Question

Hi,I need your answer for all part of this question.Br//Ha

a)In a perfectly competitive model of the labor market, how does immigration affect total employment, wages and native workers employment level in the short run assuming that migrant and native workers are perfect substitutes? Both explain in your own words and illustrate your reasoning graphically.

b) Explain what happens to native wages and employment in the long-run in this scenario. Focus in particular on the role that capital plays in the long run. (no graph needed)

c) Give a real world example where natives and migrants are potentially substitutes and a second example where natives and migrants may rather be complements.

Answer 1

a)The impact of immigration to the country is expansion in the economy ie in the labor force.Increase in the labor force. Additional workers in the labor force will negatively impact natives and foreign born and positively impact others.The effect of immigration on wages and employment depend on the extent to which new workers substitute native workers.Wages may fall for workers who are easily substituted by immigrants while wages may rise for workers whose skills are complemented by new workers .For eg if foreign born construction workers enter the labor market, the wages of construction workers will decrease. Firms will respond by hiring more construction workers .When immigrants compete for the same job, employment and wages of natives are likely to suffer.If low skilled workers are employed at lower wages , total employment will rise.Again more immigration means more demand for goods and services and so GDP rises.

b) In the long run ,immigration increases investment and demand for labor increases and there is increased wages and employment in the economy.When new jobs are created ,wages rise for both natives and migrants.

In the short run the capital stock is fixed and cannot be changed but in the long run the capital stock can be changed according to demand.With immigration the return to capital rises in the beginning but falls later and then returns to the original level.

c)Wages may fall for workers who are easily substituted by immigrants while wages may rise for workers whose skills are complemented by new workers Eg If foreign born construction workers enter the labor market, the wages of construction workers will decrease. Firms will respond by hiring more construction workers .Supervisors may be needed to supervise the work of the expanded labor force and so the wages of complementary workers will increase.m