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Slowdown in Immigration, Labor Shortages, and Declining Skill Premia

Author

Listed:
  • Federico S. Mandelman
  • Yang Yu
  • Francesco Zanetti
  • Andrei Zlate

Abstract

We document a steady decline in low-skilled immigration that began with the onset of the Great Recession in 2007, which was associated with labor shortages in low-skilled service occupations and a decline in the skill premium. Falling returns to high-skilled jobs coincided with a decline in the educational attainment of native-born workers. We develop and estimate a stochastic growth model with endogenous immigration and training to account for these facts and study macroeconomic performance and welfare. Lower immigration leads to higher wages for low-skilled workers and higher consumer prices. Importantly, the decline in the skill premium discourages the training of native workers, persistently reducing aggregate productivity and welfare. Stimulus policies during the COVID-19 pandemic, amid a widespread shortage of low-skilled immigrant labor, exacerbated the rise in consumer prices and reduced welfare. We show that the 2021-2023 immigration surge helped to partially alleviate existing labor shortages and restore welfare.

Suggested Citation

  • Federico S. Mandelman & Yang Yu & Francesco Zanetti & Andrei Zlate, 2024. "Slowdown in Immigration, Labor Shortages, and Declining Skill Premia," CAMA Working Papers 2024-46, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2024-46
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-07/46_2024_mandelman_yu_zanetti_zlate_0.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    immigration; skill premium; task upgrading; heterogeneous workers;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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