Browsing by Author "Leväsaari, Antti"

In the standard model of competitive labor markets, an influx of immigrants increases the labor market prospects of native workers whose labor is complementary to the immigrants' labor and decreases that of those native workers whose labor is substitutable with immigants' labor. The standard model cannot, however, explain how vacancies and unemployment exist at the same time, or allow the job creation to respond to the arrival of new workforce. This master's thesis studies the effects of immigration on the wages, employment and welfare of native workers when firms and workers have to spend resources to find a suitable job match. In this environment, search frictions produce unemployment and the job creation is allowed to respond to an influx of immigrants. Matching model with three different settings is used to study these effects. In the first one immigration is introduced to a two-country matching model to see how an influx of immigration affects wages, unemployment rate and welfare of natives through probabilities of finding a job and finding a worker for an open vacancy. By Pareto ranking the three equilibria the model produces it is shown that immigration is beneficial to all parties involved. The second setting is a one-country model with two sectors and examines how an influx of immigrants to one of the sectors affects natives' welfare in that sector. The effect is ambiguous and comprises of an impact through matching probabilities and an impact though relative prices. Finally, the impact of low-skilled immigration on both high-skilled and low-skilled native workers is studied. It will be shown that an influx of low-skilled immigrants has a positive impact on the wages and employment rate of high-skilled natives but an ambiguous impact on those of low-skilled natives. When the education choice is endogenized, however, more natives decide to acquire education and the overall effect is positive. While these results do not perfectly fit the empirical findings on the subject, they offer one mechanism to understand the behavior of labor markets with immigration, and help to understand the empirical results that contradict the predictions by the standard model.