Question

Suppose the United States enacts legislation granting all workers, including newly arrived immigrants, a minimum income floor of y dollars. (Assume there is positive selection of migrants from the home country to the United States.)
a. Generalize the Roy model to show how this type of welfare program influences the incentive to migrate to the United States. Ignore any issues regarding how the welfare program is funded.
b. Does this welfare program change the selection of the immigrant flow? In particular, are immigrants more likely to be negatively selected than in the absence of a welfare program?
c. Which types of workers, the highly skilled or the less skilled, are most likely to be attracted by the welfare program?

Answer 1

A. The introduction of a wage floor in the United States (aty) shifts the U.S. earnings-skill relationship from the straight line (U.S.) to the bold line (kinked) drawn in the figure below. The welfare program does not affect the incentives of foreigners with high or even moderate skills.However, it does affect the incentives of those with the least skills as they earn very little in the home country and now can come to the United States and benefit from the welfare benefit

B. As drawn above, before the welfare program was enacted there was only positive selection interms of immigration to the United States.With the welfare benefit in place, though, foreigners with skills belows L now also find it profitable to migrate.Thus, the selection of immigrants becomes more negative.In fact, it is a bimodal distribution – foreigners with the highest skills continue to migrate and now those with the lowest skills also choose to migrate.

c. As the returns to skills are higher in the United States, there are two sets of workers who find it profitable to move: those who have very high skill levels (aboves H) as well as those workers who have very low skill levels (belows L). The welfare program, therefore, acts as a welfare magnet for workers originating in countries that generate “brain drains”, but not in countries where unskilled workers have incentives to migrate even in the absence of wage floors.