Unit 4: Labor and Efficiency: Resource Markets, Inequality, and Immigration

Lesson 22a: Immigration

Summaries of the Lesson 22a Models

 

A simple immigration model showing the "Impact on Wage Rates, Efficiency, and Output"

A model showing the impact of illegal workers in a low wage labor market

 

 


A Simple Immigration Model Showing the "Impact on Wage Rates, Efficiency, and Output"

 

Assumptions:

  • Dx is the demand for labor in country X; Dy is the demand for labor in country Y. The demand for labor presumably is greater in the country Y because it has more capital, more advanced technology, and better infrastructure that enhance the productivity of labor. Therefore wages are higher in country Y
  • before-migration the labor force of country X is 5 million and the wage is $5
  • before-migration the labor force of country Y is 2 million and the wage is $10
  • there is full employment in both countries
  • labor quality is the same in both countries.
  • migration (1) has no cost, (2) occurs solely in response to wage differentials, and (3) is unimpeded by law in both countries,

Conclusions:

  • Workers will migrate from low wage country X to high wage country Y until wage rates in the two countries are equal at $8.
  • At that level, 1 million workers will have migrated from country X to Country Y.
  • In country Y, the wage rate will decrease from $10 to $8.
  • In country Y the domestic output (the sum of the marginal revenue products of the entire workforce) will increase as shown by the blue area c + e.
  • In country X, the wage rate will rise from $5 to $8.
  • In country X the domestic output (the sum of the marginal revenue products of the entire workforce) will decrease as shown by the red area C + E.
  • Observe that the gain in domestic output in country Y exceeds the loss of domestic output country X. The migration from Y to X has increased the world's output and income.
  • Migration enables the world to produce a larger output with its currently available resources. So labor mobility joins international trade in enhancing the world's standard of living.

 

A Model Showing the Impact of Illegal Workers in a Low Wage Labor Market

Assumptions:

  • Employers in this market are willing and able to ignore minimum wage laws
  • Sd represents the supply of domestically-born (and legal immigrant) workers
  • St represents the total supply of workers in this labor market (Sd plus illegal immigrants
  • The horizontal distances between St and Sd at the various wage rates measure the number of illegal immigrants offering their labor services at those wage rates
  • Unless otherwise stated, illegal immigration is not effectively blocked by the government.

Conclusions:

  • With illegal workers present, as implied by curve St, the equilibrium wage and level of employment in this labor market are $5.50 and 450,000.
  • At the low wage of $5.50:
    • Only 250,000 domestic-born workers are willing to work
    • the other workers (200,000) are illegal immigrants.
  • Can we therefore conclude that illegal workers have filled jobs that most U.S.-born workers do not want?
    • The answer is "yes," but only with the proviso: "at wage rate $5.50"
    • if the United States cut off the full inflow of illegal workers to this market, the relevant supply curve would be Sd and the wage rate would rise to $8.00. Then 100,000 more domestic-born workers would work and 200,000 illegal immigrants would lose jobs.
  • Can we therefore conclude that illegal workers reduce the employment of Americans by an amount equal to the employment of illegal workers? No.
    • Illegal immigration causes some substitution of illegal workers for domestic workers, but the amount of displacement is less than the total employment of the illegal workers. Illegal immigration, as with legal immigration, increases total employment in the United States.
Lesson 22a