Migration, unemployment, and skill downgrading

In this paper, we analyze the labor market impacts of immigration under flexible and rigid labor market regimes. A general equilibrium framework is developed, accounting for skill heterogeneity and labor market frictions, where unemployed medium-skilled manufacturing workers are downgraded into low-skilled service jobs, while low-skilled service workers might end up unemployed. The analytical analysis shows that medium-skill immigration decreases low-skilled unemployment under the flexible regime, indicating a complementarity effect, while the rigid regime induces a substitution effect, leading to low-skilled unemployment. Moreover, it leads to wage polarization. In a numerical analysis, the economic effects of different migration scenarios are quantified.