U.S. Immigration Policy: U.S. immigration law is based on a quota system€” i.e. a system under which there is a maximum number of immigrants allowed for each country, with different quotas set for different countries. In this exercise, we consider an alternative way of achieving the same level of immigration from each country. To make the exercise tractable, assume that all workers around the world are identical.

A. Assume throughout that the primary motive for migration is a search for higher wages.

(a) Begin by drawing the U.S. supply and demand curves for workers and, next to it, the supply and demand curves in the rest of the world. Assume that the equilibrium wage (in the absence of trade or migration) is higher in the U.S.

(b) Illustrate the equilibrium in which there are no restrictions to migration€”assuming migration is relatively costless.

(c) Now suppose the U.S. introduces an immigration quota that allows less migration than would naturally occur in the absence of restrictions. Illustrate the impact of such a quota on the labor markets in the U.S. and in the rest of the world.

(d) Suppose that the U.S. had not imposed the immigration quota but instead rations access to the U.S. from rest of the world by charging an immigration tax of T per worker. Illustrate how large T would have to be to result in the same level if immigration from the rest of the world.

(e) True or False: Within the context of this example, country-specific immigration quotas are equivalent to country-specific immigration taxes.

B. Now consider labor demand and supply functions

for the rest of the world and

(a) Let A = C = 100,000, B = ˆ’1,000, D = 0, α = 0.002, and β = γ = δ = 0.001. What would be the equilibrium wage in the U.S. and in the rest of the world if they were isolated from one another?

(b)What would be the equilibrium wage if labor was fully and costless mobile? How high would immigration to the U.S. be?

(c) Suppose the U.S. governments set a 1,000,000 quota for immigration from the rest of the world. How will the equilibrium wage in the U.S. and the rest of the world be affected by this?

(d) How high would the U.S. have to set an immigration tax in order to achieve the same outcome?

Transcribed Image Text:

(w) = (A – w)la and l} (w) = (B + w)Iß.