Unskilled immigration, technical progress, and wages-Role of the household sector

This paper revisits the relationship between unskilled immigration and skilled wage in the context of the BREXIT episode. Our simple general equilibrium model introduces a household sector, the inclusion of which shows that both return to capital and effective skilled wage may increase with a greater inflow of immigrants. This is a novel outcome in the theory of trade and factor flows. In addition, though technical progress in a skill-intensive sector raises wage inequality, it no longer displaces traditional jobs. Here, the usual negative impact of unskilled immigration on the traditional sector is mitigated by increased returns to the unskilled workers.