The impact of Medium-Skilled immigration: A general equilibrium approach
Joan Muysken, Ehsan Vallizadeh & Thomas Ziesemer
#2012-055
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, Unemployment, Over-qualification, Wage Polarization
JEL Classification F22, J51, J52, J61, J64