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Assume that a country experiences an influx of immigrants

Economics

Assume that a country experiences an influx of immigrants. Which of the following best describes the likely impact on that economy in the short-run? A.

There will be no effect on either wages or the returns to specific factors of production in the short-run.

 

B.

Wages for native workers will rise, and the returns to all specific factors of production will fall.

 

C.

Wages for native workers will fall, and the returns to all specific factors of production will rise.

 

D.

The effects for all factors of production are ambiguous.

 

  Assume that a country has two industries - guns and butter. Labor is used in both industries, but each industry uses a form of capital that is specific to it. What will happen to wages and the return on capital in the short-run if the butter industry receives an influx of foreign direct investment?

 

A.

Wages for workers will fall, the return on capital for guns will fall, and the return on (existing) capital for butter will fall.

 

B.

Wages for workers will rise, the return on capital for guns will fall, and the return on (existing) capital for butter will fall.

 

C.

Wages for workers will rise, the return on capital for guns will rise, and the return on (existing) capital for butter will rise.

 

D.

Wages for workers will fall, the return on capital for guns will rise, and the return on (existing) capital for butter will rise.

 

   Reexamine the economy described in the first question. What happens to wages and the return on capital in this economy in the long-run as a result of immigration?

 

A.

There will be no effect on either wages or the returns to specific factors of production in the long-run.

 

B.

The effects for all factors of production are ambiguous.

 

C.

Wages for native workers will fall, and the returns to all specific factors of production will rise.

 

D.

Wages for native workers will rise, and the returns to all specific factors of production will fall.

 

  Assume that a country has two industries - guns and butter. Guns are capital intensive and butter is labor intensive. What happens to the production of guns and butter in the long-run if the country experiences an influx of immigration?

 

A.

Production of guns will decrease and production of butter will increase.

 

B.

Production of guns will decrease and production of butter will decrease.

 

C.

Production of guns will increase and production of butter will increase.

 

D.

Production of guns will increase and production of butter will decrease.

 

 

    One of the difficulties of trying to quantify the effects of immigration (or foreign investment, for that matter) on wages is that causation can run in both directions. The economic theory discussed in this lesson tells us that immigration may have a negative effect on wages in the short-run. However, a country that has relatively high wages will also be likely to attract more immigrants. Therefore, a careless study might erroneously find that immigration could have a positive effect on wages by confusing cause and effect.

While there are fancy statistical techniques that economists can use to attempt to separate correlation from causation, another way to look at this problem is to find what are referred to as "natural experiments" - that is, economic events that have largely non-economic causes. A natural experiment that is often used in the study of the effect of immigration is the Mariel Boatlift of 1980.

The Castro government in Cuba had long forbidden Cubans from emigrating to the United States. However, due to political and economic unrest in Cuba, the policy suddenly changed in April 1980, and Cubans who wished to leave the country were allowed to migrate. Over the next seven months, approximately 125,000 Cubans sailed from Cuba (primarily from the port of Mariel) to South Florida, with most of them settling in the Miami area due to the pre-existing Cuban community there.

The overall population of the Miami area increased by 7% -- and the size of the area's Cuban population increased by 20% -- in the span of a few months. Concerns were raised at the time about the effect of the sudden migration of (primarily low-skilled) workers on Miami's labor market.

As a result of the Mariel Boatlift, we would expect the wages of native workers in the Miami area to __________ in the short-run. [Expected answers: "increase", "decrease", or "stay the same"]

 

 

   What will happen to the real return on capital in Miami in the short-run due to the influx of immigrants? [Expected answers: "increase", "decrease", or "stay the same"]

 

  Assume that Miami has two industries -- a capital-intensive industry and a labor-intensive industry. In the short-run, the influx of immigration causes production in the capital-intensive industry-------------- to  and production in the labor-intensive industry to------------ . (Expected answers: "increase", "decrease", or "stay the same")

 

    In the event, the influx of labor into Miami due to the Mariel boatlift did not have a major effect on wages in the Miami area. While the wages of lower-skilled workers in Miami experienced a relative decline during the rest of the 1980s, this change was not significantly different than that experienced by lower-skilled workers in other urban areas in the U.S. during the same time period.

At first glance, the fact that wages for lower-skilled workers did not significantly fall despite a significant increase in the supply of lower-skilled labor would appear to violate the law of supply and demand. How can these seemingly contradictory observations be reconciled?

 

 

  Draw and take a picture of a box diagram for an economy that has two industries - a labor intensive industry called Industry A, and a capital intensive industry called industry B. Assume that a country uses all of its capital and labor between the two industries.

 

 Use your box diagram from the previous question. Show what happens when the labor supply increases.

 

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