Wage Effects of Labor Migration with International Capital Mobility

Abstract

Wage effects of immigration are investigated in a setting with international capital mobility, which eliminates two-thirds of the native wage-effects of immigration. Without international capital mobility, overall gains from migration in the immigration region are only a small fraction of total losses to native workers, but with perfect international capital adjustment, overall gains are larger than total losses to native workers. Two alternative tax policies to eliminate the negative wage-effects of immigration on low skilled native workers are evaluated.