Slowdown in Immigration, Labor Shortages, and Declining Skill Premia

Federico S. Mandelman (), Yang Yu (), Francesco Zanetti and Andrei Zlate
Additional contact information
Federico S. Mandelman: Federal Reserve Bank of Atlanta
Yang Yu: Shanghai Jiao Tong University

No 2429, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We document a steady decline in low-skilled immigration that began with the onset of the Great Recession in 2007, which was associated with labor shortages in low-skilled service occupations and a decline in the skill premium. Falling returns to high-skilled jobs coincided with a decline in the educational attainment of native-born workers. We develop and estimate a stochastic growth model with endogenous immigration and training to account for these facts and study macroeconomic performance and welfare. Lower immigration leads to higher wages for low-skilled workers and higher consumer prices. Importantly, the decline in the skill premium discourages the training of native workers, persistently reducing aggregate productivity and welfare. Stimulus policies during the COVID-19 pandemic, amid a widespread shortage of low-skilled immigrant labor, exacerbated the rise in consumer prices and reduced welfare. We show that the 2021-2023 immigration surge helped to partially alleviate existing labor shortages and restore welfare.

Keywords: Immigration; skill premium; task upgrading; heterogeneous workers (search for similar items in EconPapers)
JEL-codes: F16 F22 F41 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2024-06
New Economics Papers: this item is included in nep-dge, nep-int, nep-opm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussio ... MDP2024-29-Paper.pdf (application/pdf)

Related works:
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
Working Paper: Slowdown in Immigration, Labor Shortages, and Declining Skill Premia (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2429

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().