ICEF Research Seminar by Cristina Tealdi (Heriot-Watt University)
Speaker: Cristina Tealdi (Heriot-Watt University)
Theme: "Who gains and loses from migration? Theory and an application to Italy" joint with D. Fiaschi and A. Parenti
Abstract: We develop a general equilibrium search and matching model characterized by the presence of firing costs, where two goods are produced using high-skilled and low-skilled labour, respectively, and both goods are consumed by all individuals. Both high-skilled and low-skilled individuals are either native or foreign-born, i.e. immigrants, and they are perfect substitutes. A central authority collects revenues by taxing wages and profits and redistributes the income through the provision of a public good, unemployment benefits and tax subsides. We analyse the effect of a persistent shock in the supply of low-skilled immigrant labour which hit the Italian economy in 2007 on the wage level, unemployment rate and overall welfare of all categories of workers. We find that the aggregate output and the provision of public goods increase. The wage of low-skilled workers decreases, while the wage of high-skilled workers increases due to the lower average price level. On the other hand, unemployment is higher among low-skilled workers due to the excess labour supply. The overall effect on welfare is positive for native workers (on average a gain of about 10%) and negative for immigrant workers (on average a loss of about 2.5%) thanks to the increased provision of public goods which more than compensate the wage decline of low-skilled workers.