Immigration and the Macroeconomy

We analyze the dynamics of labor migration and the insurance role of remittances in a twocountry, real business cycle framework. Emigration increases with the expected stream of future wage gains but is dampened by the sunk cost reflecting border enforcement. During booms in the destination economy, the scarcity of established immigrants lessens capital accumulation, labor productivity, and the native wage. The welfare gain from the inflow of unskilled labor increases with the complementarity between skilled and unskilled labor and the share of the skilled among native labor. The model matches the cyclical dynamics of the unskilled immigration from Mexico.

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