Migration, Unemployment and Discrimination

This paper uses a dynamic efficiency-wage model to analyze the consequences of immigration for a small country when there is discrimination against immigrants in a dual labor market with unemployment. Discrimination is of the type "equal pay for equal work, but unequal work" which is characteristic of economies with "guest-worker" systems. The model exhibits three regimes for rising immigration levels. Immigration is most beneficial for natives in the intermediate regime. An analysis of regime switches shows that changes attributable to "globalization" and technical progress are consistent with growing opposition to immigration.