How might the output and income gains from immigration shown by the simple immigration model be

How might the output and income gains from immigration shown...

Key Concepts

Unemployment in the Originating Nation

This factor examines how labor market conditions in the home country, such as high unemployment, can affect the gains from immigration. High unemployment in the originating nation may imply that migration does not deplete productive labor in the home country, thereby potentially enhancing net gains for both the origin and destination nations by reallocating labor from less to more productive environments.

Remittances

Remittances refer to the funds that immigrants send back to their home countries. While remittances can provide crucial income support and stimulate economic activity in the origin country, they may also represent a transfer of income out of the host country economy, thereby altering the net income gains calculated by the simple immigration model.

Simple Immigration Model

This concept refers to a theoretical framework used to analyze how immigration affects the host country’s economy, particularly in terms of output and income levels. The simple model typically assumes competitive labor markets and constant returns to scale, allowing one to isolate the effects of an increased labor supply on wages, production, and overall income distribution.

Backflows of Migrants

This concept involves the phenomenon of migrants returning to their home country after spending time abroad. Backflows can decrease the long-term labor force expansion in the destination country, potentially moderating the anticipated output and income gains. They also have implications for skill transfer and capital accumulation in both the origin and destination economies, affecting the overall benefits predicted by simplistic models.

Transcript

00:01 So in this problem, we are looking at the simple immigration model of two countries and how different factors may influence the results that we see within the model.

00:10 And starting off here, we have country a and country b, and this is their market for labor.

00:16 And we can see here we have wage on the y axis for each one and then quantity of labor on the x axis.

00:23 And we have the demand for labor in blue for each.

00:26 I would take note that the demand for labor is slightly higher in the first country.

00:31 We can think of this as a technologically advanced country such as the united states, while b would be a country that people are trying to leave from, such as mexico.

00:40 If we're thinking of this, these united states, this could be something like mexico.

00:44 And the demand for labor is slightly less in mexico because there's less technological progress there.

00:50 So we're thinking of this, we need to look at before immigration and after.

00:55 So what i have here is w1 on each graph, and this is going to be the wage before immigration, before the immigration occurs between the two countries.

01:03 And as you can see here, the united states ' wage rate is pretty high, and mexico's is pretty low.

01:10 And what's going to happen here is that we need to see what happens after immigration.

01:16 So immigration influences the supply of labor, and you could think of this as a upward sloping line that intersects right here, and that's how we got this wage rate, but i'm not drawing it because it's just going to make the graph look a little bit.

01:30 But too messy here.

01:32 And what's happening is that as immigration occurs, you have more people.

01:36 So the supply of labor is increasing.

01:38 So it's going to go to the right.

01:40 So you're moving down this demand for labor here.

01:43 It's going to decrease the wage rate in country a or the united states.

01:48 Meanwhile, here we have our supply of labor decreasing because people are leaving the country.

01:53 So in this case, the wage rate is actually going to be increasing.

01:56 And what i have here in green is the wage equilibrium.

02:00 So the wage equilibrium assumes that there's no barriers or obstacles to immigrating and people are just going to be free flow of people until this wage rate equilibrium because once they're equal, the incentive to leave for higher wages doesn't exist.

02:16 So this is when it would be stable.

02:18 Now it's not completely realistic because there are borders and restrictions and fees associated to moving, but this is the theory in a graphical approach.

02:29 And this is the, once again, green is going to be the wage equilibrium between the two countries.

02:34 So we're looking at what happened here.

02:36 You can see the wage rate has gone down for this initial country because the supply of labor is increased.

02:41 So the wage rate has gone down from w1 to w.

02:44 Meanwhile, here, the opposite has occurred.

02:47 The wage rate has actually gone up.

02:50 So you can see this here, the supply of labor increasing, and this supply of labor is actually decreasing here and increasing in the first country.

03:00 And on the other axis, we're looking at the quantity of labor.

03:03 And as you can see, the quantity is actually increasing from this red, which is before to the green, which is after.

03:10 And then on the opposite side, it's decreasing.

03:14 So this shows the inverse relationships between the two countries when immigration occurs between them.

03:21 And just take it a step further here.

03:22 If we're thinking about output or national income, this would be actually a specific part of the graph that i'm going to mark here.

03:31 And it's going to be in technical terms, it's some of the marginal revenue products of everyone in the country.

03:38 So it is exactly related to the demand line.

03:42 The demand of labor is related to the marginal revenue product.

03:46 So for thinking of national income before immigration, that is going to be this box right here.

03:52 It's going to go up.

03:54 And it's going to be from the bottom corner to the top of the demand line and then over to where the wage rate is...

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