Chapter 14: Problem 11

If immigration is reduced, what is the impact on the wage for low-skilled labor? Explain.

Short Answer

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In summary, reducing immigration leads to a decrease in the supply of low-skilled labor, which, according to the laws of supply and demand, results in increased wages for low-skilled workers as employers compete for the limited available workforce. However, the extent of the wage increase may be limited by factors like technology substituting low-skilled labor and potential negative effects on business profitability due to higher production costs.

Step by step solution

Understand the labor market for low-skilled workers

Before analyzing the impact of reduced immigration on wages, it's essential to understand the labor market for low-skilled workers. In the labor market, the demand for labor (by employers) intersects with the supply of labor (by workers). The point where these two forces meet determines the equilibrium wage and employment level.

Define the impact of immigration on the supply of labor

Immigration increases the supply of labor in a country. In the context of low-skilled labor, immigrants are typically more willing to accept lower wages than native workers, which leads to an increased labor supply. In some cases, employers may also prefer hiring immigrants because they are perceived to be more flexible, and they have fewer job alternatives than native workers.

Analyzing the impact of reduced immigration on low-skilled labor wages

When immigration is reduced, the supply of low-skilled labor decreases. As a result of this decreased labor supply, employers have to compete for the limited number of available low-skilled workers. According to the laws of supply and demand, when the supply of a good (in this case, low-skilled labor) decreases, its price (wages) must increase to reach a new equilibrium point in the labor market.

Explaining possible limitations to the wage increase

While a reduction in immigration is likely to increase wages for low-skilled workers, some factors could potentially limit this wage growth. For example, if employers can easily substitute low-skilled labor with technology, the demand for low-skilled workers may not be as high, leading to a smaller increase in wages. Additionally, if low-skilled labor is an important input for producing goods and services, increased wages might lead to higher production costs and lower business profitability, which could limit the overall wage increase.

Summarize the explanation of reduced immigration's impact on low-skilled labor wages

In summary, when immigration is reduced, the supply of low-skilled labor decreases, leading to an increase in wages for low-skilled workers as employers compete for the limited workforce. However, the extent of this wage increase may be limited by factors such as the ability of employers to substitute labor with technology and potential negative effects on business profitability due to higher production costs.