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List of Discussion Paper Series
- No.2004-03 (Apr. 2004)
First draft: No.2003-03 (Nov. 2003) - Foreign Worker Participation in Labor Markets and Its Effects on the Economy's Welfare
- Akira SHIMADA (Associate Professor, Faculty of Economics, Nagasaki University)
- Abstract:
- Using a small open economic model with dual labor markets, we investigate how changes in foreign workers’ accessibility to labor markets affect the economy’s welfare. We assume that only a part of the foreign workers can enter the labor markets due to impediments to foreign worker participation in labor markets. In actual economies, foreign workers cannot participate in the labor markets as freely as native workers. We assume two cases, one in which the union and the policy authority behave non-cooperatively, and another in which they behave cooperatively. We show that the economy’s welfare, i.e., the sum of the union’s and policy authority’s utilities, increases in both cases, as more unskilled foreign workers enter the secondary labor market, while the economy’s welfare does not always increase as more skilled foreign workers enter the primary labor market. This is because, in the case of cooperation, it is possible that the decreases in the union’s utility are larger than the increases in the policy authority’s utility. Our results imply that if we want to increase the economy’s welfare by increasing unskilled foreign worker participation in the secondary labor market, we have to eliminate the discriminations that prevent their participation in this labor market. We also have to implement policies that mitigate the decreases in the union’s utility caused by the increases in union membership of skilled foreign workers, in order to encourage their employment.
- Keywords:
- International migration of labor; Dual labor markets; Small open economic model
- JEL Classification:
- F41, F22, J42