Immigration is often blamed for increasing unemployment among local workers. However, standard models, such as the neoclassical model and the Diamond-Mortensen-Pissarides matching model, inherently assume that immigrants are absorbed into the labor market without affecting local unemployment. This paper presents a more general model of migration that allows for the possibility that not only the wages but also the unemployment rate of local workers may be affected by the arrival of newcomers. This extension is essential to capture the full range of potential impacts of labor migration on labor markets. The model blends a matching framework with job rationing. In it, the arrival of new workers can raise the unemployment rate among local workers, particularly in a depressed labor market where job opportunities are limited. On the positive side, in-migration helps firms fill vacancies more easily, boosting their profits. The overall impact of in-migration on local welfare varies with labor market conditions: in-migration reduces welfare when the labor market is inefficiently slack, but it enhances welfare when the labor market is inefficiently tight.
Authors
- Acknowledgements & Disclosure
- I thank Christoph Albert, Leah Boustan, Varanya Chaubey, Anthony Edo, Yagan Hazard, Claudio Labanca, Michael Lachanski, Joan Monras, Emmanuel Saez, Stefanie Stantcheva, Jonathan Vogel, Romain Wacziarg, and Josef Zweimueller for helpful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w33047
- Pages
- 52
- Published in
- United States of America
Table of Contents
- Introduction 3
- Migration-induced unemployment in natural and quasi experiments 5
- US Great Depression 5
- War of Algeria 6
- Independence of Mozambique and Angola 6
- Mariel Boatlift 6
- Fall of the Berlin Wall 7
- Yugoslav Wars 8
- Arab Spring 8
- Nonexperimental evidence 8
- Discussion 9
- Model of the labor market 11
- Assumptions 11
- Matching rates 12
- Labor supply 12
- Recruiter-producer ratio 14
- Labor demand 15
- Solution of the model 15
- Impact of in-migration on the labor market 16
- Modeling in-migration 16
- Impact of in-migration on local workers 17
- Impact of in-migration when wages respond 21
- Impact of in-migration in DMP models 23
- Impact of in-migration on firms 26
- In-migration in good and bad times 27
- Modeling good and bad times 27
- Labor market in good and bad times 29
- Impact of in-migration in good and bad times 30
- Numerical illustration 32
- Impact of in-migration on local welfare 33
- Computing local welfare 33
- Elasticity of welfare with respect to in-migration 34
- Effect of infinitesimal in-migration on welfare 34
- Optimal in-migration over the business cycle 36
- Feasibility of a cyclical migration policy 37
- Political support and opposition to immigration 38
- Opposition to immigration from pro-labor parties 38
- Support for immigration from pro-business parties 39
- Reconciling the Cardian and Borjasian perspectives on immigration 39
- The two branches of the immigration literature 39
- A general theory of migration 40
- Calibration of the model 42
- Conclusion 42
- Application to the recovery of the coronavirus pandemic 42
- Application to other labor-supply shocks 42
- Connection to results on unemployment insurance and public employment 45
