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Figure 4.1 Effects of an influx of immigrants on a simple model of the labor market. tors, and a reduction in the income of substitute factors. Since immigrants to the United States are disproportionately low-skilled workers, people usually think of the substitute input as unskilled labor and the complementary input as capital or skilled labor. But large influxes of immigration in some highly skilled workers, such as mathematicians and nurses, imply that some highly skilled natives will also see their wages or job opportunities worsen with immigration while capital or less skilled labor gains. To sum up, immigration makes national output go up, some domestic workers suffer, and other workers benefit. Although it clearly begets winners and losers, can we make an overall statement that the winners win more than the losers lose, so that in the aggregate native-born Americans are better off? With plausible assumptions about factor supply and returns to scale, we show that immigration produces net economic gains for the native-born. To understand this perhaps surprising result, we use a simple diagram (Figure 4.1). In the simple world portrayed by this diagram, we have two types of domestic workers: those who are perfect substitutes for immigrants (unskilled labor) and those who are complements (skilled labor).4 Only one good is produced (GDP), and the numbers of unskilled and skilled domestic workers are fixed. Figure 4.1 plots the demand curve (CF) for domestic unskilled workers. Before immigration, there are S domestic unskilled workers, who are all paid
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