Immigration and Outsourcing: A General-Equilibrium Analysis

14 Pages Posted: 19 Jul 2010

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Abstract

This paper analyzes immigration and outsourcing in a general-equilibrium model of international factor mobility. In our model, legal immigration of skilled labor is controlled through a quota, while outsourcing is determined both by the firms in response to market conditions and through policy-imposed barriers. A loosening of the immigration quota reduces outsourcing, enriches capitalists, leads to losses for native workers, and raises national income. If the nation targets an exogenously determined immigration level, the second-best outsourcing tax can be either positive or negative. If in addition to the immigration target there is a wage target arising out of income distribution concerns, an outsourcing subsidy is required. We extend the analysis to consider illegal immigration of unskilled labor. A higher legal immigration quota will lead to more (less) illegal immigration if skilled and unskilled labor are complements (substitutes) in production.

Suggested Citation

Bandyopadhyay, Subhayu and Wall, Howard J., Immigration and Outsourcing: A General-Equilibrium Analysis. Review of Development Economics, Vol. 14, Issue 3, pp. 433-446, August 2010. Available at SSRN: https://ssrn.com/abstract=1643560 or http://dx.doi.org/10.1111/j.1467-9361.2010.00563.x

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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