Unemployment Insurance, Immigrants' Skills, and Native Earnings

Abstract

This paper investigates the effect of immigration on native earnings in the presence of unemployment and various social insurance policies. If immigration decreases the economy-wide skill ratio and the welfare state is actuarially fair, total native earnings increase under the constant-replacement-ratio policy, while they decrease under both the constant-benefit and the constant-average-income policy. If, however, immigrants improve the economy-wide skill ratio, natives as a whole gain unambiguously, but most under a constant benefit. The ranking between social policies is robust with respect to general taxation, but can reverse when native educational choices are endogenous.