The Impact of Relaxing Migrant Labor Restrictions on Wages, Productivity, and Welfare in the Host Country

This paper examines how immigration restrictions affect wages, productivity, and welfare in a host country. I develop a North-South model with firm heterogeneity, international migration, and vertical production specialization. Analytically, I show that the effects of relaxing immigration restrictions are ambiguous and depend on the size of the world economy and ex-ante level of wages. Numerical results indicate that while relaxing restrictions reduces wages, it promotes industry upgrading and increases welfare, with these effects strengthening as the host country becomes larger. Focusing solely on wages can therefore be misleading, as it overlooks industry-upgrading and welfare gains arising through firm-level reallocation.