Question

Use demand and supply analysis to carefully explain whether the following statement is true, false, or uncertain: "An increase in immigration harms domestic workers in the long run.”

Explain with words only. No graphs or diagrams.

Answer 1

Answer

The statement is not true. Because immigration yields positive net gain to domestic workers, but

that gain is not spread equally.

the demand curve for domestic unskilled workers. Before immigration there are S domestic unskilled workers who are all paid. Workers receive a single wage Wo so that the total amount that domestic workers are paid S times Wo or the area OBDG. The area BCD is the amount paid to domestic skilled workers.

Now due to immigration, the labor force increases to S+I from the point S increasing all the unskilled workers in the labor force. The new wage falls to Wo1 and unskilled domestic workers are clearly worse off. Since the total amount paid to all unskilled workers falls to OAKG, the domestic workers lose ABDK as a result of immigration, and unskilled immigrants are paid the same wage as domestic unskilled workers and hence as a group, immigrants receive the area GKEH.

Before immigration, skilled domestic workers received the area BCD, domestic skilled labor receive the area ACE. Total GDP increases and now the area is OCEH, and the value of domestic output has increased by the area KDE. Immigration thus raises national output and national output per domestic worker. New immigrants help produce new goods and services, but they are paid less than the total value of goods and services, and the rest goes to domestic residents who are collectively better off than before, represented by the triangle KDE.