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We analyze the impacts of migration and of labor market integration on the distribution of skills and the wage structure in both the short and the long run. To do so, we develop a framework where workers have heterogeneous skills and where in-migration expands the range of available skills in the economy. In the short run, this expansion leads to productivity gains, which may more than offset the negative endowment effects of a larger labor supply so that all workers may be better off. In the long run, in-migration impacts wages further by altering the workers' incentives to acquire skills, thereby affecting the wage structure indirectly by changing the economy's skill composition. Since the short and the long-run effects of in-migration on wages may differ, compositional changes may be an important element to take into consideration. A numerical illustration calibrated on U.S. data suggests that the immigration of skilled workers negatively affects the incentives for domestic skill formation, thereby suggesting that endowment effects dominate externalities. We finally extend the model to cope with the simultaneous impacts that migration and skill formation have on the host and the source region, and we show that more migration increases wage disparities and the skill gap across regions.
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Document Type: Research Article

Affiliations: 1: Department of Economics, Université du Québec à Montréal, Canada., Email: [email protected] 2: Graduate School of Economics, Osaka University, Osaka, Japan., Email: [email protected]

Publication date: 2011-02-01

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