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Essays on Immigration and the Macroeconomy

  • Author(s): Liu, Xiangbo
  • Advisor(s): Guo, Jang-Ting;
  • Suen, Richard M.H
  • et al.

This dissertation is comprised of three chapters that study the impact of different types of immigration on the macroeconomy in the presence of labor market frictions.

Chapter 1 employs a dynamic general equilibrium model with labor market frictions to explore the economic consequences of illegal immigration. The novel feature of the model is that I allow domestic workers and illegal foreign workers to search for jobs in the same market. An increase in the number of illegal immigrants thus intensifies job competition in the domestic labor market. To the best of my knowledge, it is the first study that explicitly takes into account the job displacement effect induced by illegal immigrants. This study identifies four different channels via which illegal immigration can affect domestic consumption. Previous studies, however, only capture a subset of these forces. Using some realistic parameter values, this study assesses the macroeconomic and welfare effects of illegal immigration quantitatively. The calibrated model generates a U-shaped relationship between the population share of illegal immigrants and consumption per domestic resident in the long run. In the numerical analysis, I also find that increasing the population share of illegal immigrants would induce a welfare gain for the native population.

Chapter 2 extends the baseline model developed in Chapter 1 by including heterogeneous workers in the domestic population. In the extended model, all illegal immigrants are unskilled and thus only compete with the domestic unskilled workers for jobs. Skilled domestic workers are insulated from job competition with the illegal

immigrants. The main idea of this extended model is to examine the asymmetric effects of illegal immigration on different skill groups in the native population. It is shown that the long-run effects of illegal immigration on skilled and unskilled domestic consumers are very different. An increase in illegal immigration raises the consumption of skilled consumers and improves their labor market outcomes. On the contrary, unskilled domestic workers' consumption and labor market outcomes are negatively affected by the inflow of illegal immigrants.

Chapter 3 focuses on the effects of legal immigration on the native population. To achieve this, I adopt a dynamic general equilibrium model with skill heterogeneity and labor market frictions. Unlike the previous chapters that focus exclusively on unskilled illegal workers, this chapter explicitly takes into account the skill composition of immigrants. Specifically, this study considers the in

ows of both skilled and unskilled immigrant workers. The model in this chapter captures two opposing effects of immigration. First, native and immigrant workers of the same skill group search in

the same labor market. This creates a job displacement effect of immigration. Second, workers with different skills are complementary in the production process. Thus, immigrants might benefit the natives in a different skill group. A calibrated version of the model is used to quantify these effects. In the numerical analysis, I also examine how unemployment benefits can be used to mitigate the welfare loss due to immigration.

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