Immigration, welfare, and inequality: How much does the labor market specification matter?

Frédéric Docquier, Bright Isaac Ikhenaode and Hendrik Scheewel
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Frédéric Docquier: LISER - Luxembourg Institute of Socio-Economic Research
Hendrik Scheewel: ULiège - Université de Liège = University of Liège = Universiteit van Luik = Universität Lüttich, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain = Catholic University of Louvain

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Abstract: General equilibrium models are frequently used to estimate the effect of immigration on welfare and inequality in the host country. Existing studies differ in the way they formalize the labor market implications for natives, which in turn govern the strength of the other transmission mechanisms. To assess the extent to which the choice of the labor market specification influences the findings, we build an encompassing model that distinguishes between broad classes of individuals. We calibrate it for 20 selected OECD member states, and compare several specifications involving different assumptions on labor supply decisions, unemployment rates, and wage formation, as well as different calibration strategies. The size and the sign of the average welfare and distributional effects of immigration are robust to the labor market specification. Endogenizing unemployment and participation rates leads to slightly better welfare and distributional effects in most OECD countries but overall, adding margins of labor market adjustment barely affects the findings of models based on simpler assumptions.

Date: 2022-11
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Published in Review of International Economics, 2022, 30 (5), pp.1315-1347. ⟨10.1111/roie.12615⟩

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Journal Article: Immigration, welfare, and inequality: How much does the labor market specification matter? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04465638

DOI: 10.1111/roie.12615

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