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Could immigration explain wage inequality in a skill-biased technological model?

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Abstract

The aim of this paper is to evaluate how immigration of high-skilled workers affects the technological-knowledge bias and, in turn, the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model in which the standard R&D technology is modified so wage inequality results from the direction of the technological knowledge, which in turn is induced by the price channel. By solving the transitional dynamics numerically, we show that the rise of the skill premium arises from the price-channel effect, complemented with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries, thus, suggesting that differences in labour skills between immigrants and natives are, in practice, an important source of skill premium variation over time.

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Notes

  1. These countries are: Austria (AUT), Belgium (BEL), Czech Republic (CZR), Denmark (DNK), Finland (FIN), France (FRA), Germany (DEU), Hungary (HUN), Ireland (IRL), Italy (ITA), Luxemburg (LUX), Netherlands (NLD), Norway (NOR), Poland (POL), Portugal (PRT), Spain (ESP), Sweden (SWE), Switzerland (CHE), and the UK (GBR).

  2. \( \varPi (k,j,t) = \bar{m}\,m(q - 1)\left[ {\frac{{p_{m} (t)\,A\,(1 - \alpha )}}{q}} \right]^{1/\alpha } \;q^{{k(j,t)\alpha^{ - 1} (1 - \alpha )}} ,\quad \bar{m} = h\;{\text{for}}\;m = H\;{\text{and}}\;\bar{m} = l\;{\text{for}}\;m = L. \)

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Acknowledgments

We thank an anonymous Referee for valuable comments and suggestions, which allowed us to greatly improve our paper. CEF.UP—Center for Economics and Finance at University of Porto is financially supported by FCT (Fundação para a Ciência e a Tecnologia), Portugal, as part of the Strategic Project PEst-C/EGE/UI4105/2014.

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Authors and Affiliations

  1. Faculdade de Economia and CEF.UP, Universidade do Porto, R. Roberto Frias, 4200-464, Porto, Portugal

    Oscar Afonso, Susana Gabriel & Pedro Mazeda Gil

  2. Universidade Portucalense Infante D. Henrique, Rua Dr. António Bernardino de Almeida, 541, 4200-072, Porto, Portugal

    Susana Gabriel

Authors
  1. Oscar Afonso
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  2. Susana Gabriel
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  3. Pedro Mazeda Gil
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Corresponding author

Correspondence to Pedro Mazeda Gil.

Appendix

Appendix

This appendix presents the set of parameter values used to calibrate the model. For some parameters the choice is guided by empirical findings, while other parameter values are based on theoretical specification, such that the steady-state growth rate is set at around 2 % per year. When the range of choice is large, we use a value close to some critical value (Table 2).

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Afonso, O., Gabriel, S. & Gil, P.M. Could immigration explain wage inequality in a skill-biased technological model?. Empirica 43, 559–577 (2016). https://doi.org/10.1007/s10663-015-9305-3

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