Facing Illegal Immigration: A General Equilibrium ...

Facing Illegal Immigration: A General Equilibrium Application to Spain Javier Ferri¤, Antonio G. Gómez-Planay and Joan Martínz September 2002

Abstract This pap er assesses the impact of illegal immigration in Spain looking into the economic e¤ects of di¤erent policies by constructing a computable general equilibrium model. We proceed as follows: …rstly, we study the e¤ects of an exogenous increase in illegal workers; secondly, we consider an expansion in unskilled legal immigrants; and …nally, we compare both sets of results to the case in which illegal immigrants would be legalized. The results suggest that the amount of remittances plays an important role in aggregate outcomes. We also …nd evidence that those households headed by an entrepreneur or a skilled worker would b ene…t from legalization and that this impact tends to be ampli…ed the higher wage ‡exibility is in the labor market.

Key words: CGE model, Wage rigidities, Income distribution, Remittances, SAM JEL classi…cation: J61, D58

This paper has bene…ted from the support of the Spanish Ministry of Education. Javier Ferri acknowledges the CICYT grant SEC98-0895 for …nancial support. Antonio G. GómezPlana wishes to recognize the …nancial support from DGCiCYT PB98-0546 and Joan MartínMontaner thanks the CICYT grant SEC99-0598 Author for correspondence: Javier Ferri Facultad de Economía Universidad de Valencia Avda. de los Naranjos s.n. 46022-Valencia (Spain) Fax: +34 96 3828249 e-mail: [email protected]

¤ Universidad

de Valencia. Pública de Navarra z Institut d’Economía Internacional and Universitat Jaume I y Universidad

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Facing Illegal Immigration: A General Equilibrium Application to Spain September 2002

Abstract This paper assesses the impact of illegal immigration in Spain looking into the economic e¤ects of di¤erent policies by constructing a computable general equilibrium model. We proceed as follows: …rstly, we study the e¤ects of an exogenous increase in illegal workers; secondly, we consider an expansion in unskilled legal immigrants; and …nally, we compare both sets of results to the case in which illegal immigrants would be legalized. The results suggest that the amount of remittances plays an important role in aggregate outcomes. We also …nd evidence that those households headed by an entrepreneur or a skilled worker would bene…t from legalization and that this impact tends to be ampli…ed the higher wage ‡exibility is in the labor market.

Key words: CGE model, Wage rigidities, Income distribution, Remittances, SAM JEL classi…cation: J61, D58

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1

Introduction

The aim of this paper is to investigate the e¤ects of illegal immigration in Spain. Immigration ‡ows have been increasing in most OECD countries since the early 1980s, only the slowdown between 1993 and 1996 represents a slight and brief change in the trend. This general pattern also holds for Spain, although in the Spanish case, immigration is still of a small scale compared to some of its European partners. In fact, Spain was a net exporter of population for a long time, however this trend has changed (although, as pointed out by Huntoon (1998), ”establishing a turning point in net-migration ‡ows for Spain is problematic”) and data show that the number of legal immigrants has almost tripled since 1990. Not only have Spanish migratory ‡ows changed, but the likely destination of immigrants coming to Spain also has: despite having traditionally played a threshold role for migrants towards other European countries, the importance of Spain as a …nal destination has also recently increased, as the growth in the stock of foreign residents (80% between 1989 and 1998) shows. This increase is greater than the one detected in the statistics, because in addition to the legal immigrants, there also exists a large number of illegal immigrants1 working with no social protection and accepting very low wages. This is potentially a con‡ictive issue for the Spanish economy, given that the high unemployment rates may cause domestic workers to view immigrants as a threat. However, Spain is one of the countries with one of the lowest birth rates in the world and if this trend continues, immigrants would be necessary to sustain the domestic labour supply. Thus, not surprisingly, the debate around immigration has steadily increased in recent years.2 This political discussion has usually focused on the di¢culties of integrating newcomers and the distributional e¤ects of the increasing number of foreign workers 3. In order to clarify who bene…ts and who loses from immigration, we focus on a framework which properly relates all these issues. A general equilibrium model seems to …t naturally to the study of the e¤ects of immigration on the economy for two reasons. First, a higher number of immigrants in the host country involves a change in the relative factor endowments, a¤ecting sectoral production and employment, relative prices and, therefore, income distribution. All the links underlying these variables are better understood in a general equilibrium framework.4 Second, given the lack of reliable data to analyze illegal immigration, simulation is probably the best way to compare the e¤ects of immigrants with di¤erent legal status on the host economy. Notwithstanding this, very few previous references exist that make use of the computable general equilirium approach. Some exceptions are Sarris and Zografakis (1999) (who faces the illegal immigration problem for the Greek economy) and Hinojosa et al. (2001) who deal with Mexican migration to United States. 3

Which issues must be taken into account when devising a general equilibrium approach? Ethier (1986) considers that any research on the e¤ects of immigration must deal with three basic issues. First, the legal status of immigrants. Second, their factor endowment, alluding to whether immigrants are skilled or unskilled workers. Third, the duration of the stay, alluding to whether immigrants stay temporarily or permanently in the host country. The …rst issue, the legal status of immigrants, is highly correlated in practice with the patterns observed in the other two. Thus, immigrants illegally staying in the host country are mostly unskilled workers or, alternatively, they are forced to occupy unskilled jobs. Illegal immigrants, in addition, display a higher propensity to send remittances to their home countries than legal immigrants (see Poirine, 1997, for a theoretical justi…cation), who in turn are more likely to stay permanently in the host countries. The factor endowment of immigrants is directly linked to the distributional e¤ects on national income. If most immigrant labour is low-quali…ed, it will most probably complement domestic capital and skilled labour and substitute domestic non-quali…ed labour (De New and Zimmermann, 1994, provide evidence in this sense for Germany). In general, domestic factors which complement the immigrant labour force would be bene…ted by a less restrictive policy, whereas substitute factors would be adversely a¤ected. This explains why labour unions usually advocate stronger immigration controls, whereas capital owners prefer more open immigration policies (Lalonde and Topel, 1997). Nevertheless, the speed at which changes in factor endowments translate into changes in prices depends on the way factor markets (especially labour markets) work. The duration of the stay is important for understanding the long-term impact of immigration.5 Thus, the pattern of consumption and saving of temporal immigrants di¤ers from that of permanent immigrants (see Glytsos, 1997). Because temporal immigrants consider staying in the host country as a way of making money for returning home, they send part of their incomes to their families abroad as remittances. Therefore, since remittances escape from the circular ‡ow of income, their contribution to investment funds in the receiving country is null because they substitute savings by sending remittances abroad6 . Although the study of the determinants and implications of remittances to the country of origin has steadily grown in the last years (see for instance, Faini (1994), Poirine (1997), Brown (1997) and Barham and Boucher (1998)) the consequences of the remittances on the receiving country has not deserved enough attention. The way the above three issues a¤ect the economy of the host country is strongly determined by the mechanisms of adjustment in the labour market. Previous research has dealt with

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di¤erent labour market aspects. For example, Razin and Sadka (1995) consider wage rigidity and unemployment to show that migration of unskilled labour may lower the total share of the native-born population while Schmidt et al. (1994) take a monopoly union model to conclude that, even in the case of non-competitive labour markets, migration potentially has bene…cial e¤ects. In addition, a number of authors decompose labour into highly-educated and uneducated workers and focus on the substitutability or complementarity between the type of labour whose supply is increased and the other type of labour to assess the labour market e¤ects of immigration (see, for example, the empirical analysis by Gang and Rivera Batiz, 1994). However, most of the empirical evidence documents only a weak e¤ect of immigration on native wages and employment. For the Spanish case, Dolado et al.(1996) …nd little evidence that the in‡ows of immigrants are associated with large e¤ects on employment but report a positive relationship between immigration and unskilled wages. A similar result is obtained by Gavosto et al.(1999) for Italy. Both of them deal with a small immigration rate and demonstrate the existence of threshold e¤ects so that for higher immigration rates the sign of the e¤ects could be reversed. In this paper, we construct a computable general equilibrium (CGE) model and calibrate it using the latest Spanish social accounting matrix (MCS-90). The MCS-90 displays a dissagregated household composition and industry structure, allowing a rich set of results. In the model, we consider the sub jects mentioned above, including the legal and illegal status of immigrants and the short or long-term residence. We proceed in the following way: …rst, we study the e¤ects of an exogenous increase in illegal workers and then we consider an exogenous increase in unskilled legal immigrants. By comparing both sets of information we estimate the marginal e¤ects of legalization. We also take into account labour market aspects by analyzing the sensitivity of the results to the unions wage policy and to the degree of substitutivity between skilled and unskilled labour. The framework used in this paper is not only relevant for analyzing one particular economy (Spain) but can be also extended to other developed countries. What is at stake is the existing margin to modify legal restrictions in each host country. Looser legal restrictions in the receiving countries may also a¤ect the sending countries conditions by means, for example, of changes in remittances7 . The paper is organized as follows. Our general equilibrium model is introduced in Section 2. Section 3 deals with the empirical analysis in which calibration, scenarios and results are presented. Finally, Section 4 concludes.

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2

The model

The model that we use to evaluate the impact of illegal immigration is static and deals with a single open economy disaggregated in eleven production sectors, with eleven consumption goods, twelve households, two labor markets and a public sector. It hinges in a walrasian conception of the economy but introducing two main distorsions: (1) labor market does not clear because workers have some degree of market power and (2) illegal immigrants are discriminated against in the labor market and forced to accept wages that are below the ones prevailing for domestic workers with the same quali…cation. The closure rule can be considered as one of a General Theory type according to Rattso (1982): supply and demand side interact to determine employment output and relative prices. Changes in prices will make that the saving and investment market clear. We think the above assumptions capture the main features of a full developed economy with some imperfections in the labor market. The model aims to give an idea of the quantitative dimension of the economic e¤ects of illegal immigrants, including sectorial changes in the production and distribution of income. We focus more on the impact of immigration than on forecasting future immigration ‡ows so we shock the economy in a …gure equals to the estimated amount of immigrants working illegally in Spain. In this section, we simply provide a description of the essence of the model. A more complete representation of the model including mathematical derivations is available upon request. The model is solved through Rutherford’s (1999) method who considers the solution of general equilibrium models as a mixed complementarity problem (see Mathiesen, 1985). There are three types of equations in the applied general equilibrium model: those representing …rms just breaking even, those representing goods and factors markets clearing, and some additional ones referring to macroeconomic closures and system restrictions.

2.1

Production

Producers are sub ject to a technology characterized by a three-nesting level and constant returns to scale. The …rst nesting level is a Leontief production function 8 integrated by a composite of primary inputs and intermediate inputs. The second nest divides the primary inputs composite, which is considered as a CES function of labor and capital. The third nesting level is a Cobb-Douglas composite of labor inputs integrated by skilled and unskilled labor. Immigrants are considered as perfect substitutes for domestic unskilled workers. A Cobb-Douglas function for composite labor demand has been sometimes postulated in the CGE literature (see Thorbecke, 1991) Very recently, Biscourp and Gianella (2001) give 6

empirical support to the unitary elasticity of substitution between skilled and unskilled workers. We check, however, the sensitivity of the results to this parameter. From the cost minimization problem we can obtain the zero pro…t equations and market clearing conditions. Nevertheless, available data forces us to convert e¤ective production in distributed production with a …xed coe¢cients matrix, in the same way as Ballard et al. (1985). Domestic distributed production is then used to obtain the total supply of goods in this economy, which is composed of domestic production and imports, modelled through a CES Armington9 aggregate. The meaning of this aggregate is that producers choose the optimal mix between domestic goods and imports. There are two possible destinations for the total supply from a geographical criteria: the domestic and the foreign markets. Consequently, producers maximize their revenue subject to a constant elasticity of transformation function (CET)10 nested in two levels. At a …rst level, the resolution on the destination of goods is between domestic and foreign markets. At a second level, producers resolve the problem of choosing among di¤erent uses of goods destined for the domestic market: gross capital formation, intermediate use and …nal consumption. Finally, production goods are transformed into …nal consumption goods by means of a …xed coe¢cients matrix. This implies a change in the accounting classi…cation of goods and services from production to consumption, in the same sense as Ballard et al. (1985).

2.2

Consumption

Private consumers are distributed in twelve households, according to the main householder’s socioeconomic characteristics. Each household is endowed with a …xed amount of capital, skilled and unskilled labor. The …xed amount of skilled and unskilled labor should be interpreted as the maximum supply of labor because we also consider the existence of leisure and unemployment. Skilled and unskilled workers coexist in each household, and it is not possible to move from one level to the other. When immigrants are introduced they are endowed with unskilled labor. Households maximize a three-nesting level utility function subject to a budget constraint from which we can derive demand functions. The …rst nesting level for each household is a Cobb-Douglas 11 welfare function depending on saving and aggregate consumption. Because labor supply is not completely rigid we treat leisure as an input in a sector that transforms leisure into labor commodity. There exists a sector for unskilled labor and other for skilled labor. Leisure that is not employed in these sectors is directly consumed by households and enters in the utility function. We assume that within a family an unskilled worker can not consume

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skilled leisure and vice-versa. Thus, the second nesting level shows the decision on aggregate consumption between leisure and consumption of goods and services. At the third nesting level, leisure is split between leisure for skilled and for unskilled labor, while consumption is separated into di¤erent goods and services.

2.3

Public sector

The starting point for modelling the public sector is the musgravian notion of di¤erential incidence, which deals with the e¤ects of substitution among taxes, holding constant public revenue and expenditure. In a broader sense, we could say that this notion involves the maintenance of the public sector dimension when …scal policy changes are applied. With no restrictions on public budget the shock introduced in the model would cause a change in government incomes and expenditures. Variation in government consumption would a¤ect in turn the measures of private welfare. There exist two ways to control for changes in public consumption in order to establish welfare changes. The …rst is to weight public goods in the private welfare function. The problem of this approach is that we do not have information on what extend di¤erent types of households value di¤erently public goods. The second approach consists on …xing the public sector dimension by means of endogenous changes in tax rates. To avoid ambiguity on welfare results, we assume in the model that the constant dimension of the public sector involves the maintenance of welfare levels from public consumption after endogenous changes in the value added tax rate (see Pereira, 1995). The public sector equations in the model include public sector income, which comes from capital rents, transfers from households and from the rest of the world, and collection of taxes. Taxes include social security contributions paid by employers and employees, net indirect taxes (including VAT), import tari¤s and income taxes. All those taxes are modelled as e¤ective ad valorem rates estimated from benchmark data. Macro closure for the public sector imposes the restriction that public investment and de…cit (or surplus) are exogenous and …xed.

2.4

Investment and savings

Total investment is splitted into sectorial gross capital formation through a …xed coe¢cients Leontief matrix (see Dervis et al., 1981). In our static framework, investment in‡uences the economy as a component of …nal demand. There also exists a macro closure equation related to investment and savings. It states that the di¤erence between total savings and total investment

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is the net lending/borrowing for the economy.

2.5

Foreign sector

The country faces exogenous world prices, so we use the small open economy assumption. This assumption implies that export demand and import supply functions are perfectly elastic. The foreign sector closure for a small economy follows de Melo and Tarr (1992). This equation shows that the di¤erence between receipts and payments with the rest of the world is again the net exogenous lending/borrowing of the economy. This equation avoids, for example, a high increase in exports with no changes in imports which would be unreliable as it would involve a continuous capital ‡ow from abroad. This rule, also employed by Fontana and Wood (2000), is appropriate in comparing the e¤ects of policy on welfare (see Sahn et al., 1999).

2.6

Factor markets

Capital endowments are …xed both for families and for the public sector. Capital is internationally immobile, but perfectly mobile across domestic sectors so its price adjusts to clear the market that is unique for the whole economy. In addition, each household is endowed with a …xed amount of skilled and unskilled labor which is also perfectly mobile across Spanish sectors. Because households buy more leisure when wages fall the labor supply function is elastic. It is assumed that workers have some degree of market power and the way in which wages react is a¤ected by aggregate unemployment. Hence, we use an equation with a parameter ¯ as a measure of wage ‡exibility. As ¯ approaches in…nity, real wages approach the benchmark value. The case where ¯ approaches in…nity is the rigid wages case because real wages do not change when the unemployment rate changes. If ¯ approaches zero, unemployment approaches its benchmark value, so real wages are ‡exible. Other values of ¯ show the greater or lesser sensibility of real wages to changes in the unemployment rate.

2.7

Immigrants

Immigrants are only endowed with unskilled labor. Furthermore, we assume that immigrants and domestic unskilled workers are perfect substitutes in production. Immigrants are assumed to send remittances abroad which are a …xed proportion of income. Illegal immigrants receive lower wages than native unskilled workers. The gap between both wages is a …xed wedge. For example, if wages for legal unskilled workers are W u s then wages for illegal immigrants are equal

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to (1 ¡ º )W us where º is the wedge. In addition, workers do not pay taxes because they are assumed to be working illegally. Legal immigrants,however, pay social security contributions and income taxes with an e¤ective rate equal to that of urban unskilled domestic households. Neither unemployment nor leisure have been considered for immigrants (all immigrants are assumed to be working and their labor supply is completely vertical) Furthermore, a new demand function is introduced in the model with immigrants, and market clearing equations change both for factors and goods and services.

2.8

General conditions

To summarise, the model consists of three kinds of equations which are: 1. Zero pro…t conditions 2. Market clearing in good markets and factor markets 3. Restrictions on disposable income , unemployment , transformation of goods, and macro closures

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Empirical analysis

3.1

Calibration and data

The model has been calibrated with the social accounting matrix for Spain (1990) MCS-90. The MCS-90 has been elaborated by Uriel et al. (1997) and represents the benchmark equilibrium for the Spanish economy in 1990. To calibrate scale and share parameters we use Rutherford’s (1999) method, applied with software GAMS/MPSGE. The method starts with the balanced equilibrium for the social accounting matrix as reference equilibrium, with a set of elasticities from empirical evidence. Calibration is done in three steps from this data. In the …rst step the matrix collects quantities that are used as a …rst reference point in the isoquant of the calibrated function. In the second step, relative prices …x the isoquant’s slope at that point. Matrix data does not distinguish between prices and quantities, and only indicates values. Hence, we follow Harberger’s assumption (see Harberger (1972)) and choose the quantity units so that prices are unitary. This means that value magnitudes from MCS-90 are equal to quantities.

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The last step in calibration uses elasticities, which show isoquant curvatures. In conclusion, we have the slope and curvature for a point in each isoquant, and from them we calibrate all the unknown parameters. Elasticities for CES and CET functions are displayed in Table 1. Elasticities of substitution between labour and capital ¾ LK and Armington elasticities ¾ A i i are from GTAP (see Hertel, 1997). Elasticities of transformation ² i are from de Melo and Tarr (1992). The estimations for the elasticities of substitution between leisure and consumption ¾ LQ have been obtained h using the Ballard et al. (1985) procedure from the uncompensated elasticity of labour supply estimated in Garcia and Molina (1998)12 . A total of 40 hours worked per week, out of a potential LQ

70 has been assumed. The results for ¾ h

are shown in Table 2. Elastities of substitution of the

remaining equations are initially set to zero (for Leontief functions) and one (for Cobb-Douglas functions). Finally, the ¯ parameter, which explains the labour market behaviour, is …xed at ¯ = 1:5.13 The level of unemployment in the base year (Us and Uus ) is 10% for skilled and 20% for unskilled workers. [Insert Table 1] [Insert Table 2]

3.2

Scenarios and simulation

According to EUROSTAT data, the number of legal immigrants in Spain has increased by 75% between 1993 and 1999. Assuming an equivalent rate of growth for the number of clandestine workers, and taking Franklin (1993) estimates as the starting point, we set the immigrant labour force at a total of 875,000 workers as the basis for our simulations14 . We consider them as an unskilled labour force that perfectly substitutes unskilled domestic workers. This amount of newcomers is associated to mass migration, therefore we assume that they do not carry any capital with them. We ask the following questions: 1. What e¤ect do these illegal residents have at both the macroeconomic and microeconomic levels? 2. Who bene…ts and who loses from the legalization of these workers? The answers to these questions require, therefore, the de…nition of two di¤erent scenarios that result in two equilibrium in addition to the benchmark. Scenario 1 Il legal immigrants. This …rst scenario is characterized by immigrants lacking legal status in the host country. The propensity of illegal immigrants to save is undoubtably 11

higher than for local residents, but it is assumed that illegal immigrants send extra money back home as remittances. Following Sarris and Zografakis (1999) we initially set the remittances as a 40% of their rents. In addition, we assume that there exists discrimination on contracting illegal workers that amounts to 40% of wages for domestic unskilled workers (º = 0:4). The unemployment rate for immigrants is set at zero. Scenario 2. Legal immigrants. In this second scenario, immigrants reach legal status. Our aim here is to analyze how results change in the case in which the newcomers obtain legal status. We consider as given the amount of immigrants and focus simply on the e¤ects of legalization. It is assumed that legalization implies that immigrants are completely on a par with domestic workers. That is, they receive the same money as the local worker for their work (v = 0), they stay permanently and bring their families with them (so we assume remittances are null), and they pay income taxes. In this case remittances are substituted by saving decisions considering the same consumption and saving patterns as domestic households headed by unskilled workers (household 7)15 . Contrasting the equilibrium from scenarios 2 and 1 we obtain the e¤ect of legalization. The results of the basic exercise are introduced in the following subsection.

3.3

Results

Table 3 describes three di¤erent types of impact on macroeconomic variables. The …rst and second columns refer to the e¤ects of illegal and legal immigrants, as a relative change in the benchmark equilibrium. The third column represents the e¤ects of legalization, understood to be the relative changes between illegal and legal equilibrium. [Insert Table 3] Results show that increases in GDP and aggregate employment for both types of workers occur as a consequence of immigration, irrespective of the legal status of immigrants. Thus, aggregate production increases by 1.93% when immigrants are illegal, and 2.56% when they are legal. Similarly, skilled and unskilled employment rise by 5.09% and 2.32%, respectively, in the …rst case, and by 6.34% and 2.89% in the second one.16 . Let us to look into the e¤ect of illegal immigrants on native unskilled employment. As the stock of clandestine immigrants are considered as an unskilled labour force, they amount to aproximately the 13% of total native unskilled employment. What Table 3 tell us is that native unskilled employment is reduced roughly an 8% in aggregate. Assuming a linear e¤ect of immigrants on native employment, this

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means an elasticity of -0.01 in an interval close to 100,000 immigrants, which is in line with aggregate results from other analysis carried out in EU countries (see Venturini, 1999). The arrival of immigrants raises the endowments of non-quali…ed labour; therefore, the three productive factors get asymmetric rewards in terms of real rent.17 On the one hand, domestic unskilled workers are damaged by immigration. However, the damage in real wages for unskilled workers is less important when all immigrants are clandestine: the reduction of unskilled real wages is -1.79% in the case of legal immigrants and -1.48% in the case of illegal immigrants. To explain this di¤erence in the magnitude of the variation according to legal status we must take into account that the reduction in labour costs as a consequence of hiring illegal immigrants (which are payed lower wages than domestic workers) can be thought as an upward movement of the domestic unskilled labour demand curve. This movement compensates in part the initial fall in wages caused by the higher labour supply. On the other hand, factors such as quali…ed labour and capital are bene…tted. Furthermore, increases in their real rents are higher in the case of legal immigration (di¤erences in percentage amounting to 0.27% in the skilled labour real rent and 1.20% in the capital real rent). The reason could be that higher aggregate demand in the second scenario 18 pushes up the di¤erent factor demands and therefore, factor prices.19 . The divergent evolution of wages for skilled and unskilled labour explains the results for the domestic unskilled labour wage to skilled ³ US ´ labour wage ratio W . A …nal result in 3 says that consumer prices increase by 1.21% as a WS consequence of legalization.

As shown above, aggregate production and employment rise in all the scenarios considered. In the following tables, we look into sectoral outcomes for production and factor employment. In Table 4 e¤ects on sectoral production are displayed. In this case, all activities increase their output as a consequence of both types of immigration. Notwithstanding this, there are di¤erences in the relative variations. In the case of illegal immigrants, the most bene…tted activities, in terms of production, are Metal and machinery (6.96%), Energy and water (4.31%) and Nonenergy minerals and chemicals (3.76%). In the case where all immigrants are legal, the highest increases are observed in Energy and water (7.87%), Metal and machinery (5.86%) and Commerce and hotel trade (3.42%). All these activities are relatively unskilled labour intensive. Precisely, activities such as Energy and water and Commerce and hotel trade, which are strongly related to the evolution of …nal demand, experience more important expansions when illegal immigrants are legalized. The reverse e¤ect is observed in Agriculture, Nonenergy minerals and chemicals, Metal and machinery and Other manufacturing for which higher demand does not

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compensate for the higher cost of legalization, yielding therefore to reductions in production. [Insert Table 4] As for labour employment, we look into the e¤ects by sector distinguishing between skilled and unskilled workers. We shall focus …rst on unskilled workers20 (Table 5). Non surprisingly, the relative changes observed for sectoral production are reproduced quite similarly. There are two reasons to explain this. On the one hand, cost reduction is due to higher availability of unskilled labour, …rms hiring the factor that is relatively cheaper. On the other hand the sectors most bene…tted by legalization are strongly intensive in unskilled labour; therefore, their higher production means that their use of unskilled labour grows more than proportionately. [Insert Table 5] With regard to skilled labour (Table 6), variations in employment are not always positive because of two e¤ects. While the demand e¤ect pushes up production and, therefore, factor hiring, the unskilled wage reduction leads to the substitution of skilled labour and capital for unskilled labour. The …nal outcome depends on the cost structure of the activities and the distribution of expenditure on di¤erent goods. Thus, the results show that demand e¤ects clearly prevail in most activities except in Agriculture. Consequently, the highest increases in employment, when immigrants are all legal and demand e¤ects are higher, correspond to Energy and water (10,41%) and Commerce and hotel trade (5.90%).21 These activities also experience the strongest e¤ects of legalization on employment, as shown in the last column of Table 6. Nevertheless, variations caused by legalization on production and employment (skilled and unskilled) are highly correlated. [Insert Table 6] Table 7 contains the welfare e¤ects on households22 . The …rst result which deserves attention is that all households except those headed by unskilled employees (households 1 and 7) improve as a consequence of immigration. This outcome holds whatever the legal status of newcomers. However, bene…ts are not evenly distributed. Thus, households whose mainholder is self-employed (households 2, 3 and 8) obtain clear advantages, especially urban self-employed households, whose welfare increases by 4.31% when immigrants are legal. A similar result is obtained, to a lesser degree, for urban skilled employees (household 6) whose welfare rises by 2.75% for legal immigrants. As for the case of households 1 and 7, the welfare fall is quite small, mostly in the case of urban employees. [Insert Table 7] These …gures partially reproduce the impact on real rents already described in Table 3.

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Notwithstanding this, it should be noted that income for all households is a mixture of di¤erent sources, so that the …nal e¤ect depends on the changes in all the factor prices. For instance, unskilled labour rent represents only 47.5% of the total factor income received by household 7. The rest of factor income comes from skilled labour (21.8%) and capital (30.7%), which rise as a consequence of immigration, as seen above. Thus, the net e¤ect on welfare is close to zero.23 Finally, the small impact on the welfare of households 4, 5, 9, 10, 11 and 12 is due to the fact that the main householders are non-workers. The basic source of income there are tranfers, principally from the public sector, which are set as exogenous. For all the types of household considered, the welfare variation for legalizing immigrants is small. Only the positive impacts on the rural self-employed households seem to be of some importance. Household 10 experiences a marginal loss with regard to the scenario of illegal immigration, whereas unskilled households are slightly better o¤ in the case of legal immigration.

3.4

Sensitivity analysis

There exists, however, a lot of assumptions implied by a CGE model (see de Maio et al, 1999, for some concerns arising when a CGE model is used to evaluate a change). The objective of this section is to measure how sensitive results are to changes in some key parameters of our model. We focus on three parameters: ¯ as a way of characterizing the labour market decisions, b as the elasticity of substitution between both types of labour and QIRE M IT as a measure which indicates the degree of immigrants family assembling. The results of a computable general equilibrium model to assess the impact of immigration depend very much on the internal operation of the labour market. Up to this point, we have assumed an intermediate estrategy for trade unions that weights both the unemployment rate and real wages. In Table 8 we show the macroeconomic results for two more radical estrategies. First, a ¯ = 0:3 is assumed, which implies that unions accept lower wages in order to preserve unemployment rates. Second, we also consider a ¯ = 5 to investigate the e¤ect if trade unions were reluctant to change wages after a supply shock. [Insert Table 8] In general, the e¤ects of immigration tend to be ampli…ed the higher the wage ‡exibility in the labour markets is, in other words, the smaller the values of ¯ are. This evidence is observed regardless of the legal status of immigrants. Thus, for ¯ = 0:3, GDP and unskilled employment increase 2.89% and 8.51%, respectively, under the legal immigration scenario. However, they rise only by 1.63% and 3.75% if wages are very rigid. With regard to skilled employment, this 15

is more a¤ected in a context of rigid wages. This is due to a weaker substitution e¤ect, given that the unskilled employment is not as cheap as in the ‡exible wage case.24 As we expected, prices and wages hardly change when ¯ = 5, whereas they vary more than in the basic scenario when ¯ = 0:3. In terms of welfare changes, it seems clear from the outcome displayed in Table 9 (where only households whose householder participate in the labour markets are considered) that the more ‡exible wages are, the higher the bene…ts from immigration. Thus, the …rst result that deserves attention is that all households improve when ¯ = 0:3, whatever the legal status of newcomers. This outcome is especially interesting for households 1 and 7; in these cases, it is likely that the increases in the rents of capital and skilled labour and the growth in employment totally counteract the e¤ect of the fall in the rent of unskilled labour,25 resulting in net gains in welfare. Following the same reasoning, in the more rigid wage scenario (¯ = 5), bene…ts from immigration are smaller than in the basic scenario, and the losses for households 1 and 7 are higher. [Insert Table 9] With respect to the e¤ects of legalization of immigrants in the di¤erent scenarios, Table 9 shows that households would always prefer the more ‡exible wage strategy. In Table 10, two di¤erent elasticities of substitution between skilled and unskilled labour are considered alternatively to the Cobb-Douglas function in the basic scenario. Firstly, we use a Leontief function (b = 0) to represent perfect complementarity. Secondly, high substitutability is introduced through a b = 10 value. All other parameters are …xed to the basis value. Regarding variations in employment, a …xed coe¢cients technology leads to smaller growth in unskilled employment and higher growth in skilled employment. This is not surprising, as …rms cannot take advantage of the substitubility opportunities derived from the cheaper factor. As the slope of the demand curve for labour is more inelastic now, this implies that the wage of unskilled labour falls more than in the basic scenario, whereas the wage of skilled labour is higher. As long as the substitution possibilities between both types of labour are enlarged, the former e¤ects are reversed to the point that skilled employment could even fall. [Insert Table 10] Finally, we study the sensitivity of the results to the existence of remittances. With this goal we construct Table 11 in which two additional situations are displayed setting constant the rest of the parameters to the base value. The …rst column contains the results when illegal immigrants do not send remittances abroad while in the second column the outcomes when

16

legal immigrants do send remittances abroad are presented 26 . By comparing column to column Table 11 and Table 3 we get the net e¤ect due to remittances. Thus, in both cases of legal and illegal immigration it is clear that the absence of remittances implies a signi…cant positive internal demand e¤ect which results in higher GDP, employment and rents. This outcome makes it clear that the bene…ts from legalization are due not only to wage equalization between native born workers and immigrants, but that the e¤ect of remittances is also very important in terms of macro economics. Therefore, policies adressed to immigrants family assembling deserve, at least, as much attention as those designed to integrate immigrants in the labour markets of the host countries. [Insert Table 11]

17

4

Conclusions

This paper aimed to provide a quantitative estimate of the likely impact of the large and recent in‡ux of immigrants to Spain. Our …ndings were illustrated by simulations using a large multisectoral computable general equilibrium model. Two cases were considered related to the way immigrants stay in Spain. After analysing the e¤ects of illegal workers, we moved on to study that of legal workers and …nally we carried out a comparison of both. This comparison between both illegal and legal equilibrium displays a general picture of what would be the probable e¤ects of a complete legalization of immigrants. Results show that any type of immigration has an unequivocal helpful e¤ect on GDP and total employment and that legalization is especially important for improving total unskilled employment. This fact means that domestic substitution by foreign workers is not perfect. Nevertheless, while skilled workers and capital owners gain from immigration and legalization, the buying capacity of unskilled workers is deteriorated. As most of the income origin for Spanish families is heterogeneous we look likewise to the welfare e¤ect on households. Interestingly, the bulk of the diferent types of households considered here pro…t from the in‡ux of illegal immigrants and their legalization. Only those households headed by unskilled workers are damaged, the loss in this case being much less important than when unskilled workers are considered individually. Conversely, households whose main provider is either self-employed or a skilled worker, or those out of the labour market, such as rentiers or pensioners all bene…t from immigration. All the productive sectors regarded expand their production and their demand for unskilled labour. Skilled labour demand also increases in all the sectors with the exception of Agriculture, for which the existence of immigrants on a par with inborn workers leads to a reduction in the hiring of the most quali…ed workers. Legalization harms in relative terms those sectors which most intensively use less skilled workers such as Agriculture, Metals and machinery and Other manufacturing. Results rely on some key assumptions and therefore the sensitivity of the equilibrium to di¤erent parameters of the model has been checked. For instance, distributional impacts are very sensitive in the manner in which the two types of labour can be substituted. A completely proportional relation between skilled and unskilled labour demand results in substantial di¤erences in factor compensations that mitigates as possibilities of substitution enlarge. However, the introduction of new technologies eventually points towards a more inelastic labour demand trend especially for more skilled workers. Given the relevance of this parameter it would be 18

very useful to have econometric estimates for elasticities of substitution between di¤erent types of labour to asses the true impact of immigration. Especially important seems to be the way in which wages respond to a labour supply shock. The simulations in this case indicate that the impact on GPD is larger, the easier the real wages react to the newcomers. With respect to distributional variables we obtain a striking outcome, because although individual unskilled workers are considerably harmed when wages are ‡exible, all households would always bene…t and so prefer this strategy to another based on maintaining wages unchanged. This result is due to higher employment and the rise in other incomes that compensate for the fall in unskilled wages. Therefore, an appropriate policy previous to legalization points towards a more ‡exible labour market in order not only to obtain a better aggregate welfare index but simply to minimize distributional costs among di¤erent types of households. The sensitivity analysis on the amount of remittances abroad concludes that the intention to create a legal framework that allows immigrants to bring their families is as important as the e¤ort on wage equalising. A plenary integration of foreign immigrants would guarantee not just a worthy design of society but also healthy economic performance.

19

Notes 1Franklin

(1993) estimated the illegal labour force to be around 500,000 people.

2During 2000, two general laws regarding immigration have been discussed in the Spanish Parliamen and in 2002 a new law is appearing. 3See

Borjas (1994) for an exhastive survey on the impact of immigration on the host economy. A more recent overview can be found in Carillo et al. (1999). 4As noted by Scarf and Shoven (1984), general equilibrium models trace the consequences of changes in a particular variable through the entire economy modeled, providing a more powerful analysis as compared to partial equilibrium models. 5The 24th annual report of the OECD C ontinous Reporting System on Migration (1999) highlighted that ”... in‡ows related to family reunion and to family members accompanying workers predominate in almost all the countries of the OECD.” This evidence suggests that most immigration is intended as permanent, and therefore, the relevance of return migration from OECD countries should eventually decline. 6Setting a formal link between the likelihood of return migration and the saving behaviour of immigrants is a relatively straightforward proc ess. See Galor and Stark (1990). 7Not only changes in remittances a¤ect the sending countries performance. Consumption, human capital investment and future migration can be also a¤ected by changes in legal restrictions, even if remittances remain constant (see Poirine, 1997) 8The …xe d c oe¢cients assumption borne in Leontief functions is frequently used in applied ge neral equilibrium models, (see Dixon et al ., 1992- pp. 211-219). The rationale is that a wide range of empirical studies do not prove that at this level changes in relative prices of inputs imply changes in relative demands. 9The Armington (1969) assumption takes goods with di¤erent geographical origin as close but not perfect substitutes. 10See Powell and Gruen (1968) for an analytic description of CET functions. CET functions involve a certain degree of substitution among goods assigned to di¤erent markets or uses. 11See

Howe (1975).

12They estimated the own-wage labour supply elastic ity for both men and women from di¤erent functional forms. There is no evidence against the null that those elasticities are zero, so we use this value as a starting point to calculate ¾ LQ h . 13This is the benchmark value employed in MOISEES which is one of the Ministry of Economy models for the Spanish economy. 14This

…gure can also include migrants who have entered the country legally but who are working illegally either bec ause the job is not declared or because their residence permit does not allow them to work (see Tapinos, 1999). 15However, we do not consider leisure decisions for immigrants, and we assume they do not spend money on tourism. 16By the assumption of …xed capital, the growth of GDP is lower than the growth of employment, as a consequence of decreasing marginal productivity in the production function. 17The

real rent is measured as the factor price divided by the consumer price index

18Immigrants legally staying spend more than those lacking legal status for two reasons: …rstly, they are not discriminated against in the labour market and secondly, they do not send remittances abroad. 19Given that the capital stock is …xed, the observed increase in the real rent is more important than in the case of labour. Labour supply, howe ver, might change as a consequence of variations in the leisure decisions. 20This

employment also includes immigrant workers.

20

21The impact is also strong in House renting (6.14%). However, in this case, small change s in employment lead to high variations in perc entage because of the scarce use of labour in this activity. 22Welfare

has been measured as an equivalent variation.

23The income of the welfare-improving households is also a¤ected by the unskilled labour rent. However, it constitutes a small share of their total factor income (ranging from 1.7% in household 6 to 5.1% in house hold 3). 24The explanation for these results is as follows: an increase in the number of unskilled workers raises the marginal productivity for the skilled workers and consequently employment. However, as long as the domestic unskilled wages are allowed to fall, the substitution e¤ect compensates for part of the scale e¤ect. 25Despite this fall being more important than when ¯ = 1:5, as set in the basic scenario shown in the prece ding section. 26We do not include a third column ’change’ because the di¤erenc e between the two columns does not represent now the impact of legalization.

21

References [1] Armington, P. S. (1969): “A theory of demand for products distinguished by place of production”. International Monetary Fund Sta¤ Papers, 16, pp. 159-176. [2] Ballard, C. L.; Shoven, J. B.and J. Whalley (1985): “General equilibrium computation of the marginal welfare costs of taxes in the United States”. American Economic Review, 75, pp. 128-138. [3] Barham, B. and S. Boucher (1998): ”Migration, remittances and inequality: estimating the net e¤ects of migration on income distribution”. Journal of Development Economics, 55, pp. 307-331. [4] Biscourp, P. and C. Gianella (2001): “ Substitution and complementarity between capital, skilled and less skilled workers: an analysis at the …rm level in the French manufacturing industry”. Paper presented at European Association of Labor Economists, 2001. Annual Conference hold at the University of Jyväskylä, Finland. [5] Borjas, G. J. (1994): ”The economics of immigration”. Journal of Economic Literature, XXXII, pp. 1667-1717. [6] Brown, R. P.C. (1997): ”Estimating remittance functions for a Paci…c Island migrants”. World Development, 25, pp. 613-626. [7] Carillo, M. R.; Quintieri, B. and C. P. Vinci (1999): ”Causes and economic e¤ects of migration ‡ows: an overview”. Labour, 13, pp. 587-602. [8] De Maio, L. Stewart, F. and Rolph van der Hoeven (1999): ”Computable general equilibrium models, adjustment and the poor in Africa”. World Development, 27, 453-570 [9] De Melo, J.and D. Tarr (1992): A general equilibrium analysis of US foreign trade policy. The MIT Press, Cambridge, MA. [10] De New, J. P. and K. F. Zimmermann (1994): ”Native wage impact of foreign labor: a random e¤ects panel analysis”. Journal of Population Economics, 7, pp. 177-192. [11] Dervis, K.; de Melo, J. and S. Robinson (1981): “A General equilibrium analysis of foreign exchange shortages in a developing economy”. Economic Journal, 91, pp. 891-906. [12] Dixon, P. B.; Parmenter, B. R.; Powell, A. A. and P. J.Wilcoxen (1992): Notes and problems in applied general equilibrium economics. North-Holland, Amsterdam. 22

[13] Dolado, J. J.; Jimeno, J. F. and R. Duce (1996): ”The e¤ects of migration on the relative demand of skilled versus unskilled labour: evidence from Spain”. CEPR Discussion Paper, 1476, pp. 1-18. [14] Ethier, W. (1986): ”Illegal immigration: the host-country problem”. American Economic Review, 76, pp. 56-71. [15] Faini, R. (1994): ”Workers remittances and the legal exchange rate”. Journal of Population Economics, 7, pp. 235-245. [16] Fontana, M. and A. Wood (2000): ”Modeling the e¤ects of trade on women, at work and at home”. World Development, 28, pp. 1173-1190. [17] Franklin, D. (1993): ”Migration: new demands and approaches for europe,” in Luciani, G (ed.) Migration policies in europe and the United States. Boston: Kluwer Academic Publishers. [18] Galor, O. and O. Stark (1990): ”Migrant’s savings, the probability of return migration and migrant’s performance”. International Economic Review , 31, pp. 463-467. [19] Gang, I. N. and F. L. Rivera-Batiz (1994): ”Labor market e¤ects of immigration in the United States and Europe”. Journal of Population Economics, 7, pp. 157-175. [20] Garcia, I. and J. A. Molina (1998): ”Household labour supply with rationing in Spain”. Applied Economics, 30, pp. 1557-1570. [21] Gavosto, A.; Venturino, A. and C. Villosio (1999): ”Do immigrants compete withnatives”. Labour, 13, pp. 603-621. [22] Glytsos, N. P. (1997): ”Remitting behaviour of ’temporary’ and ’permanent’ migrants: the case of Greeks in Germany and Australia”. Labour, 11, pp. 409-435. [23] Harberger, A. C. (1972): “The incidence of the corporation income tax”. Journal of Political Economy, 70, pp. 215-240. [24] Hertel, T. W. (ed.) (1997): Global trade analysis. Modeling and applications. Cambridge University Press, Cambridge. [25] Hino josa, R.; McCleery, R.; Marcelli, E.; de Paolis, F.; Runsten, D.; Sanchez, M. (2001): ”Comprehensive migration policy reform in North America: the key to sustainable and equitable economic integration”. NAID Center Working Paper, No 12. 23

[26] Howe, H. (1975): ”Development of the extended linear expenditure system from simple saving assumptions”, European Economic Review, 6, 305-310. [27] Huntoon, L. (1998): ”Immigration to Spain: implications for a uni…ed European Union immigration policy”, International Migration Review, 32, pp. 423-450 [28] Lalonde R.J. and R.H. Topel (1997): ”Economic impact of internatinal migration and the economic performance of migrants”, in Rosenzweig and Stark (eds.) Handbook of Population and Family Economics. North-Holland. [29] Mathiesen, L. (1985): “Computation of economic equilibria by a sequence of linear complementary problems”. Mathematical Programming Study, 23, pp. 144-162. [30] OECD (1999): Trends in international migration. OECD, Paris. [31] Pereira, A. M. (1995): ”Equal yield alternatives and government de…cits”. Public Finance Quarterly, 23, pp. 40-71. [32] Poirine, B. (1997): ”A theory of remittances as an implicit family loan arrangement”. World Development, vol 25, pp. 589-611. [33] Powell, A. A. and F. H. G. Gruen (1968): “The constant elasticity of transformation production frontier and linear supply system”. International Economic Review, 39, pp. 315-328. [34] Pyatt, G. (1985): ”Commodity balances and national accounts: a SAM perspective”. Review of Income and Wealth, 31, pp. 155-169. [35] Rattso, J. (1982): ”Di¤erent macroclosures of the original Johansen model and their impact on policy evaluation”. Journal of Policy Modeling, 4, pp. 85-97. [36] Razin, A. and E. Sadka (1995):”Resisting migration: wage rigidity and income distribution”. American Economic Review, 85, pp. 312-316. [37] Rutherford, T. F. (1999): “Applied general equilibrium modeling with MPSGE as a GAMS subsystem: An overview of the modeling framework and syntax”. Computational Economics, 14, pp. 1-46. [38] Sahn, D. E.; Dorosh, P. A. and S. D. Younger (1999): ”A reply to De Maio, Stewart and van der Hoeven”. World Development, 27, pp. 471-475. 24

[39] Sarris, A. H. and S. Zografakis (1999): ”A computable general equilibrium assessment of the impact of illegal immigration on the Greek economy”. Journal of Population Economics, 12, pp. 155-182. [40] Scarf, H. E. and J. B. Shoven (1984): Applied general equilibrium analysis. Cambridge University Press, Cambridge. [41] Schmidt, C. M.; Stilz, A. and K. F. Zimmermann (1994): ”Mass migration, unions, and government intervention”. Journal of Public Economics, 55, pp. 185-201. [42] Tapinos, G. (1999): Clandestine immigration: economic and political issues. In Trends in International Migration, Part I II, OECD, Paris. [43] Thorbecke, E. (1991): ”Adjustment, growth and income distribution in Indonesia”. World Development, 19, pp. 1595-1614. [44] Uriel, E.; Beneito, P.; Ferri, F. J. and M. L. Moltó (1997): Matriz de Contabilidad Social de España 1990 (MCS-90). Spanish Statistics Institute, Madrid. [45] Venturini, A. (1999): ”Do immigrants working illegally reduce the natives’ legal employment?. Evidence from Italy.”. Journal of Population Economics, 12, pp. 135-154.

25

Table 1: Elasticities by productive sector Sector ¾ LK ¾A ²i i i Agriculture 0.56 4.4 Energy and water 1.26 5.2 Nonenergy minerals, chemicals 1.26 3.8 Metal and machinery 1.26 10.4 Other manufacturing 1.26 5.6 Construction 1.40 3.8 Commerce and hotel trade 1.26 3.8 Transport and communications 1.68 3.8 Finance and insurance 1.26 3.8 House renting 1.26 3.8 Other services 1.26 3.8 Note: Elasticities elaborated from Hertel (1997) and de Melo

3.9 2.9 2.9 2.9 2.9 0.7 0.7 0.7 0.7 0.7 0.7 and Tarr (1992).

Table 2: Elasticities by households Household type number De…nition 1 Rural, employed 2 Rural, self employed, non agricultural 3 Rural, self employed, agricultural 4 Rural, other incomes, males 5 Rural, other incomes, females 6 Urban, employed, graduate 7 Urban, employed, non graduate 8 Urban, self employed 9 Urban, other incomes, males, under 65 10 Urban, other incomes, females, under 65 11 Urban, other incomes, males, over 65 12 Urban, other incomes, females, over 65 Note: Elasticities elaborated from Ballard et al.(1985)and Garcia and

26

¾ LQ h 0.428 0.057 0.037 0.060 0.038 0.304 0.402 0.048 0.087 0.059 0.062 0.019 Molina (1998)

Table 3: E¤ects of increasing immigration on GDP and wages

GDP Unskilled employment Skilled employment Real rents Unskilled labour Skilled labour Capital CPI

Illegal immigrants(¤) 1.93 5.09 2.32

Legal immigrants( ¤) 2.56 6.34 2.89

Legalization(¤¤) 0.62 1.18 0.55

-1.48 0.94 3.26 0.01 -2.39

-1.79 1.22 4.50 1.21 -2.97

-0.32 0.27 1.20 1.21 -0.59

W US WS

(¤)

p ercentage variation from b enchmark equilibrium. percentage variation between scenarios

(¤¤)

Table 4: E¤ects on sectoral production (percentage variation)

Agriculture Energy and water Nonenergy minerals, chemicals Metal and machinery Other manufacturing Construction Commerce and hotel trade Transport and communications Finance and insurance Other services House renting (¤)

Illegal immigrants(¤) 1.94 4.31 3.76 6.96 2.75 0.41 1.91 1.97 2.22 0.78 0.94

Legal immigrants(¤) 0.31 7.87 2.00 5.86 2.62 1.52 3.42 2.00 2.61 1.21 1.81


(¤¤)

27

Legalization(¤¤) -1.60 3.41 -1.70 -1.02 -0.12 1.10 1.48 0.03 0.38 0.42 0.86

Table 5: E¤ects on sectoral unskilled employment (percentage variation)



Legal immigrants(¤) 3.03 13.79 5.74 8.38 6.11 5.24 9.14 7.44 7.28 4.02 9.39

Legalization(¤¤) -0.96 4.76 -0.87 -0.50 0.67 1.98 2.81 1.28 1.43 1.04 2.66


(¤¤)

Table 6: E¤ects on sectoral skilled employment (percentage variation)



Legal immigrants(¤) -0.03 10.41 2.60 5.16 2.95 2.11 5.90 4.25 4.10 0.93 6.14


(¤¤)

28

Legalization(¤¤) -1.55 4.14 -1.45 -1.09 0.08 1.38 2.21 0.69 0.83 0.44 2.05

Table 7: E¤ects on welfare by household type (equivalent variation)

Households Households Households Households Households Households Households Households Households Households Households Households (¤)

1 2 3 4 5 6 7 8 9 10 11 12

Illegal immigrants( ¤) -0.44 2.70 2.38 0.31 0.53 2.04 -0.19 3.10 0.75 0.47 0.32 0.47

Legal immigrants(¤) - 0.37 3.73 3.25 0.44 0.64 2.75 -0.05 4.31 1.04 0.41 0.43 0.58

p ercentage variation from b enchmark equilibrium. percentge variation between scenarios

(¤¤)

29

Legalization(¤¤) 0.07 1.00 0.85 0.13 0.11 0.70 0.14 1.18 0.29 -0.05 0.11 0.11

Table 8: E¤ects of immigrants on GDP and wages. Sensitivity analysis for wage ‡exibility assumptions Illegal immigrants( *)

Legal immigrants( *)

Legalization( ** )

2.23 6.90 1.17

2.89 8.51 1.35

0.64 1.51 0.18

-2.68 2.67 3.76 0.13 -5.21

-3.31 3.36 4.99 1.32 -6.45

-0.64 0.68 1.19 1.83 -1.31

1.12 2.92 1.73

1.63 3.75 2.27

0.51 0.81 0.54

-0.83 0.12 1.71 -0.42 -0.94

-1.00 0.19 2.71 0.73 -1.17

-0.17 0.07 0.98 1.16 -0.24

¯ = 0:3 GDP Unskilled employment Skilled employment Real rents Unskilled labour Skilled labour Capital CPI W US WS

¯=5 GDP Unskilled employment Skilled employment Real rents: Unskilled labour Skilled labour Capital CPI W US WS

(¤)


(¤¤)

30

Table 9: E¤ects on welfare by household type (equivalent variation). Sensitivity analysis for wage ‡exibility assumptions Illegal immigrants( ¤)

Legal immigrants(¤)

Legalization(¤¤)

1 2 3 6 7 8

0.05 3.10 2.72 2.30 0.32 3.56

0.17 4.13 3.59 3.00 0.51 4.77

0.12 0.99 0.85 0.68 0.19 1.16

1 2 3 6 7 8

-1.70 1.43 1.33 0.90 -1.49 1.63

-1.83 2.26 2.04 1.46 -1.55 2.62

-0.13 0.82 0.70 0.56 -0.06 0.97

¯ = 0:3 Households Households Households Households Households Households

¯=5 Households Households Households Households Households Households (¤)


(¤¤)

31

Table 10: E¤ects of immigrants on GDP and wages. Sensitivity analysis for labour elasticity of substitution Illegal immigrants(¤)

Legal immigrants( ¤)

Legalization(¤¤)

1.98 4.23 3.61

2.65 5.30 4.55

0.66 1.02 0.90

-1.75 1.38 3.35 0.03 -3.09

-2.12 1.79 4.68 1.27 -3.84

-0.38 0.40 1.28 1.23 -0.78

1.40 6.37 -1.30

1.91 7.92 -1.62

0.50 1.46 -0.33

-1.26 -0.46 2.62 -0.18 -0.80

-1.54 -0.55 3.78 1.01 -0.99

-0.28 -0.09 1.13 1.20 -0.19

b=0 GDP Unskilled employment Skilled employment Real rents Unskilled labour Skilled labour Capital CPI W US WS

b = 10 GDP Unskilled employment Skilled employment Real rents: Unskilled labour Skilled labour Capital CPI W US WS

(¤)


(¤¤)

32

Table 11: The e¤ects of remittances on macroeconomic variables

GDP Unskilled employment Skilled employment Real rents Unskilled labour Skilled labour Capital CPI

Illegal immigrants (no remittances)(¤) 2.40 5.78 2.97

Legal immigrants (remitances)(¤) 1.71 5.06 1.69

-0.87 1.54 5.02 1.29

-2.87 0.15 1.52 0.00

-2.38

-3.01

W US WS

(¤)

p ercentage variation from b enchmark equilibrium. percentge variation between scenarios Note: …rst column display the basic results when immigrants are payed a 40% less than native workers and they do not send remittances abroad. Second column display the basic results when immigrants earn as much as the native workers but they do send remittances abroad. (¤¤)

33