The Impact of Medium‐Skilled Immigration: A General Equilibrium Approach

UNU-MERIT Working Paper Series 2012-055

43 Pages Posted: 15 Jul 2012

See all articles by Ehsan Vallizadeh

Ehsan Vallizadeh

Maastricht University - Department of Economics; Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Joan Muysken

University of Maastricht

Thomas Ziesemer

Maastricht University - Department of Economics; UNU-MERIT

Date Written: July 12, 2012

Abstract

This paper analyses the impact of the skill composition of migration flows on the host country’s labour market in a specific-factors-two-sector model with heterogeneous labour (low-, medium-, and high-skilled). We assume price-setting behaviour in both manufacturing and services sectors. The low- and medium-skilled labour markets are characterized by frictions due to wage bargaining. Moreover, we assume bumping down of unemployed medium-skilled workers into low-skilled service jobs whereas endogenous benefits create an interdependency between the two bargaining processes. Particular attention is paid to medium-skilled migration which enables us to augment the literature by replicating important stylized facts regarding medium skills, such as: i) the interaction between immigration, low-skilled unemployment and medium-skilled over-qualification, ii) the polarization effect where both lowand high-skilled wages increase relative to the medium-skilled. The model is calibrated using German data. The key findings are: (i) a perfectly balanced migration has a neutral impact on the receiving economy due to international capital flows; (ii) immigration of medium-skilled labour together with some high-skilled labour lowers the low-skilled unemployment rate and has a positive effect on output per capita; (iii) migration of only medium-skilled labour has a neutral GDP per capita effect.

Keywords: Medium-Skilled Migration, Wage and Price Setting, Specific Factors Model, Over-qualification, Unemployment, Wage Polarization

JEL Classification: F22, J51, J52, J61, J64

Suggested Citation

Vallizadeh, Ehsan and Muysken, Joan and Ziesemer, Thomas, The Impact of Medium‐Skilled Immigration: A General Equilibrium Approach (July 12, 2012). UNU-MERIT Working Paper Series 2012-055. Available at SSRN: https://ssrn.com/abstract=2105620 or http://dx.doi.org/10.2139/ssrn.2105620

Ehsan Vallizadeh (Contact Author)

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Joan Muysken

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Thomas Ziesemer

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

UNU-MERIT ( email )

Boschstraat 24
Maastricht, 6211AX
Netherlands

HOME PAGE: http://www.merit.unu.edu/about/profile.php?id=58

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