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Immigration and Outsourcing: A General Equilibrium Analysis

Author

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  • Bandyopadhyay, Subhayu

    (Federal Reserve Bank of St. Louis)

  • Wall, Howard J.

    (Federal Reserve Bank of St. Louis)

Abstract

This paper analyzes the issues of immigration and outsourcing in a general-equilibrium model of international factor mobility. In our model, legal immigration is controlled through a quota, while outsourcing is determined both by the firms (in response to market conditions) and through policy-imposed barriers. A loosening of the immigration quota reduces outsourcing, enriches capitalists, leads to losses for native workers, and raises national income. If the nation targets an exogenously determined immigration level, the second-best outsourcing tax can be either positive or negative. If in addition to the immigration target there is a wage target (arising out of income distribution concerns), an outsourcing subsidy is required. The analysis is extended to consider illegal immigration and enforcement policy. A higher legal immigration quota will lead to more illegal immigration if skilled and unskilled labor are complements in production. If the two kinds of labor are complements (substitutes), national income increases (decreases) monotonically with the level of legal immigration.

Suggested Citation

  • Bandyopadhyay, Subhayu & Wall, Howard J., 2005. "Immigration and Outsourcing: A General Equilibrium Analysis," IZA Discussion Papers 1694, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1694
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    References listed on IDEAS

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    1. Antonio Spilimbergo & Gordon H. Hanson, 1999. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," American Economic Review, American Economic Association, vol. 89(5), pages 1337-1357, December.
    2. Subhayu Bandyopadhyay, 2006. "Illegal Immigration and Second‐best Import Tariffs," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 93-103, February.
    3. Djajic, Slobodan, 1987. "Illegal aliens, unemployment and immigration policy," Journal of Development Economics, Elsevier, vol. 25(1), pages 235-249, February.
    4. Ethier, Wilfred J, 1986. "Illegal Immigration," American Economic Review, American Economic Association, vol. 76(2), pages 258-262, May.
    5. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
    6. Gaytan-Fregoso, Helena & Lahiri, Sajal, 2000. "Foreign aid and illegal immigration," Journal of Development Economics, Elsevier, vol. 63(2), pages 515-527, December.
    7. Bandyopadhyay, Subhayu & Bandyopadhyay, Sudeshna Champati, 1998. "Illegal immigration: a supply side analysis," Journal of Development Economics, Elsevier, vol. 57(2), pages 343-360.
    8. Djajic, Slobodan, 1997. "Illegal Immigration and Resource Allocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 97-117, February.
    9. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
    10. Bond, Eric W. & Chen, Tain-Jy, 1987. "The welfare effects of illegal immigration," Journal of International Economics, Elsevier, vol. 23(3-4), pages 315-328, November.
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    Cited by:

    1. Ravi Batra & Hamid Beladi, 2010. "A Simple Two‐Sector Model of Outsourcing," Review of Development Economics, Wiley Blackwell, vol. 14(1), pages 64-73, February.
    2. Giorgio Barba Navaretti & Giuseppe Bertola & Alessandro Sembenelli, 2008. "Offshoring and Immigrant Employment: Firm-level Theory and Evidence," Development Working Papers 245, Centro Studi Luca d'Agliano, University of Milano.
    3. Gianluca Orefice, 2014. "Offshoring, migrants and native workers: The optimal choice under asymmetric information," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(2), pages 179-201, March.
    4. Andreas Hatzigeorgiou & Patrik Karpaty & Richard Kneller & Magnus Lodefalk, 2024. "Immigrant employment and the contract enforcement costs of offshoring," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(3), pages 953-981, August.
    5. Hübler, Michael, 2007. "A simple model of outsourcing with Cournot competition," Kiel Working Papers 1320, Kiel Institute for the World Economy (IfW Kiel).
    6. Cosimo Beverelli & Gianluca Orefice & Nadia Rocha, 2016. "The Impact of Offshoring and Migration Policies on Migration Flows," Working Papers 2016-21, CEPII research center.
    7. Joseph Pelzman, 2013. "“Womb for Rent”: International Service Trade Employing Assisted Reproduction Technologies (ARTs)," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 387-400, August.
    8. Simontini Das & Ajitava Raychaudhuri & Saikat Sinha Roy, 2012. "Immigration Versus Outsourcing: A Developing Country¡¯S View," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 109-138, June.

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    More about this item

    Keywords

    outsourcing; immigration;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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