Slowdown in Immigration, Labor Shortages, and Declining Skill Premia

Federico S. Mandelman, Yang Yu, Francesco Zanetti and Andrei Zlate

No 11202, CESifo Working Paper Series from CESifo

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)
Date: 2024
New Economics Papers: this item is included in nep-dge, nep-int, nep-opm and nep-ure
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https://www.cesifo.org/DocDL/cesifo1_wp11202.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)
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