Question

1. In this question, you are expected to analyze the labor market consequences of the inflow of high skill immigrants for the immigrant-receiving country in the short-run. Specifically, using both the graphical analysis and the cause-effect framework, explain how different socioeconomic groups or classes are affected from the inflow of high skill immigrants.

Answer 1

The impacts of immigration on the labour market critically depend on the skills of migrants, the skills of existing workers, and the characteristics of the host economy. They are also likely to differ between the short and long run when the economy and labour demand can adjust to the increase in labour supply.

Immigration affects the labour supply,as it increases the pool of workers in certain sectors of the economy. At the same time, immigration is likely to increase the demand for labour, as migrants expand consumer demand for certain goods and services. That is , immigration may increase competition for existing jobs in certain occupational sectors but it can also create new jobs.

The immediate short-term effects of immigration on the wages or employment of existing workers depends on the extent to which migrants have skills that substitute or complement those of existing workers. When migrant workers are substitute for existing workers, immigration is expected to increase competition for jobs and reduce wages in the short-run. In terms of employment, the extent to which declining wages increase unemployment or inactivity among existing workers depends on their willingness to accept the new lower wages. On the other hand, the skills of migrants are complementary to those of existing workers all workers experience incresed productivity which can be expected to lead a rise in the wages of existing workers.

In general, workers in low skilled occupations are expected to face more competition from migrants because the skills needed for those jobs are easier to acquire and are less specialised.