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AU - ECON 200 - Class Notes - Week 5

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AU - ECON 200 - Class Notes - Week 5

School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags:
Name: Week 5 immigration notes (last lecture before test)
Description: Immigration, wage premium, productivity
Uploaded: 02/12/2019
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background image The majority of your income is determined by citizenship bc that determines level of
possible productivity (country of location outweighs every other variable whether it 
be gender, parental education, etc.)
When people move to a more productive country, they increase their income (they 
do not suddenly become more qualified or better at their job, increase is simply due
to higher productivity of that country)
Wage premium for average foreigner working in US (how much more foreign 
workers make in U.S doing the same job):
Mexico: 2.5 x multiple Peru: 3.8 x multiple Sri Lanka: 5.0 x multiple  Ghana: Ghana 7.1 x multiple Haiti: 10 x multiple Nigeria: 14.9 x multiple World median: 4.1 x multiple *reason why many people are willing to risk their lives to come to U.S to work, they 
do not bring poverty with them but contribute to economy bc they want to take 
advantage of wage premium*
Immigrants from Nigeria to U.S are more likely to be college educated than 
immigrants from Japan because opportunity cost is much lower for Nigerians since 
the GDP there is so low that even with a college education they won’t make that 
much money, but in the U.S they can get a 14.9 x wage premium. College educated
people from Japan live in an industrialized country where they can get a good wage 
if they are college educated that is not much lower than what they would get in U.S,
so not much reason to come to U.S.
Flow of college educated immigrants into the U.S does not hurt countries that are 
losing educated population bc money flows back to country in form of remittances
Immigration also encourages people to get an education in developing countries, if 
that was no an option people wouldn’t bother getting a degree bc in developing 
countries it does not always increase wage by much 
Anti-poverty interventions compared to migration (deworming, microcredit, one 
year of schooling) Foreign aid helps, but immigration is the best way to lift people 
out of poverty 
Example: Kenyans received a $71 lifetime wage increase bc of deworming, but it 
would only take them .3 weeks in the U.S to get that wage increase 
Effects on Native Born When you increase the supply of labor, price of labor does not fall 
background image Immigrants are consumers (when they come here, they buy goods and use 
services which increases the demand for labor)
Immigrants are entrepreneurs (they create their own businesses, which 
creates jobs), immigrants actually more likely to start a new business than 
native born
Immigrants are complements to native workers (immigrants not the same as 
a native-born person, have different abilities and can satisfy different job 
requirements, no direct competition) 
Example: Low skilled immigration increases average work hours of highly-
skilled women because women can outsource responsibilities in the home to 
immigrant workers and focus on their own job, no direct competition for work 
but actually help each other
Two models of immigration’s effects on native born workers  Borjas modelresults in wage decrease for native born workers
-Immigrants and natives are perfect substitutes (same skill, same language 
ability, directly competing)
-Businesses do not expand in response to more workers 
Ottaviano & Peri Modelresults in wage increases for native born workers 
-Immigrants and natives are mostly complements 
-Businesses expand when they see opportunity to hire more ppl
Cumulative wage effects of immigration:
Borjas
Ottaviano & Peri Native HS dropouts: -8.9% 0.3% Native HS Grads: -2.6% 0.4% Native college dropouts: -0.3% 0.9% Native College Grads: -4.9% 0.5% All Native Workers: -3.2% 0.6% *Volume of fighting about immigration is way out of proportion because even 
in the most pessimistic model, Americans only have a 3.2% wage decrease, 
which is relatively marginal 
In Denmark, an influx of immigrants only caused unchanged or higher wages 
bc it pushed natives to pursue more complex, complementary occupations 
(did not increase unemployment and increased mobility of natives) 
The Bracero exclusion:  Native wages didn’t rise, native employment didn’t 
rise some farmers invested in automation or switched to crops that require 
less labor, other farmers grew less which increased food prices bc lower 
supply (farmers did not hire American workers in place of Mexicans that were 
kicked out)

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School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags:
Name: Week 5 immigration notes (last lecture before test)
Description: Immigration, wage premium, productivity
Uploaded: 02/12/2019
3 Pages 47 Views 37 Unlocks
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  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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