Immigration and Outsourcing: A General Equilibrium Analysis

IZA Discussion Paper No. 1694

FRB of St. Louis Working Paper No. 2005-058C

24 Pages Posted: 8 Aug 2005

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

Date Written: December 1, 2007

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.

Keywords: Legal Immigration, Illegal Immigration, Outsourcing, General Equilibrium

JEL Classification: F1, F2, O1, J1, J3

Suggested Citation

Bandyopadhyay, Subhayu and Wall, Howard J., Immigration and Outsourcing: A General Equilibrium Analysis (December 1, 2007). IZA Discussion Paper No. 1694; FRB of St. Louis Working Paper No. 2005-058C. Available at SSRN: https://ssrn.com/abstract=774026

Subhayu Bandyopadhyay (Contact Author)

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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