A New Look at the Impact of Migration on the Wage Differential. Hsiao-chuan Chang * Department of Economics The University of Melbourne

Transcription

1 A New Look a he Impac of Migraion on he Wage Differenial Hiao-chuan Chang * Deparmen of conomic The Univeriy of Melbourne Phone: Fax: mail: changh@unimelb.edu.au * Thi reearch i uppored by he Faculy Reearch ran of he Faculy of conomic and Commerce, Univeriy of Melbourne. I would like o hank Jeff Borland for hi conrucive uggeion.

2 A New Look a he Impac of Migraion on he Wage Differenial Abrac The impac of migran on he ho counry wage ha been an imporan iue for policy maker and ha araced much reearch aenion. Since no conien concluion ha been reached regarding hi impac, he debae over immigraion policy coninue in many counrie. Thi paper conruc a heoreical dynamic general equilibrium model by which he raniional and long-run effec of a migraion hock on endogenou variable, including he wage differenial, can be illuminaed. Conien reul from differen cenario are obained: fir, he wage differenial i booed by permanen migran in boh he hor and he long run; econd, if migran ay emporarily, he wage differenial increae in he hor run and he effec die ou in he long run; hird, permanen migran impel domeic worker o upgrade kill by demanding an increaed amoun of educaion. JL claificaion: C61; C68; D10; D91; J31 2

3 1. Inroducion Migraion ha been a ignifican phenomenon around he world over he la wo cenurie. A he end of he 20h cenury, abou 140 million peron- or roughly 2% of he world' populaion- reided in a counry where hey were no born (Borja 1999). From he ma migraion in he eigheenh cenury, which brough million of uropean o he America, o he recen rapidly growh of immigran wihin Aia, hi labour movemen aler he labour endowmen in boh he ource and ho counrie. The impac of he labour movemen on he ho counry wage and unemploymen level ha araced much aenion in he exiing reearch. Due o he fac ha no conien concluion ha been provided, here i ongoing debae over immigraion policy in many counrie. Thi paper focue on he iue of he effec of migraion on he wage differenial beween killed and unkilled labour in he ho counry. By aking he Borja (1994) uggeion ha we do no underand he dynamic proce hrough which naive repond o hee upply hock and reeablih labor marke equilibrium" ino accoun, hi paper adop a new mehodology, Dynamic Ineremporal eneral quilibrium (DI) modeling 1, and conruc a heoreical model of a cloed economy, which blockade oher effec bu migraion from ouide of he ho counry, o reinveigae he iue of he wage differenial. By uing he DI modeling framework, we can udy he raniional dynamic following hock o he yem. A relaively comprehenive framework wih one-good, wo-labour (killed and unkilled) and hree-agen (firm, houehold, and governmen) i eablihed. In conideraion of emporary migraion and permanen migraion, imulaion of hi heoreical model illurae an overall picure of he effec of migraion on he wage differenial in a dynamic proce. Imporan inigh and implicaion for immigraion policie are dicued. Since i i a heoreical model, i can be applied o a range of counrie only by changing he appropriae parameer. A large amoun of reearch inveigaing he effec of immigraion on naive wage and he finding have mixed reul. One viewpoin i ha here i lile evidence of an advere wage effec of immigraion, uch a Bucher and Card (1991) and Heckman e al (1998). The oher viewpoin ugge ha immigraion adverely affec le-killed naive wage (Lalonde and Topel 1991, Alonji and Card 1991, Kuhn and Wooon 1991, Borja e al 1992, Borja e al 1996 and Friedberg and Hun 1995). Almo all of he empirical udie in hi lieraure uing he paial correlaion approach have produced a confuing array of reul 2 (Borja 1999). Subanial effor regarding mehodology innovaion have been made. Alonji and Card (1991) and Schoeni (1997) ue inrumenal variable eimaion; however, hey end wih very differen eimae (Borja 1999). Heckman e al (1998) and Kuhn and Wooon (1991) ue he dynamic and he aic general equilibrium approach repecively o look a he iue of wage inequaliy and naive wage. Inconien concluion reul from heir model. In conra o hee exiing general equilibrium model, hi paper conruc a relaively comprehenive dynamic framework in which governmen play an imporan role of upplying educaion and wage are deermined by labour upply and demand 3. The following ecion ouline he heoreical framework of he model. Secion hree preen he imulaion reul from conidering a range of cenario of migraion and ecion four dicue he concluion reached. 1 The model follow he general approach of he -Cubed model (McKibbin and Wilcoxen 1999). The endogenized kill formaion and educaion producion follow he model in Chang (1999) wih a novel applicaion on he migraion iue. 2 The paial correlaion i he relaionhip beween labour marke oucome in a localiy and he exen of immigran peneraion. The ign of he relevan coefficien change erraically over ime. 3 Heckman e al (1998) i he only exiing reearch uing a dynamic general equilibrium model. However, in heir model, governmen play a limied role in ubidizing human capial and i pu aide in heir analyi. In addiion, he wage equaion in heir reearch i in an ad hoc form. 3

4 2. The Model The framework of hi model i a follow: firm produce he ingle good by hiring phyical capial, killed labour and unkilled labour, hey hen ell hi good o he houehold for conumpion, o he governmen for educaion capial invemen and o hemelve for phyical capial invemen. The objecive of each firm i o maximize i ineremporal profi. The ownerhip of firm belong o houehold. Houehold upply unkilled labour o firm and killed labour o boh firm and he governmen in order o earn wage which, ogeher wih he dividend from rening phyical capial o firm, finance he purchae of good and educaion. Leiure i conumed by he houehold wih an opporuniy co of no working. The objecive of houehold i o maximize uiliy by an opimal diribuion of conumpion beween he good and leiure. The governmen buy he good from firm and ranform i ino educaion capial. Thi capial i combined wih killed labour hired by he governmen o produce educaion. The role of governmen a an educaion upplier i eenial. Thi model capure he realiy of governmen upplying educaion in conideraion of he aociaed beneficial exernaliie. The governmen balance i budge by collecing labour income ax 4 and elling educaion o he houehold. The accumulaion of phyical capial, kill formaion, educaion capial and financial ae drive he dynamic evoluion of he economy over ime. 2.1 Firm The producion funcion of he repreenaive firm i aumed o be conan elaiciy of ubiuion (CS) a follow (1) Q = [ K 1 ρ F α 1 α ρ ρ + ( L, Lu, ) ] F where Q i he oupu and K, L, L u are repecively he phyical capial ock, he killed labour and he unkilled labour hired by he firm. ρ and α are parameer. Capial accumulaion depend on he rae of fixed capial formaion J and he rae of depreciaion δ. (2) dk/d = J - δ K, Under he aumpion of riing marginal co of inallaion in he invemen proce, he oal invemen expendiure I i (3) I = J [1 + (φ/2)(j /K )], where φ i a poiive parameer, and (φ/2)(j /K ) i he uni co of adjumen, which i aumed o be a linear funcion of he rae of capial formaion. The curren value Hamilonian funcion i employed o olve he above auonomou one ae variable yem wih λ a he hadow price of capial. By olving he fir-order differenial equaion and applying he ranveraliy condiion, he hadow price of capial become (4) λ() = [Q K + (φ/2)(j/k) 2 ] e -(r+δ) d, 4 To avoid unneceary complexiie, a ubidy rae on invemen i aumed o be offe by a ax rae on financial dividend. 4

5 where Q K i he marginal produc of capial and (φ/2)(j/k) 2 i he marginal produc of capial in reducing adjumen co in invemen a each poin in ime. Therefore, λ i he incremen o he real value of he firm from a uni increae in i invemen a ime. 2.2 Houehold The aim of he houehold i o maximize i ineremporal uiliy ubjec o everal conrain. Max. 0 U(C, l ) e -θ d Subjec o (5) df/d = r F + (1- τ) (W, L, + W u, L u, )- C P, S,, (6) dl /d = J, - δ L,, Φ J, (7) S, = J, [1 + ], 2 L (8) F = λ K,, where C i he conumpion of he good, l i he leiure aken, θ i he rae of ime preference, r i he inere rae, F i financial ae, τ i he ax rae, W and W u are, repecively he wage rae of killed and unkilled labour, P, i he price of one uni of educaion, S, i he amoun of educaion bough, J, i fixed kill formaion, δ i he depreciaion rae of kill, L, i he amoun of killed labour, Φ i he adjumen co parameer and λ i he hadow price of capial. quaion (5) i he houehold budge conrain. quaion (6) how ha ne kill accumulaion i kill depreciaion ubraced from fixed kill formaion. quaion (7) ae ha educaion invemen depend on fixed kill formaion and an adjumen co funcion. The adjumen co relie on he raio of fixed kill formaion o killed labour. When an economy ha more killed labour, he adjumen co become maller. Thi i plauible due o he pillover effec among labour. The marginal adjumen co of kill formaion i poiive and follow an increaing rae. Thi ae ha, in a reource limied economy, reource become more expenive when more reource are drawn ino ue for kill formaion. The curren value Hamilonian funcion i employed o olve he above auonomou wo-ae variable yem wih µ 1 and µ 2 a he repecive hadow price for he financial ae and kill. The hadow price of kill i greaer han he hadow price of he financial ae becaue he oal co of forming a uni of kill i greaer han ha of accumulaing one uni of financial ae, due o he adjumen co of kill formaion. If he hadow price of kill i no greaer han ha of he financial ae, he houehold would prefer o defer pending on kill formaion and inead accumulae financial ae for fuure conumpion. Applying he ranveraliy condiion o he hadow price of kill, µ 2, reul in 5

6 (9) µ 2 () = Φ J 2 {µ 1 [(1 τ ) W + P ( ) ] + U L, } e - (θ + δ) d 2 L quaion (9) ae ha he hadow price of kill i equal o he preen dicouned value of fuure marginal uiliy. The fir componen of he hadow price of kill conain he marginal uiliy of conuming good, he afer-ax killed wage, and he reducion of he adjumen co in educaion invemen. I provide he gro incremen of uiliy he houehold can ge from upplying one addiional uni of killed labour. The econd par i he marginal diuiliy of offering one uni of killed labour. Combining hee wo give he ne uiliy he houehold can achieve by upplying one uni of killed labor. 2.3 overnmen overnmen i a upplier of educaion. The educaion producion funcion i (10) = f K, L ) = (,, 1 ξ ξ ξ, L, ) ( K +, where i he educaion upply, K i he educaion capial, L i killed labour working for governmen and ξ i a parameer. The inerpreaion of K could be he hardware aociaed wih chooling, e.g., claroom, equipmen, ec. L could be he ofware aociaed wih chooling, e.g., eacher, adminiraor, ec. ducaion capial accumulae via governmenal invemen in educaion a follow (11) dk /d = I, δ K,, where I i he governmen invemen in educaion, and δ i he depreciaion rae of educaion capial. 2.4 The Seady-Sae A full model in a eady ae i preened in Appendix 1. Thi model produce he following relaionhip beween killed and unkilled wage in he eady ae 5, P 1 2 (12) W = W u + ( θ + θ Φ δ + δ + Φ δ ). (1 τ ) 2 The expreion of equaion (12) i independen of he funcional form of boh he uiliy and producion funcion 6. I provide a rigorou heoreical reul for he wage differenial. The relaionhip beween he killed and unkilled wage depend on he rae of ime preference, he depreciaion rae of kill, he kill adjumen co parameer, he ax rae and he price of educaion. A higher kill adjumen co, kill depreciaion rae, or ime preference all end o raie he wage differenial. The reaon why higher kill adjumen co and higher kill depreciaion rae raie he wage differenial i raighforward. The reaon for a larger ime preference having hi effec i ha he rae of ime preference coun becaue an 5 Due o he complicaed framework, i i no poible o olve for a reduced form of he wage differenial. 6 A deailed proof i available from he auhor. 6

7 invemen in kill formaion ake ime o repay. A larger ime preference involve a larger adjumen co for kill formaion, herefore a paien houehold will expec a higher killed wage. The governmen migraion policy play an imporan role in he wage differenial via i impac on he educaion price and axaion. An inuiion of he effec of migraion on he wage differenial i ha migran a unkilled labour paricipae in he producion of good and herefore preure he domeic unkilled worker o upgrade heir kill. Thi boo he price of educaion, reuling in an increaed wage differenial. More deail on policy implicaion obained by he imulaion reul are dicued in he nex ecion. 2.5 Migraion in he Model Migran are an exogenou unkilled work force in good producion afer heir arrival. Migran are aumed o pay he ame ax rae and o receive he ame wage rae a local worker 7. Three cae of he migran au are conidered: fir, migran who ay in he counry emporarily, i.e., hey only ay for a period of ime and hen hey leave he counry; econd, migran who ay in he counry permanenly, bu hey work a unkilled labour all he ime, i.e., hey do no ake par in educaion; hird, migran who become permanen reiden and ar o ake par in educaion o upgrade kill afer an iniial elemen period. The fir and econd cae repreen a emporary and permanen hock for unkilled labour in good producion. The hird cae ae ha migran can alo work a killed labour in good producion afer he fir period of arrival. In he fir period, migran creae an exogenou hock for unkilled labour and afer ha, migran become permanen addiional killed and unkilled worker. The migran working a killed or unkilled labour are endogenou in he economy. 3. Simulaion Reul The producion of hi one-ype of good could be killed-labour inenive or unkilled-labour inenive. The imulaion ake ino accoun differen labour ineniie in good producion and hree cae of he migran au aed previouly. To carry ou hee differen iuaion, parameer and exogenou variable are calibraed a hown in Appendix 2 and an experimen for each cae i demonraed by giving an increaed quaniy of migraed unkilled labour equal o 1 per cen of he domeic unkilled labour. The calibraion i baed on good empirical knowledge albei ubjecive. For olving hi nonlinear yem, hi calibraion provide reaonable ime frame of variable raniion beween he iniial and he new eady ae afer hock. Table 1 ummarize he reul of he imulaion and Appendix 3 how he dynamic pah. 3.1 Skilled-Labour Inenive ood Temporary Migraion [Iner Table 1 Here] The wage differenial increae in he hor run wih a jump o 0.42 per cen immediaely afer he hock and hen drop back o he original level in he long run. In he hor run, he new unkilled worker ep ino he producion of good, which boo he marginal produciviy of killed labour and herefore, raie he killed wage. Thi moivae domeic unkilled worker o obain more educaion and become 7 The cae of foreign worker receiving le pay han local worker are alo eed. They reul in a conien concluion wih he cae of receiving he ame wage rae for he impac of foreign worker on he wage differenial. 7

8 killed labour. Becaue kill formaion ake ime, he exra demand for killed labour in he educaion ecor i iniially drawn from he good ecor. Firm prefer o ubiue unkilled labour for killed labour due o he increae in he killed wage. Thi induced demand for unkilled labour increae he unkilled wage and moivae houehold o work harder by reducing leiure. The reul for he hor-run growh in he wage differenial come from he increaed ize of he killed wage being larger han he increaed ize of he unkilled wage. Afer he removal of migran from good producion, he killed wage drop below he original level due o he glu of killed labour, hen gradually increae back o he benchmark. The unkilled wage alo gradually decreae back o he original level. Therefore, he wage differenial drop afer he deparure of he migran, hen in he long run, i adju back o he original level Permanen Migraion wihou Subequen ducaion The wage differenial increae in boh he hor and long run. The increaed exen in he long run i larger han ha in he hor run, i.e. he wage differenial increae by 0.21 per cen in he fir period afer he hock and jump o 1.25 per cen in he new eady ae. In he hor run, he effec of hee increaed unkilled migran on he wage differenial i imilar o he cae of a emporary ay, i.e. he killed wage increae o a larger exen han he unkilled wage doe. However, unlike he cae of a emporary hock, when migran work in good producion permanenly, domeic unkilled labour i crowded ou in he hor run and ake more leiure. The reaon for more leiure being affordable for houehold i ha he increae in boh killed and unkilled wage reul in he income effec dominaing he ubiuion effec. However, over ime a he domeic worker confron he compeiion from he migran a unkilled labour, more are moivaed o become killed labour and alo end o reduce leiure. One imporan poin i ha producion i raied in he hor run due o more labour being available and more demand creaed by migran and houehold, bu i decreae in he long run becaue more reource in he economy are wihdrawn from he good ecor o he educaion ecor and le phyical capial i accumulaed. Thi reul how an inereing iue ha migran who ay in a ho counry a unkilled labour permanenly could acually affec i phyical capial formaion and low down i economic growh. In he long run, he killed wage i increaed furher han ha in he hor run, in line wih more killed labour demanded in he educaion ecor. Thi i he reaon why in he long run he wage differenial i larger han ha in he hor run. Thi experimen hed ligh on he imporance of adoping a policy o enure he growh of he capial when more unkilled migran move ino an economy Permanen Migraion wih Subequen ducaion In hi cae migran are reaed in he ame way a domeic worker afer he fir period of arrival. Tha i, when hey ju arrive in he ho counry, hey work a unkilled labour. Afer hi iniial period hey can chooe o upgrade hemelve o killed labour by aking educaion. Alhough he wage differenial follow a imilar raniion o ha in he cae of permanen migraion wihou ubequen educaion, i.e. he wage differenial increae in boh hor and long run and he increae in he long run i larger han ha in he hor run, a range of oher variable reac differenly. The wage differenial increae by 0.28 per cen in he fir period afer he hock and grow o 0.41 per cen in he new eady ae. 8

9 In he fir period afer more unkilled labour i injeced ino he economy, key variable uch a he killed wage and he unkilled wage follow a imilar raniion o ha in he cae wihou educaion. However, wo poin hould be highlighed. Fir, for he cae in which migran can chooe o become killed labour, (in conra o he cae in which migran remain in he caegory of unkilled labour) he domeic labour work harder by reducing leiure. Thi i becaue he preure from migran who can chooe o become killed labour i no only direcly on he unkilled labour bu alo on he killed labour. Second, he increaed producion in hi cae i larger han ha in he cae of no aking educaion. The inuiion for hi i ha a ubgroup of he migran work a relaively more producive killed labour han previouly worked a unkilled labour. Therefore, allowing migran o upgrade heir kill can increae he capial ock in he hor run, wherea i decreae for he cae wihou educaion. However, in he long run, he capial ock drop below he benchmark in he ame way a he cae of migran who do no ake par in educaion. The major difference for he endogenou variable emerge in he econd period when immigran are reaed exacly he ame a domeic labour. Boh wage drop in he econd period due o more killed and unkilled labour being available. The unkilled wage even drop below he benchmark. The wage raio decline in he econd period compared o he fir period, hen gradually increae ill he new eady ae i reached. Overall, he effec of migran wih ubequen educaion on he wage differenial i poiive in boh he hor and long run. Regardle of wheher migran are able o ranform o killed labour or remain a unkilled labour, he wage differenial grow in boh he hor and he long run. However, he raniion of wage for hee wo cae i differen: for he cae of migran wihou ubequen educaion, boh killed and unkilled wage are booed and for he cae of migran wih ubequen educaion, he killed wage i driven up and unkilled wage i driven down. The killed wage in he cae of hoe wihou ubequen educaion increae by 1.57 per cen more han ha in he cae of hoe wih educaion, due o a larger horage of killed labour in line wih an influx of more unkilled labour. 3.2 Unkilled-Labour Inenive ood Temporary Migraion The wage differenial increae in he hor run wih a jump o 0.21 per cen and hen drop back o he original level in he long run. In he hor run, he raniion of killed wage and unkilled wage are imilar o hoe in he kill-inenive cae, and an increaed wage differenial i creaed by a larger increae in he killed wage han an increae in he unkilled wage. However, unlike he cae of killinenive good, hee raied wage moivae houehold o reduce work by increaing leiure due o he income effec dominaing he ubiuion effec. Afer he removal of migran from good producion, raniion revere, i.e. he killed wage drop below he original level due o he glu of killed labour, epecially wih an unkilled-labour inenive producion, hen gradually increae back o he benchmark. The unkilled wage alo decreae back o he original level. Therefore, he wage differenial drop below he benchmark afer he deparure of migran, hen in he long run, i adju back o he original level Permanen Migraion wihou Subequen ducaion The wage differenial increae in boh hor and long run. The increae in he long run i larger han ha in he hor run, i.e. he wage differenial increae by 0.37 per cen in he fir period afer he hock and 9

10 increae o 0.39 per cen in he new eady ae. In comparion wih he reul from he ame cenario when producion i kill-inenive, he wage differenial ha le variaion in he long run. Thi how ha unkilled migran have a maller effec on he wage differenial while engaging in unkilled-labour inenive producion han in kill-inenive producion. The inuiion for hi i ha he hock of unkilled migran raie relaively le demand for killed labour in he unkilled-labour inenive producion han in he kill-inenive producion and herefore, a maller increae in he killed wage. In he hor run, a in he emporary cae, he wage differenial enlarge and houehold conume more leiure. However, over ime, he domeic worker face compeiion from he migran a unkilled labour, more domeic worker are moivaed o become killed labour, and in o doing he educaion ecor i booed. Domeic houehold are alo willing o reduce leiure o work more a unkilled labour in line wih an increae in he unkilled wage. In he long run, he killed wage i increaed furher han ha in he hor run, in line wih more killed labour being demanded in he educaion ecor Permanen Migraion wih Subequen ducaion Alhough he wage differenial follow a imilar raniion o he cae of permanen migraion wihou educaion, i.e. he wage differenial increae in boh he hor and long run and he increaed exen in he long run i larger han ha in he hor run, a range of oher variable reac differenly. The wage differenial increae by 0.37 per cen in he fir period afer he hock and enlarge o 0.47 per cen in he new eady ae. Thi how a furher enlargemen of he wage differenial in he long run compared o he cae of migran wihou ubequen educaion. The wo highlighed poin and he variaion of wage for he ame cenario wih a kill-inenive producion are ill valid. Similar o he reul of imulaion for a kill-inenive producion, no maer wheher migran are able o ranform o killed labour or remain a unkilled labour, he wage differenial grow in boh he hor and he long run. For he cae of migran wihou ubequen educaion, boh he killed and unkilled wage are raied and for he cae of migran wih ubequen educaion, he killed wage i driven up and he unkilled wage i driven down. The killed wage in he cae of migran wihou ubequen educaion increae by 0.65 per cen more han ha in he cae of migran wih ubequen educaion. 3.3 Robune Te on he Producion Funcion Table 2 how he reul for he wage differenial imulaed in differen cenario of migraion by changing he producion funcion of good and educaion from he CS o he Cobb-Dougla form. [Iner Table 2 Here] Boh ype of producion funcion provide fairly imilar reul. The only cell no mached are locaed in he caegory of he long-run effec wih migran wihou aking educaion. The imilariy in all oher cell ugge ha he reul of he imulaion from he heoreical model in hi paper are robu o he choice of producion funcion. 4. Concluion Thi paper conruc a heoreical model by which he raniional and long-run effec of a migraion hock on endogenou variable, including he killed wage and he unkilled wage, can be illuraed. To elucidae he inveigaed iue, i.e. he impac on he wage differenial by an influx of migran, a range 10

11 of cenario are conidered, uch a wheher he good producion i killed-labour inenive or unkilledlabour inenive, wheher migran ay emporarily or permanenly and wheher permanen migran ake educaion o upgrade kill or no. Differen form for he good and educaion producion funcion are alo eed o demonrae ha he reul obained are robu. Conien reul from differen cenario may be ummarized a follow, in order o provide policy implicaion. Fir, he wage differenial i booed by permanen migran in boh he hor and he long run. The increaed differenial in he long run i larger han ha in he hor run. Second, if migran only ay emporarily, he wage differenial increae in he hor run and he effec die ou in he long run. Third, permanen migran impel domeic worker o upgrade kill by demanding an increaed amoun of educaion. In he long run, permanen migraion caue a decumulaion of he phyical capial ock due o he limied reource in he economy being drawn away from he good producion o educaion producion (by which kill or human capial are accumulaed). A policy o enure ha he economy keep growing hould be addreed by he governmen while adoping an open policy of migraion. Mo of he exiing reearch ugge ha here i lile evidence of an impac of immigraion on domeic wage or ha immigraion ha a negaive effec on le-killed naive wage. In conra o hee exiing finding, hi paper aer ha migraion hould have a poiive effec on killed wage in boh he hor and long run; migraion ha a poiive effec on unkilled wage in boh he hor and long run if migran ay a unkilled labour permanenly; and migraion ha a poiive effec on unkilled wage in he hor run and a negaive effec in he long run if migran ake educaion o upgrade kill. When boh wage increae, he enlarged wage differenial come from a larger increae in he killed wage compared o he unkilled wage. Thi how ha immigraion may have an advere effec on le-killed naive wage in erm of relaiviy, while having a poiive effec in an abolue erm. 11

12 Table 1. The ffec of Migraion on he Wage Differenial (%) Skilled-Inenive Producion Unkilled-Inenive Producion Temporary No DUN DUN Temporary No DUN DUN Shor-run Long-run Noe: No DUN and for he cae ha migran who are permanen unkilled labour and ake no educaion; DUN and for he cae ha migran who ay permanenly and can chooe o ake educaion o upgrade heir kill. Number for Shor-run are hoe in he fir period following hock. Number for Long-run are hoe in he eady ae afer hock. Table 2 Robune Te CS Producion Cobb-Dougla Producion Skilled-In Unkilled-In Skilled-In Unkilled-In D NoD Temp D NoD Temp D NoD Temp D NoD Temp SR LR

13 Reference Alonji, Joeph. and Card, David The ffec of Immigraion on he Labor Marke Oucome of Le-killed Naive Immigraion, Trade, and he Labor Marke. died by John M. Abowd and Richard B. Freeman. The Univeriy of Chicago Pre. Borja, eorge J The conomic Analyi of Immigraion in Handbook of Labor conomic, Vol 3A. died by Orley Ahenfeler and David Card. levier Science B.V. Borja, eorge J The conomic of Immigraion Journal of conomic Lieraure, Vol 32 (December), p Borja, eorge J, Freeman, Richard B, and Kaz, Lawrence F On he Labor Marke ffec of Immigraion and Trade Immigraion and he Work Force. died by eorge J. Borja and Richard B. Freeman. The Univeriy of Chicago Pre. Borja, eorge J, Freeman, Richard B, and Kaz, Lawrence F Searching for he ffec of Immigraion on he Labor Marke American conomic Review 86 (2), p Bucher, Kriin. and Card, David Immigraion and Wage: vidence from he 1980 American conomic Review 81 (2), p Chang, H-C Wage Differenial, Trade, Produciviy rowh and ducaion Working Paper in Trade and Developmen, No. 2000/1, The Auralian Naional Univeriy. Friedberg, Rachel M. and Hun, Jennifer The Impac of Immigran on Ho Counry wage, mploymen and rowh Journal of conomic Perpecive, Vol. 9, No. 2, p Heckman, Jame J, Lochner, Lance. And Taber, Chriopher xplaining Riing Wage Inequaliy: xploraion wih a Dynamic eneral quilibrium Model of Labor arning wih Heerogeneou Agen NBR Working Paper No Kuhn, Peer. and Wooon, Ian Immigraion, Inernaional Trade, and he Wage of Naive Worker Immigraion, Trade, and he Labor Marke. died by John M. Abowd and Richard B. Freeman. The Univeriy of Chicago Pre. LaLonde, Rober J. and Topel, Rober H Labor Marke Adjumen o Increaed Immigraion Immigraion, Trade, and he Labor Marke. died by John M. Abowd and Richard B. Freeman. The Univeriy of Chicago Pre. McKibbin, Warwick J. and Wilcoxen, Peer J The Theoreical and mpirical Srucure of he - Cubed Model conomic Modelling, 16, p

14 Appendix 1 Model in he Seady Sae quaion Q = [ K 1 ρ F α 1 α ρ ρ + ( L, Lu, ) ] J = δ K I = J (1 + φδ/2) Q L = W /P Q Lu = W u /P λ = 1+ φ δ Q K = (r + δ)λ φ δ 2 /2 0= r F + (1 τ ) (W L, + W u L u, ) C P, S, J, = δ L, F = λ K S = J, (1+ Φ δ /2) l = T L, L u, U C = µ 1 U Lu, = -µ 1 (1 τ) W u µ 2 = µ 1 P (1+ Φ δ ) r = θ 2 U L = (θ + δ ) µ 2 µ 1 [(1 τ) W + P ( Φ δ ) / 2 ] L = S = I L + F L 1 ξ ξ ξ, L, ) ( K +, = δ K L I I + W = τ ( W L + Wu Lu ) + P Q = C + + I Noaion: Q: Producion; L : Toal killed labor; u S F L : Skilled labor hired by firm; L : Unkilled labor; m L : Skilled labor hired by governmen; L : Foreign Worker; K: Capial; J: Fixed capial formaion; I: Capial invemen; W : Skilled wage; W u : Unkilled wage; P: ood price (defined a 1); F: Financial ae; C: Conumpion; l: Leiure; S : Amoun of educaion buying; J : Fixed kill formaion; T: Time conrain; I : Houehold educaion invemen; U Z : Marginal uiliy of Z; P : Price of educaion; r: Inere rae; K : ducaion capial; I : overnmen educaion invemen; τ: Tax rae; α, β: Inpu hare in good producion funcion; λ: Shadow price of capial; δ: Depreciaion rae of capial; φ: Adjumen co parameer of capial invemen; Φ: Skill adjumen co parameer; µ 1 : hadow price of financial ae; µ 2 : hadow price of kill; η: Wage proporion of foreign worker o local unkilled wage; θ: Rae of ime preference; ξ: Inpu hare in educaion producion funcion; δ : Depreciaion rae of educaion capial; δ : Depreciaion rae of kill. 14

15 Appendix 2 T = 8760; τ = 0.25; I = 80; ρ = 2; α = 0.6; δ = 0.2; δ = 0.1; δ = 0.2; φ = 10; θ = 0.1; ξ = -1; γ = 0.5; Φ = 10; 15

16 Appendix Skilled-Labour Inenive CS Producion Temporary No ducaion ducaion 0.5 Unkilled-Labour Inenive CS Producion Temporary No ducaion ducaion 16