Immigration, search, and redistribution: A conjecture

In “Immigration, search and redistribution: A quantitative assessment of native welfare,” a paper by Battisti et al. published in the August 2018 issue of the Journal of the European Economic Association, the authors inquire about how migration to 20 Organization for Economic Cooperation and Development (OECD) countries affects the welfare of the countries’ native workers. In this paper, we raise several concerns regarding the analytical and the empirical parts of the Battisti et al.’s inquiry that bear on this effect. In particular, when Battisti et al. formulate a rule for the division between a worker and a firm of the surplus that arises from a firm-worker match, Battisti et al. neglect to take into account the fact that wages are taxed. When Battisti et al. formulate the GDP identity, the incorporation of capital is done incorrectly. Calibration of a corrected model undertaken in this paper reveals that these issues affect measurably the empirical results regarding the impacts on the welfare of native workers of skill-neutral migration and of migration by low-skill workers. An additional concern is that our calibration of a corrected model yields estimates of the tax rate on workers’ wages that are far too high to be considered feasible. This suggests to us that even when the model of Battisti et al. is corrected, a structural revision is deemed necessary in order to deliver a useful tool for measuring the effect of migration on the welfare of native workers in the 20 OECD countries. As a step in this direction, we calibrate a version of the corrected model, which involves “reasonable” tax rates on wages and a budget deficit. The results yielded by this counterfactual version lend support to the results of the corrected model regarding the negative impact of skill-neutral migration and of migration by low-skill workers on the welfare of native workers.