Impact of vanishing immigrants on wages

Assignment Help Macroeconomics

Reference no: EM1314459

For an unknown reason, aliens kidnapped all immigrants residing in the US. One morning America wakes up and finds that the only people left in the country are American citizens, while all legal and illegal immigrants are gone.

You are invited to join an Expert Panel and share your vision of the likely consequences and advice the Government on its future immigration policies. Specifically, you are asked to forecast the changes in each of the following areas and explain the reasons/mechanisms for the changes.

1. Employment level (percent employed): with immigrants gone, will employment rate among US citizens drop or increase and why? Hints: consider not only supply of, but also demand for labor; complementation/substitution is also relevant; it may be helpful to come back to this question after you have answered questions 2 and 3.

2. Wages: will be US citizen make more or less and why?

3. Prices: how will prices change and why? Hint: think about supply of and demand for products and services, production cost.

4. Wealth (consumption): will US citizens become richer (will be able to afford/consume more) and why? Hint: consider changes in employment, wages, and prices

5. Net effects on the federal and local budgets (ratio of tax loses to gains due to lower expenses): While (some) immigrants contribute to federal and municipal budgets by paying taxes, immigration is also associated with certain expenses (schooling for immigrants\' kids, various services, in some cases cost of dealing with criminal activities, etc). With immigrants gone, will federal and local budgets be better off and why?

6. America\'s competitive advantage: with immigrants gone, will the US be more competitive in the global arena and why?

7. With immigrants gone, the Department of Homeland Security now has an opportunity to start from the new page and is developing new immigration policies for the years to come. What advice would you give and why? (E.g., increase/decrease immigration compared to the levels observed in the past decade; what groups of immigrants should be given a priority; other suggestions for maximizing economic feasibility of immigration). Hint: think adaptability, substitution, complementarily, capital.

For each question, you need to specify the expected overall trend (increase/decrease/no change) and describe the underlying mechanism (why and how the change is likely to occur, or why there will be no change). Hint: Good answers are those that consider both the likely positive and negative consequences, explain the underlying mechanisms for each of the opposing trends, and come to the overall conclusion based on the comparison of the relative strength of each effect.

Contingencies: If you believe that different industries, professions (e.g., blue collar vs. white collar), immigrant groups (e.g., legal/illegal, skill level, family ties), regions (specific states, rural vs. urban, etc) will be affected differently or the short-run vs. long-run effects will differ, you may provide additional explanations and provide examples of where the change will be most/least pronounced. Hint: Good answers are the ones that consider at least some of the contingencies.

Recommendation: it may be helpful to review some basic immigration statistics first (ratio of illegal to legal immigrants in the US, income and employment level among immigrants, etc).

To make it easier in working with experts\' reports, you are asked to use a standardized template provided on the next page for your answers.

PS. Check the direction of your suggested trends. Remember, you are describing what would happen if immigrants disappeared, not if more came in. You are not talking about effects of (more) immigration, but about the opposite.

Effects of Immigration

Wages: Trend: Mechanism:

Reference no: EM1314459

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