Hostname: page-component-cc8bf7c57-xrnlw Total loading time: 0 Render date: 2024-12-11T23:00:13.299Z Has data issue: false hasContentIssue false
  • English
  • Français

IMMIGRATION, ENDOGENOUS SKILL BIAS OF TECHNOLOGICAL CHANGE, AND WELFARE ANALYSIS

Published online by Cambridge University Press:  01 December 2020

Gonca Senel
Gonca Senel*
Affiliation:
Bowdoin College
*
Address correspondence to: Gonca Senel, Department of Economics, Bowdoin College, 9700 College Station, Brunswick, ME04011-8497, USA. [email protected]. Phone: (424) 832-4247. Fax: (207) 725-3168.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates the long-run effects of immigration on wages and welfare in a model with endogenous technology choice (ETC) where firms are allowed to choose their optimal skill intensity from a menu of available technologies. I embed the ETC framework into the Auerbach and Kotlikoff model (1987) that features a large set of overlapping generations, a rich collection of population dynamics, and a social security system. I calibrate the model to match with the U.S. data and evaluate the effect of ETC with the help of two experiments. In the first experiment, I increase the share of high-skilled immigrants and compare the wage and welfare predictions of the model with ETC to a standard model where the skill intensities in production technology are fixed. In the standard model, since the skill intensities are constant, increase in the supply of high-skilled labor leads to a decrease in high-skilled wages and an increase in low-skilled wages. On the other hand, in the model with ETC, negative supply-side effects are counterbalanced by an increase in the intensity of the more abundant high-skilled labor, leading to a smaller decrease in their wages. The discrepancy between wage predictions of these two models is also reflected in the welfare: while the model with ETC predicts an increase in both high- and low-skilled natives’ welfare, the standard model would predict a decrease in the welfare of the high skilled and a larger increase in the welfare of the low skilled. In the second experiment, I examine the effects of an increase in low-skilled immigration and find that in this case, since the initial production technology is low-skilled intensive, the ETC effects are smaller. These results imply that if ETC is ignored, both in the short run and long run, wage and welfare analyses of immigration will be incomplete, and even misleading.

Keywords

ImmigrationEndogenous Technology ChoiceEndogenous Skill IntensityWelfare Analysis
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 5 , July 2022 , pp. 1264 - 1301
Copyright
© Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I am grateful to Lee E. Ohanian for his invaluable guidance and support, and to Gadi Barlevy, Bob Barsky, Marco Bassetto, Francisco Buera, Nida Cakir, Jeffrey Campbell, Mariacristina De Nardi, Hesna Genay, Francois Guorio, Ergys Islamaj, Alejandro Justiniano, Ethan Lewis, and Giovanni Peri for insightful discussions and comments. An online appendix is available at http://www.goncasenel.com/uploads/2/4/8/1/24818900/senel_immigration_online_appendix.pdf. All errors are mine.

References

Aaronson, D., French, E. and Sorkin, I. (2013) Firm Dynamics and the Minimum Wage: A Putty-Clay Approach. Working Paper Series WP-2013-26, Federal Reserve Bank of Chicago.CrossRefGoogle Scholar
Acemoglu, D. (1998) Why do new technologies complement skills? Directed technical change and wage inequality. The Quarterly Journal of Economics 113(4), 1055–1089.CrossRefGoogle Scholar
Acemoglu, D. (2002a) Technical change, inequality and the labor market. Journal of Economic Literature 40(1), 70–72.CrossRefGoogle Scholar
Acemoglu, D. (2002b) Directed technical change. The Review of Economic Studies 69(4), 781–809.CrossRefGoogle Scholar
Akin, S. (2012) Immigration, fiscal policy, and welfare in an aging population. The B.E. Journal of Macroeconomics 12(1), 1–45.CrossRefGoogle Scholar
Altonji, J. G. and Card, D. (1991) The effects of immigration on the labor market outcomes of less-skilled natives. In: Abowd, J. M. and Freeman, R. B. (eds.), Immigration, Trade, and the Labor Market, Chicago: University of Chicago Press.Google Scholar
Angrist, J. (1995) The economic returns to schooling in the West Bank and Gaza Strip. American Economic Review 85, 1065–1087.Google Scholar
Auerbach, A. J. and Kotlikoff, L. J. (1987) Dynamic Fiscal Policy. Cambridge, MA: Cambridge University Press.Google Scholar
Beaudry, P., Doms, M. and Lewis, E. (2010) Should the PC be considered a technological revolution? Evidence from U.S. metropolitan areas. Journal of Political Economy 118(5), 988–1036.CrossRefGoogle Scholar
Borjas, G. J. (1987) Immigrants, minorities, and labor market competition. Industrial and Labor Relations Review 40(3), 382–392.CrossRefGoogle Scholar
Borjas, G. J. (1994) The economics of immigration. Journal of Economic Literature 32(4), 1667–1717.Google Scholar
Borjas, G. J. (2003) The labor demand curve is downward sloping: Reexamining the impact of immigration on the labor market. The Quarterly Journal of Economics 118(4), 1335–1374.CrossRefGoogle Scholar
Borjas, G. J. (2006) Native internal migration and the labor market impact of immigration. Journal of Human Resources 41(2), 221–257 32.CrossRefGoogle Scholar
Borjas, G. J. (2009) The Analytics of the Wage Effect of Immigration. Harvard University. Mimeo.CrossRefGoogle Scholar
Borjas, G. J., Grogger, J. and Hanson, G. H. (2008) Imperfect Substitution Between Immigrants and Natives: A Reappraisal. NBER Working Paper 13887.CrossRefGoogle Scholar
Borjas, G. J. and Katz, L. F. (2007) The evolution of the Mexican-Born workforce in the United States. In: Borjas, G. J. (ed.), Mexican Immigration to the United States, Chicago: University of Chicago Press.CrossRefGoogle Scholar
Card, D. (1990) The impact of the Mariel Boatlift on the Miami labor market. Industrial and Labor Relations Review 43(2), 245–257.CrossRefGoogle Scholar
Card, D. (2001) Immigrant inflows, native outflows, and the local labor market impacts of higher Immigration. Journal of Labor Economics 19(1), 22–64.CrossRefGoogle Scholar
Card, D. (2009) Immigration and inequality. American Economic Review 99(2), 1–21.CrossRefGoogle Scholar
Card, D. and Lewis, E. (2007) The diffusion of Mexican immigrants during the 1990s: Explanations and impacts. In: Borjas, G. J. (ed.), Mexican Immigration to the United States, Chicago: University of Chicago Press.Google Scholar
Cagetti, M. and De Nardi, M. (2006) Entrepreneurship, frictions, and wealth. Journal of Political Economy 114(5), 835–870.CrossRefGoogle Scholar
Cagetti, M. and De Nardi, M. (2009) Estate taxation, entrepreneurship, and wealth. American Economic Review 99(1), 85–111.CrossRefGoogle Scholar
Caselli, F. and W. J. Coleman II (2006) The world technology frontier. American Economic Review 96(3), 499–522.CrossRefGoogle Scholar
Cortes, P. (2008) The effect of Low-skilled immigration on U.S. prices: Evidence from CPI data. Journal of Political Economy 116(3), 381–422.CrossRefGoogle Scholar
De Nardi, M., Imrohoroglu, S. and Sargent, T. (1999) Projected U.S. demographics and social security. Review of Economic Dynamics 2(3), 575–615.CrossRefGoogle Scholar
Dustmann, C. and Glitz, A. (2012) How Do Industries and Firms Respond to Changes in Local Labor Supply? University College London. Mimeo.CrossRefGoogle Scholar
Doms, M. and Lewis, E. (2006) Labor Supply and Personal Computer Adoption. Federal Reserve Bank of San Francisco Working Paper 2006–18.CrossRefGoogle Scholar
Friedberg, R. M. (2001) The impact of mass migration on the Israeli labor market. The Quarterly Journal of Economics 116(4), 1373–1408.CrossRefGoogle Scholar
Friedberg, R. M. and Hunt, J. (1995) The impact of immigrants on host country wages, employment and growth. Journal of Economic Perspectives 9(2), 23–44.CrossRefGoogle Scholar
Gonzales, L. and Ortega, F. (2011) How do very open economies absorb large immigration flows? Recent evidence from Spanish regions. Labour Economics 18(1), 57–70.CrossRefGoogle Scholar
Hanson, G. H. and Slaughter, M. J. (2002) Labor-market adjustment in open economies: Evidence from US states. Journal of International Economics 57(1), 3–29.CrossRefGoogle Scholar
Heer, B. and Irmen, A. (2014) Population, pensions and endogenous economic growth. Journal of Economic Dynamics and Control 46, 50–72.CrossRefGoogle Scholar
Imrohoroglu, A., Imrohoroglu, S. and Fuster, L. (2003) A welfare analysis of social security in a dynastic framework. International Economic Review 44, 1247–1274.Google Scholar
Imrohoroglu, A., Imrohoroglu, S. and Joines, D. (1995) A life cycle analysis of social security. Economic Theory 6(1), 83–114.CrossRefGoogle Scholar
Johnson, G. E. (1997) Changes in earnings inequality: The role of demand shifts. The Journal of Economic Perspectives 11, 41–54.CrossRefGoogle Scholar
Kane, R. (2019) Directed structural change. Macroeconomic Dynamics 23(5), 1921–1958.CrossRefGoogle Scholar
Katz, L. and Murphy, K. M. (1992) Changes in relative wages, 1963-1987: Supply and demand factors. Quarterly Journal of Economics 107, 35–78.CrossRefGoogle Scholar
Kitao, S. (2014) Sustainable social security: Four options. Review of Economic Dynamics 17(4), 756–779.CrossRefGoogle Scholar
Krusell, P., Ohanian, L., Rios-Rull, J. V. and Violante, G. L. (2000) Capital skill complementarity and inequality: A macroeconomic analysis. Econometrica 68, 1029–1054.CrossRefGoogle Scholar
Leamer, E. and Levinsohn, J. (1995) International trade theory: The evidence. In: Grossman, G. M. and Rogoff, K. (eds.), Handbook of International Economics. Amsterdam, Netherlands: Elsevier.Google Scholar
Lewis, E. (2003). Local, Open Economies Within the U.S.: How Do Industries Respond to Immigration? Federal Reserve Bank of Philadelphia Working Paper 04–01.Google Scholar
Lewis, E. (2005) Immigration, Skill Mix, and the Choice of Technique. Federal Reserve Bank of Philadelphia Working Paper 05–08.CrossRefGoogle Scholar
Lewis, E. (2011a) Immigration, skill mix, and capital-skill complementarity. Quarterly Journal of Economics 126(2), 1029–1069.CrossRefGoogle Scholar
McAdam, P. and Willman, A. (2018) Unraveling the skill premium. Macroeconomic Dynamics 22(1), 33–62.CrossRefGoogle Scholar
Ottaviano, G. and Peri, G. (2012) Rethinking the effect of immigration on wages. Journal of the European Economic Association 10, 152–197.CrossRefGoogle Scholar
Paserman, D. (2013) Do high-skill immigrants raise productivity? Evidence from Israeli manufacturing firms, 1990–1999. IZA Journal of Migration 2(6), 1–31.Google Scholar
Peri, G. (2012) The effect of immigration on productivity: Evidence from U.S. states. Review of Economics and Statistics 94(1), 348–358.CrossRefGoogle Scholar
Storesletten, K. (2000) Sustaining Fiscal policy through immigration. Journal of Political Economy 108(2), 300–323.CrossRefGoogle Scholar
Supplementary material: PDF

Senel et al. Supplementary Materials

Senel et al. Supplementary Materials

Download Senel et al. Supplementary Materials(PDF)
PDF 1 MB