The global welfare economics of immigration

1. �The global welfare economics of immigration*� By John E. Roemer Yale University john.roemer@yale.edu

2. 2 The environment Rich North, poor South Cosmopolitanism might seem to imply open borders as the ethical policy I introduce two �imperfections� for realism: - political economy of the welfare state - bargaining over wages between TU and firms in the N

3. 3 Somewhat surprising result Consequence is that restrictions on immigration are recommended by a global maximinner Will simulate the model to estimate the degree of restriction that is recommended

4. 4 Classes in the model 1. Skilled Northern workers (fully employ) 2. Unskilled Northern employed workers 3. Unskilled N unemployed workers 4. Unskilled employed immigrants 5. Unskilled unemployed immigrants 6. Southerns who do not emigrate

5. 5 Effect of immigration Immigration will affect equilibrium wages of skilled and unskilled workers, and also the unemployment benefit in the North. Global maximinner will advocate the immigration level that equalizes the incomes of the two worst-off classes -- which will be the Southern natives and the unemployed immigrants to the N

6. 6 Trade Union strength Fraction p of workers live in North; 1-p in South Fraction of N workers are unskilled If a mass m of S workers immigrate, then the mark-up on the Walrasian wage of unskilled workers will be where ? is a decreasing function This is the effect of racism (divide & conquer) and increased unskilled labor supply on the trade union

7. 7 PE of welfare state Let u be the UE benefit; let t be the income tax rate; let be unskilled wage. Then: Where ? is a decreasing function. The replacement ratio falls, the larger the concentration of immigrants in the N population.

8. 8 Technology and preferences One good is produced with a Cobb Douglas prdctn fcn which uses skilled and unskilled labor: Workers wish to maximize expected income. For the unemployed, the risk is that of unemployment,which occurs because the wage is higher than competitive wage. Skilled workers are fully employed at the competitive wage. Employed immigrants remit a fraction of their income to families in the South.

9. 9 Equilibrium works as follows A given level of immigration m produces a markup on the unskilled wage; equilibrium wages are determined, as is unemployment; the voters determine the unemployment benefit; immigrants send remittances home, increasing the income in the South.

10. 10 The choice of the Southern worker Thus, at any level of immigration m, a Southern worker compares his expected income in the North (taking account u , the prob�ty of unemployment, wL , the cost c of emigrating) with, on the other hand, his wage plus remittance rec�d if he stays in S.

11. 11 Equilibrium level of immigration With open borders, the equilibrium level of immigration m* is that level at which the expected income of the immigrant minus cost of moving equals his income if he stays in the South.

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14. 14 Summary The maximin level of immigration is around one-half the open borders level. The utilitarian level is greater than OB level. The kick in utilitarianism is gotten from the sharply increasing income of the skilled workers in the N as the supply of unskilled labor increases!

15. 15 Ex ante vs. ex post I have defined maximin as taken over six classes, which is an ex post approach. On the ground there are six classes Some would say it is ethically correct to look at ex ante, when there are four classes: the immigrants and the unskilled N natives each face a lottery

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