Is the skills mismatch important under skill-biased technological change and imperfect substitutability between immigrants and natives?

• Published in: Economic modelling Vol. 84; pp. 38 - 54
• Main Authors: Gil, Pedro Mazeda, Gabriel, Susana, Afonso, Oscar
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-01-2020
• Subjects: Endogenous growth; Immigration; Imperfect substitutability; Skills mismatch; Technological-knowledge bias; Wage (skill) premium; O14; O47; Endogenous growth; Imperfect substitutability; F22; Immigration; Skills mismatch; Wage (skill) premium; O31; Technological-knowledge bias; O33
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2019.03.006

This paper contributes to the debate on the benefits and costs of immigration, by evaluating how the mismatch between educational attainment and occupations induced by immigration affects output per worker, the wage premium, and the economy's technological level in OECD host countries. To that end, we use an R&D growth model in which technological knowledge can be directed to either low- or high-skilled labour and thereby drives the dynamics of the key economic variables. There tends to be a significant economic impact of the skills mismatch due to immigration, which amplifies the effects of the mismatch in the native population. Nevertheless, countries with a higher contribution of immigration to the skills mismatch are not necessarily those with the higher contribution in terms of economic effects. Moreover, the size and sign of the latter may vary depending on the assessed economic indicator and from country to country. Cross-country differences regarding the initial level of the high-to low-skilled ratio and the size of its shift due to immigration play a crucial role.
•We analyse the economic impact of immigration of high-versus low-skilled workers.•An R&D-driven growth model of directed technical change is simulated.•A price-channel effect interacts with a technological-knowledge-absorption effect.•If immigrants do not occupy jobs aligned with their education, crucial economic effects arise.•The size and sign of the effects vary with the economic indicator and across countries.