Suppressing resistance to low-skill migration

Just like any other trade activity, migration tends to generate gains to all parties involved, the migrants as well as the native population, if markets are well-functioning. But typically these gains tend to be rather small. However, when the labor market is mal-functioning, migration may exacerbate the imperfections in the market. Consequently, it could lead to losses to the host-country population, which can be quite sizable.An additional problem raised by migration is the toll it imposes on the welfare state. As a democracy, the host-country cannot exclude migrants from various entilement programs and public services. As a consequence, the modern welfare state could find it more and more costly to run its various programs when they attract low-income migrants.These considerations may help explain why there is strong resistance to migration. Consequently, to be able to benefit from migration, one may want to improve the functioning of the markets (with a compensation to wage earners that compete with unskilled migrants) and to downsize the scope of the state entitlement programs.The current version was prepared while the first author was visiting the Research Department and the second author was visiting the Fiscal Affairs Department of the International Monetary Fund.     

Von Thünen's model of the dual economy

We are indebted to Heinz König, John Mellor, and Hans van Beek, and to three anonymous referees of the journal for helpful comments, and to Victoria Dalko for her able research assistance. Financial assistance from the Foerder Institute for Economic Research and the International Food Policy Research Institute is gratefully acknowledged. A version of the paper also appears as Working Paper No. 989 of the Foerder Institute and Discussion Paper No. A 269 of the University of Bonn.