Immigration, skill acquisition, and fiscal redistribution in a search equilibrium model

Abstract

Abstract As recent immigration flows are reshaping the host countries workforce composition, this paper aims to assess whether age composition and skill adjustment dynamics play a relevant role in the welfare impact of immigration. To this end, we build and simulate a search and matching model that allows for endogenous natives’ skill acquisition and intergenerational transfers to analyze the welfare effects of immigration on a selected group of 19 OECD countries. The obtained results are then compared with those obtained under different assumptions on age composition and skill adjustment dynamics. Our comparative statics analysis shows that stronger job creation effects take place when natives adjust their skill in response to immigration. Moreover, taking into account age composition plays a key role in assessing the fiscal impact of immigration, which turns out to be positive when we include intergenerational transfers to retirees and immigration is high-skilled. Finally, we find that our model yields more optimistic welfare effects than standard search models that abstract from skill decision and intergenerational redistribution.