The Welfare State and the Skill Mix of Migration: Dynamic Policy Formation

The native-born young, whether skilled or unskilled, benefit from letting in migrants of all skill types, because their high birth rates can help increase the tax base in the next period. In this respect, skilled migrants help the welfare state more than unskilled migrants, to the extent that the offspring resemble their parents with respect to skill. On the other hand, more migrants in the present will strengthen the political power of the young in the next period who, relatively to the old, are less keen on the generosity of the welfare state. In this respect, unskilled migrants pose less of a threat to the generosity of the welfare state then skilled migrants.