Ethics and Economics

Lukas Trumpf

ECON 39002

Professor Hafer

30 November 2017

Immigration and its Effects

Today there are big debates whether immigration should be allowed or prohibited. The US recently had a lot of debates regarding Mexicans immigrants, whereas Europe had the same debates about refugees from the middle east and north Africa. During these debates economists argued about the advantages as well as the disadvantages of immigration. The following paper will give an economic analysis regarding about immigration, whether it is bad or good.

        It is often claimed that immigrants harm the economy of the country. The simple economic approach would be done by looking at a supply and demand diagram. Graph 1 is representing the quantity of labor (X) and the wage level (Y). Due to an increase in Labor supply, the LS (Labor Supply) curve shifts to the right, while the LD (Labor Demand) curve remains in its position. The equilibrium can be found in the new intersection of LS and LD, with a lower wage level and a higher quantity of labor. Also important to note is the the increase in LS is much larger than the increase in the quantity of labor, which measn that there are more people without a job than before. The problem with this diagram is that it does not take into consideration that markets are dynamic, therefore it only represents the short-run.

        In the long-run, an increase in LS also increase the demand for goods and services, which automatically increases the markets demand for labor. Graph 2 shows how the market allocation actually takes place in the case of immigration. It can be said that not only the LS curve shifts to the right, due to the increase in the labor supply, but also the LD curve, due to the increase of demand for goods. The new equilibrium can be found at the same wage level and a higher quantity of labor.

        Anyway, there is still a factor from immigration that harms economies. Often immigrants send some of their income home to take care of their family, which is still in the country of origin. In the case of US and Mexico, it is unknown how much of this money actually finds its way back to the US by purchasing goods or services in Mexico, that are an export product of the US. Even though immigrants are a reason money is leaving the economy, they are also a reason why money is coming into the economy.

        Another very important factor is a principle established by Adam Smith in 1776. A growing economy (increase in LS and LD) leads to a faster real wage growth, due to the increase in productivity (XXX). SO even if there are only low skilled workers migrating into another country, the country might still benefit from the additional workers and the additional demand that comes along. There is only one problem, what if the immigrants are unable to find jobs because they are not skilled at all? This is what is happening in the EU right now. The immigrants from the middle east and north Africa are not speaking the language and are not skilled, therefore they do not benefit the economy by increasing LD and not increasing LS at the same time. In the short-run they are harming the economy. In the long-run however, it can be said that most of the immigrants might learn the language and find work so that in the end they are able to increase the productivity as shown in Graph 2.