The political economy of social exclusion, with implications for immigration policy

Abstract

Minorities such as ethnic and immigration groups have often been subject to exclusion through labor market discrimination, residential and employment segregation policies, business ownership regulations, restrictions on political participation, access to public services, and more. This paper studies the dynamics of minority exclusion. From the viewpoint of the dominant majority, the exclusion decision balances the motive to redistribute income in its favor and the interest in avoiding potential civic unrest or even violent confrontation with the minority. The analysis also has implications for immigration policies, suggesting that they have to take this group dynamics into account.

Appendices

Perfect exclusion

Maximization of the utility function of the minority members (Eq. 5b) yields

$$h_{{2t + 1}} = \alpha y_{{2t}} {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)},c_{{2t}} = y_{{2t}} {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)},y_{{2t + 1}} = A{\left[ {\alpha y_{{2t}} {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)}} \right]}^{\alpha } $$

(A1)

and the utility level

$$U_{2} = \ln {\left( {y_{{2t}} {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)}} \right)} + \ln {\left\{ {A{\left[ {\alpha y_{{2t}} {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)}} \right]}^{\alpha } } \right\}},$$

(A2)

while the values for the majority members are

$$c_{{1t}} = y_{{1t}} {\left( {1 - T} \right)},y_{{1t + 1}} = A{\left( {TY_{t} /N_{0} } \right)}^{\alpha } $$

(A3)

and the utility level

$$U_{1} = \ln {\left\{ {y_{{1t}} {\left( {1 - T} \right)}} \right\}} + \ln {\left\{ {A{\left( {TY_{t} /N_{0} } \right)}^{\alpha } } \right\}}.$$

(A4)

The exploitative nature of ethnic interaction in this case becomes obvious once Eq. (A1) is compared with Eq. (A3). The comparison reveals that current consumption levels are higher for the majority in all periods, t>0, and next-period income levels are higher provided that the tax rate is not too small. As a result, comparing next-period utility levels Eqs. (A2) and (A4) reveals that in this regard, the majority is also better off when the tax rate is high enough.

From Eq. (A1), the steady-state income level for the minority is

$$y^{*}_{2} = A^{{1/{\left( {1 - \alpha } \right)}}} {\left[ {\alpha {\left( {1 - T} \right)}/{\left( {1 + \alpha } \right)}} \right]}^{{\alpha /{\left( {1 - \alpha } \right)}}} .$$

(A5)

The steady-state income level for the majority is then determined from

$$y^{*}_{1} = A{\left( {TN_{0} } \right)}^{\alpha } y^{\alpha } ,$$

(A6)

where

$$Y_{E} = N_{0} y^{*}_{1} + {\left( {1 - N_{0} } \right)}y^{*}_{2} $$

(A7)

is the average steady-state income.

Differentiation reveals that Eq. (A7) is an increasing function of N ₀ when it goes from 1/2 to 1, provided only that the tax rate is large enough.

Perfect inclusion

In this case, each individual's next-period income is Y _t+1=A (TY _t )^a, and the steady-state income level is

$$Y_{I} = A^{{1/{\left( {1 - \alpha } \right)}}} T^{{\alpha /{\left( {1 - \alpha } \right)}}} .$$

(A8)

Comparing with Eq. (A7), we observe that when N ₀=1, the two are the same. Thus, when the tax rate is large enough so that Eq. (A7) increases in N ₀ in the relevant range, the steady-state income level under inclusion is higher than that under exclusion.

The resulting next-period utility level is

$$U{\left( {c_{{it}} ,y_{{it + 1}} } \right)} = \ln {\left( {y_{{it}} {\left( {1 - T} \right)}} \right)} + \ln {\left\{ {A{\left( {TY_{t} } \right)}^{\alpha } } \right\}},$$

(A9)

which is higher than under exclusion for all minority members and lower for all majority members.