The migration model and the theory of wages

ECONFIX

The new prime minister Chris Hipkins stated that he wanted to make it easier for workers to come to New Zealand especially helping those sectors experiencing significant labour shortages but didn’t want to loosen immigration settings too much.

In economic theory the impact of migration we can assume that the supply of labour will shift to the right. This increase in labour supply makes labour less scarce and therefore leads to a reduction in wages. The lower wage means the level of domestic (local workers) employed is reduced. The blue area represents what local workers receive in pay whilst the green area is the immigrant wages. This will cause a transfer of surplus from domestic employees to employers – wage loss to labour but a gain to the employer. There is also a net increase in surplus from that before immigration called ‘Immigration surplus’ – see graph. However does this…

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