigrants usually do not acquire advanced academic skills, and they accordingly skip the financial costs of education at the college level. As a result, they self-select as net lenders, which reduces the equilibrium interest rates and facilitates the upgrading mostly of new generations of natives. Consequently, the aggregate labor income of natives increases with immigration.
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