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A Capital Mistake-The Neglected Effect Of Immigration On Average Wages

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Executive Summary

Much recent literature on the wage effects of immigration assumes that the return to capital, and therefore the average wage, is unaffected in the long run. If immigration is modelled as a continuous flow rather than a one off shock, this result does not necessarily hold. A simple calibration with pre-crisis US immigration rates gives a reduction in average wages of 5%, larger than most estimates of its effect on relative wages. In recent years, there has been a vigorous debate over the impact of immigration on the US labour market, particularly regarding the wages of unskilled native workers.

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