We focus our study on the following questions: What is the interplay between the slowdown in low- skill immigration, the reduction in the skill premium and the decision of native workers to invest in education? What are the implications of those changes for macroeconomic performance and welfare? What is the role of these interlinked labor market dynamics for the effectiveness of the 2020 coronavir. [...] The unprecedented decline in the skill premium reverses a four-decade upward trend.4 Interestingly, the decline in the skill premium coincided with a decline in the inflation-adjusted cost of tuition, as shown in Figure 2(C), consistent with the lower return to investing in education over the period. [...] To the best of our knowledge, we are the first paper to: (a) study the empirical link between the fall in low-skill immigration, labor shortages, the unprecedented decline in the skill premium, and the associated impact on training choices of natives; and (b) assess the welfare implications through the lens of a structural model designed to account for this evidence. [...] We mainly focus the discussion on the Home and South economies.17 For Foreign, the equations are the same as those for Home, and the variables are marked with an asterisk.18 The full derivation of the model is in the Appendix.19 17The appendix describes the system of equations that characterize all the equilibrium conditions of the model as well as the auxiliary equations needed to take the model. [...] Therefore, workers at the top of the skill distribution in Foreign may have the same productivity as some of the workers in the middle of the skill distribution in Home.
- Pages
- 61
- Published in
- Japan
Table of Contents
- Federico S. Mandelman Yang Yu 2
- Federal Reserve Bank of Atlanta Shanghai Jiao Tong University 2
- Francesco Zanetti Andrei Zlate 2
- University of Oxford and CEPR Federal Reserve Board 2
- June 2024 2
- 1 Introduction 3
- 2 Regional Evidence 8
- 2.1 Fact I The Skill Premium is Positively Correlated with Low-skill Immigration 8
- 2.2 Fact II Low-skill Immigration Positively Correlates with Initial Low-skill Wages 10
- 2.3 Fact III Immigration Policy Enforcement is correlated with Low-skill Immigra- tion 11
- 2.4 Fact IV Natives Educational Attainment is Positively Correlated with the low- skill immigration 12
- 2.5 Taking Stock 14
- 3 Model 14
- 3.1 Production in the Home Economy 15
- 3.2 Households in the Home Economy 18
- 3.3 South Economy 20
- 4 Data and Estimation 21
- 5 Model Fit and the Effect of Shocks 26
- 5.1 Model Fit 27
- 5.2 Impulse Response Functions 27
- 5.3 Historical Decomposition 30
- 6 Welfare Analysis 34
- 7 Conclusion 41
- References 42
- 1 Normalized Model Equations 47
- 2 Data Sources and Bayesian Estimation 50
- 3 Additional Estimation Results for Baseline Model 52
- 4 Additional figures 58
- References 61
