Question

Assume that a wave of immigration increases a country's labor force but does not affect its capital stock. Use the Solow growth model to explain your answers with the corresponding graph.  

a. What is the immediate impact of the immigration wave on total output and on output per person?

b. Is the growth rate of output per worker after the immigration wave smaller or greater than it was before?

Answer 1

Solow Growth Model is an economic model of neoclassical economists. It focuses on  the economic progress of an economy in the long run. It deals with the economic growth in connection with population growth, increase in capital, labour force etc. which will result eonomic sustainability through the increase in production within a long period.

The neo classical growth model argues that capital is always gives  diminishing returns  with its continuous .use, especially in a closed economy.  

According to this model if the labour force is fixed, the quantity produced with the last unit of capital will be less than the earlier situation.

The impact of immigration wave can be assumed that, due to immigration we can expect more man power. Immediately it will be very difficult for an economy to handle this situation. Providing food for all of them, providing employment opportunities to all of them are very difficult to manage in the beginning.

Later based on their skill and  other favourable circmstances, they will find out some jobs. This help to promote  a tendency of slow economic growth in the economy. In the beginning that does not make any big difference. The migrant workers who are large in numbers forced to work for very little amount of money will make only their individual per capita income very less.

Another important factor behind this situation is that, these migrant workers will be getting very less amount as wages, it will make them demotivated and it will affect their productivity negatively.

Eventhough in the long run becauase of these migrant wokrers production will increase and also with the heip of technological advancement, the productivity of labour will increase which leads to the growth of gross domestic production.