In the past, there were few initiatives to facilitate the transfer of resources to assist low-income families. The poor had to rely on better off neighbours, family and welfare groups to fend for themselves economically. In modern times, it has become increasingly easier to identify new opportunities to improve their way of life; be it be in one's country of origin, or abroad. In countries where unemployment rates are high, and jobs scarce, immigration to economically stronger destinations has become a very attractive option especially for unskilled workers in pursuit for higher real wages and income abroad. This essay is going to address the short-term impacts on a country’s distribution of labour and long-term impacts on economic growth unskilled labour have on a country's economy.
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The following conclusions are based on several assumptions. Firstly, we are assuming that unskilled immigrants and natives are interchangeable. Secondly, we assume that for firms, the stock of capital is fixed. This means that immigration reduces the capital available to each worker. Finally, we are going to assume that unskilled labour is perfectly inelastic, meaning that they will work at any wage. It is highly certain that the addition of these new workers into the economy and hence restoration of equilibrium will involve short-term changes in wage and employment levels.
As immigrants enter the economy and increase the supply in the labour market, there will be an excess supply of unskilled employees. This would eventually lead to a decline in the going wage rate of unskilled workers and hence increase the demand for unskilled workers until all unskilled workers are employed at a wage rate lower than the pre-immigration wage rate. Unskilled native workers are the main losers consequently. On the other hand, high skill workers benefit due to a shortage of skilled workers needed to manage them, driving up their wages. While wages of unskilled workers fall, the wages of skilled workers rise. This thereby increases the inequality of wages amongst unskilled and skilled workers.
Immigration of unskilled workers may lead to unemployment of unskilled natives whose wages fall. Despite the negative short-term effects that unskilled immigration may bring, unskilled immigration can be beneficial to the economy in various ways.
Immigrants skilled or unskilled come at working age, they are likely to contribute to the economy as not just workers but consumers: purchasing goods and services and paying for accommodation, just like natives do, increasing the aggregate demand and total spending in the economy. For example, The Russell Group universities in the UK have commented that International Students outside of the EU is a major export industry bringing in £2.5bn a year in fees. This increased spending in the economy feed businesses with revenue and may, in turn, cause businesses to have a higher demand for labour in order to grow and expand their businesses. In the case of universities, international student fees benefit native students as universities gain more financial resources to facilitate better learning. Ceteris Peribus, constant immigration would lead to larger consumption and demand for labour which would lead to an increase in real GDP.
Unskilled immigration contributes to tax payments. Governments invest these additional tax revenues into things like transport facilities, health care, education and other activities that strengthen a country’s economy. Undocumented workers, many unskilled, have benefited the United States (US). The Social Security Administration in the US estimates that 3.4 million undocumented workers pay Social Security taxes. The agency also estimates that in 2010, unauthorized immigrants and their employers accrued for $13 billion in payroll taxes.
Cheaper unskilled labourers can fill labour demands in industries that a country’s population avoids such as the construction of food processing. In many first world countries, people stray away from low-paying unskilled jobs and seek higher-paying skilled jobs. For example, Singapore’s construction industry is predominantly filled with Bangladeshi and Chinese workers that get paid an average salary of $450 as compared to Singapore’s average monthly salary of $3077 SGD. Unskilled workers makeup roughly 70% of Singapore’s foreign workforce and fill demands for low skill jobs such as construction workers, domestic helpers, and cleaners. Unskilled immigration will benefit countries like Singapore where there is little native supply of unskilled workers.
Competition amongst immigrant unskilled workers and native unskilled workers may pressure native unskilled workers to upgrade their current skills as competition for the same jobs increases. This, therefore, benefits the natives as more skillsets increase their chances of working higher paying jobs that can improve their standard of living. Dependants of unskilled immigrant workers can benefit from the country’s education system and eventually contribute to the country's economy as a highly skilled worker. Many of which decide to open new innovative businesses that can boost a country’s economy. In the US, migrants from other countries found 30% of all business even though immigrants only make 14% of the population. In fact, more than 50% of US’s “Unicorn” were founded by immigrants along with 40% of fortune of Fortune 500 companies.