Javier Vázquez Grenno

Immigration in a Segmented Labor Market: The Effects on Welfare

Using an overlapping generations model with pension system and unemployment insurance, this paper analyses the effect of low skilled immigration (regular and irregular) shock on the well-being of the native people. We show that low skilled immigration benefits the pensioners of the initial period and skilled native workers and damages the low skilled ones. These results are obtained in presence of two labor inputs in the production function and under both full employment and unemployment frameworks. In addition, we show that the unskilled immigration decreases the pension and unemployment benefits and increases the unemployment rate. Furthermore, the composition of immigration, between regular and irregular, does not affect the unemployment rate nor the economy in the long run. However, during the transition, the effects of immigration are greater whichever greater is the proportion of irregular immigrants.