Labour Market Impact of Immigration: Sketching the Immigration Surplus of Venezuelan Immigrants in T&T

Abstract

In general, migration is different from the flow of other factors of production in one important way. Migrants become interwoven into the fabric of the receiving country, and this includes its labour market, culture, politics and society (Card in Ind Labor Relat Rev 43:245–257, 1990). In this regard, one can reason that migration flows can more permanently impact on a host economy as compared to traditional financial capital flows. One of the main conduits through which immigration impacts a host economy is via the labour market (and particularly in terms of its impact on less skilled natives).

Appendix

4.1.1 High Skilled Immigration and Human Capital Externalities

It is the case that some types of immigration promote growth and development at a different pace to other types of immigration. The perception is based on the understanding that highly skilled immigrants bring opportunities for learning, human capital development and can make natives more productive as discussed by Wadhwa et al. (2008) and Waldinger (2010). Highly skilled immigrants can create jobs by starting new businesses and also by providing trade and economic linkages with their home country (Chiswick 2005; Kerr and Kerr 2011; Kerr 2013). Skilled migrants can help firms to access new markets and assist in coordinating complex business decisions (Saxenian and Sabel 2008). In addition, production complementarities between skilled migrants and the native labour force can help to raise the return of other factors of production, especially capital.

If highly skilled immigrants improve the productivity of natives, then the labour demand curve will shift outwards as the value of the marginal product for every worker increases. In this regard, consider Fig. 4.3 where the human capital externalities shift the marginal product of every native worker by ϕ so that the new marginal product curve becomes $F_{L} = \left( {1 + \phi } \right)f_{L}$. In this setting, the change in income which accrues to natives consists of two parts, the traditional immigration surplus given by TKP and the trapezoidal area S’T’TS which measures the increase in the total product of output related to the increase in productivity on account of the human capital externalities from the immigrants. If the externalities are sufficiently large, then highly skilled immigrants can play an important role in motivating economic growth (Table 4.14).

Table 4.14 Impact of high skilled immigrants on host economy

Fig. 4.3

The immigration surplus and human capital externalities

Following Borjas (1999), it can be shown that in the presence of externalities, the external effects can be determined by: $\frac{{\Delta Q_{n} }}{{Q_{n} }} = - \frac{1}{2} {\text{sem}}^{2} + \frac{{\lambda_{sm} }}{1 - \lambda }\left( {1 - sm} \right)$, where λ: the elasticity of the marginal product with respect to total output.

To illustrate this (and following Borjas 2019) in practical numbers, we can proceed as follows. The GDP of the US in 2020 was US$21.4tn. If the externality shock of an inflow of skilled immigrants raised the marginal product by 1%, then the gains to the economy would be US$214bn. This is significantly more than the estimate of the immigration surplus, of US$56.4bn that one would obtain if they followed an approach that ignored human capital externalities (Table 4.15).

Table 4.15 The short-term immigration surplus, 2017