"Immigration, Search and Redistribution: A Quantitative Assessment of Native Welfare:” Comment

In “Immigration, search and redistribution: A quantitative assessment of native welfare,” a paper by Battisti et al. published in the August 2018 issue of the Journal of the European Economic Association, the authors inquire about how migration to 20 Organization for Economic Cooperation and Development (OECD) countries affect the welfare of the countries’ native workers. In this comment, we raise several concerns regarding the analytical and the empirical parts of the Battisti et al.’s inquiry that bear on this effect. In particular, when Battisti et al. formulate a rule for the division between a worker and a firm of the surplus that arises from a firm-worker match, Battisti et al. neglect to take into account the fact that wages are taxed. When Battisti et al. formulate the GDP identity, the incorporation of capital is done incorrectly. These issues affect measurably the empirical results regarding the impacts on the welfare of native workers of skill-neutral migration and of migration by low- skill workers. Battisti et al. state that “[n]atives in most countries benefit from a marginal [skill-neutral] increase in the immigrant share of the labor force” (p. 1162) and that “[a]n additional inflow of low-skilled immigrants tends to hurt low-skilled natives and benefit high- skilled natives” (p. 1163). Calibration of a corrected model undertaken in this comment yields different results: we find that in the majority of the 20 OECD countries, skill-neutral migration and low-skill migration are harmful to native workers (high-skill and low-skill alike). An additional concern is that our calibration of a corrected model yields estimates of the tax rate on workers’ wages that are far too high to be considered feasible. This suggests to us that even when the model of Battisti et al. is corrected, a structural revision is deemed necessary in order to deliver a useful tool for measuring the effect of migration on the welfare of native workers in the 20 OECD countries. As a step in this direction, we calibrate a version of the corrected model, which involves “reasonable” tax rates on wages and a budget deficit. The results yielded by this counterfactual version lend support to the results of the corrected model regarding the negative impact of skill-neutral migration and of migration by low-skill workers on the welfare of native workers. (JEL: F22; I31; J64)

Keywords: Migration to OECD countries; Welfare of native workers; Unemployment in a migration-destination country; Sharing rule of firm-worker match surplus when wages are taxed; GDP identity; Recalibration of labor market model; Skill-neutral migration; Migration by low-skill workers