Date Published:
Sep 5, 2006
Abstract:
Restrictions on migration of low-skilled workers to richer countries are arguably the
largest distortion in the world economy and the most costly to the world’s poor. Yet rich
countries seem unlikely to eliminate these restrictions due to concerns about the impact
of migration on inequality among natives, public finances, and native culture. A rapidly
growing new type of migration may not be subject to these concerns. Many "new rich"
countries issue special visas for foreigners, women in particular, to work as private
household workers. "Old rich" countries often choose low levels of enforcement against
illegal immigrants working in this sector. We argue that by allowing high-skilled native
women to increase market labor supply, this type of immigration increases the wages of
low-skilled natives and provides a fiscal benefit by correcting tax distortions toward
home production. Calibration suggests welfare gains to natives from a program, such as
Hong Kong’s or Singapore’s, under which roughly 7% of the labor force are foreign
private household workers, may increase the ratio of native low-skilled workers by 3.9%
and increase native welfare by 1.2% of income, roughly 100 times the level estimated by
Borjas and increases the relative wages of native low-skilled to high-skilled by 3.9%.
Paradoxically, however, even if these programs are pareto improving, they may conflict
with ethical norms requiring stronger social obligations to long-term residents than to
other foreigners. Short-term programs may be more acceptable.
Notes:
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