Moving People or Jobs? A New Perspective on Immigration and International Outsourcing

We present a model that allows us to compare the effects that frictions involved in immigration and international outsourcing have on the skilled-unskilled wage inequality. We show that, for any given level of contractual friction in the production of intermediate goods, the wedge between the wages of the skilled and unskilled workers widens as the frictions in immigration wear out. The skilled-unskilled wage gap, for any given level of friction in immigration, is sensitive to variations in contractual frictions in intermediates that affect international outsourcing.