Immigration and wage inequality (skill premium) in developed host countries.

What is it about?

We evaluate how immigration of high-skilled workers affects the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries. Our results add some interesting conclusions to the existing literature relating wage inequality and immigration. Given the observed skill composition of immigration flows in the European countries, the latter seem to make a large positive contribution to the rise of wage inequality in the host countries in favour of high-skilled workers. It is interesting to note that this result arises not due to the reduction of low-skilled wages but due to an increase in both high- and low-skilled wages in the context of technological change biased towards high-skilled workers.

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