Abstract
This paper shows that the admittance of immigrants who are on average less skilled than natives can be part of a support-maximizing government policy despite a general political bias in favour of the poor. We make this point in a simple model with redistributive unemployment insurance. Once wage contracts are binding, the government has an incentive to increase the unemployment benefit, which leads to excessive unemployment. Affecting the political balance within the constituency, immigrants can serve as a commitment device against this time inconsistency. We show that this possibility can be greatly promoted by restrictions on political naturalization.
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Notes
According to a survey by the International Social Survey Programme (ISSP 1995), a majority of natives prefer a reduction in immigration in 15 out of 22 considered countries and there is no majority to increase it in the other countries.
Between 1999 and 2000, immigration to the European Union rose by 3.2% (SOPEMI 2003), with increases above 10% in the Netherlands, Finland and France. Simultaneously, these countries experienced an increase in the share of foreigners having at most lower secondary education (SOPEMI 2001, 2003; Table I.11).
Working immigration varies significantly among countries from about none in Sweden to more than 50% in Portugal (SOPEMI 2003; Chart I.2).
Indeed, only about 3–4% of foreign residents acquire the nationality of the host in most OECD countries per year. In 2000, Sweden and Portugal displayed the highest and lowest naturalization rates of about 9 and 0.5%, respectively (SOPEMI 2003; Chart I.18).
The Cobb–Douglas technology is quite popular in the migration literature (Casarico and Devillanova 2003) and is mostly used for convenience. For the empirically more relevant case of the elasticity of substitution between skills exceeding unity (Johnson 1997), immigration would enjoy even stronger political support than in the present set-up for it would decrease the low-skilled unemployment rate for a given tax rate (Kemnitz 2004).
The theoretical literature suggests that the higher cultural diversity of migrants translates into a lower per capita weight. Mazza and van Winden (1996) consider the case where this diversity erodes the political influence of workers, such that μ L decreases in M. Fuest and Thum (2001) make a similar argument with respect to trade union power. Since this may exert countervailing effects on the stage 1 attitude of low-skilled natives, we consider the per capita weights to be independent of the number of migrants. From an empirical point of view, the importance of cultural diversity is mitigated by the fact that migrants to most OECD countries stem predominately from one or two origin countries, with at least one of the top four sending countries having a border to the respective receiving country (SOPEMI 2003).
The fact that the low skilled separate into two distinct groups raises the question about the political power of the unemployed relative to the employed. In general, arguments both for and against a higher political importance of the unemployed can be made. According to the ‘single-mindedness hypothesis’ of Mulligan and Sala-i-Martin (1999), the unemployed should enjoy superior political importance. However, it is often argued that political participation is lower for the poor than for the rich. To simplify matters, we assume that the political power of a low skilled does not depend on his employment status.
A negative tax is ruled out by the fact that the unemployed have no resources except welfare state transfers. Hence, a net transfer to the employed is impossible.
This is different with respect to lobbying at stage 3, where each union knows that a higher unemployment benefit at the economy-wide level requires a higher tax rate. Introducing strategic interactions between wage policies and social protection would make the analysis more cumbersome without affecting the subsequent results.
A similar turnover could be introduced for the high skilled as well without affecting any of our findings.
With a tax rate of unity, all high skilled would be left with zero net income without having the opportunity to escape into unemployment since employment contracts are binding. Hence, opposition against both τ=0 and τ=1 is infinitely high.
It should be emphasized that native sentiments towards immigrants depend on a host of factors, including security concerns and ethnic and racial identity. However, a number of recent empirical studies conclude that individual attitudes are to a large extent shaped by economic factors (Bauer et al. 2001; Scheve and Slaughter 2001; Mayda 2003). In a cross-country study, Mayda (2003) finds that differences in actual policies can be explained by the skill composition of natives relative to immigrants.
To be precise, Mazza and van Winden (1996) derive this effect in the context of capital and labour. In our setting, the respective problem is max T N H ln(w H −T)+λ L N L ln(w L +N H /N L ·T) with the first-order condition −1/(w H −T)+λ L /(w L +N H /N L ·T)=0. Hence, the optimal transfer is positive whenever Eq. 17 is fulfilled.
Of course, immigrants may use demonstrations and lobbying to fight for more political rights. In that sense, the government would find itself trapped in additional commitment problem as it may be induced to alter the announced naturalization policy. We do not model this problem here. However, one can consider the political weights presented below as a reduced form incorporating these repercussions.
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I would like to thank Nick Ehrhart and three anonymous referees for helpful comments.
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Kemnitz, A. Immigration as a commitment device. J Popul Econ 19, 299–313 (2006). https://doi.org/10.1007/s00148-005-0042-y
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DOI: https://doi.org/10.1007/s00148-005-0042-y