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We analyze the impact of the U.S. skill-biased immigration influx that took place between 2000 and 2009 within a search and matching model that allows for skill heterogeneity, differential search cost, and capital-skill complementarity. We find that although the skill-biased immigration raised the overall net income to natives, it had distributional effects. Specifically, unskilled native workers gained in terms of both employment and wages. Skilled native workers, however, gained in terms of employment but lost in terms of wages. Nevertheless, in an extension where skilled natives and immigrants are imperfect substitutes, even the skilled wage rises.

We develop a model of the labor market with career and non-career jobs. Workers in career jobs start at the low rank and can be promoted to a higher rank. Non-career jobs have the typical single-rank structure. We show that it is optimal for career firms to incentivize their employees through the option value of a promotion. By increasing the wage spread between low and top positions they can elicit more effort from the mass of the workers in low ranks, while rewarding handsomely only the very few that get promoted. We explore the macroeconomic implications of this hierarchical payment structure. We show how our model can provide interesting insights into various puzzles such as the wage gap between men and women, the cyclicality of the labor wedge and the low volatility of the real wage relative to hours and output along the business cycle, without imposing ad-hoc nominal wage rigidities.

How do legal and illegal immigrants affect the fiscal balance and welfare of natives in the host country? To answer this question we develop a general equilibrium model with search frictions in the labor market that accounts for both the direct net contribution of immigrants to the fiscal balance and their indirect fiscal effects through their labor market impact. We calibrate the model to the US economy and find that legal immigrants increase native welfare, mainly due to their positive direct net contribution to the fiscal balance. On the other hand, illegal immigrants' positive welfare impact stems mainly from their positive effect on job creation, which helps improve the fiscal balance, but also increases income to natives and in turn consumption. A legalization program leads to a fiscal gain and increases native welfare and it is more beneficial to the host country's citizens than a purely restrictive immigration policy that reduces the illegal immigrant population.

We set up a search and matching model with a private and a public sector to understand the effects of employment and wage policies in the public sector on unemployment and education decisions. The effects of wages and employment of skilled and unskilled public-sector workers on the educational composition of the labor force depend crucially on the structure of the labor market. An increase of skilled public-sector wages has a small positive impact on educational composition and larger negative impact on the private employment of skilled workers, if the two sectors are segmented. If search across the two sectors is random, it has a large positive impact on education and a large positive impact on skilled private employment. We highlight the usefulness of the model for policymakers by calculating the value of public-sector job security for skilled and unskilled workers.

In this paper we analyze the economic effects of different immigration policies in a model capturing economic and institutional features crucial to understand the migrant flows into the US. We explicitly differentiate among the most relevant channels of immigration to the US: family-based, employment-based and undocumented. Moreover we explicitly account for earning incentives to migrate and for the role of immigrant networks in generating job-related and family-related immigration opportunities. Hence, we can analyze the effect of policy changes through those channels. We find that all types of immigrants generate larger surplus to US firms than natives do. Restricting their entry has a depressing effect on job creation and, in turn, on native labor markets. We also show that substituting family-based entry with employment-based entry, and maintaining the total inflow of immigrants unchanged, produces a stimulus to job creation and native earnings.

We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.

Working Paper No. 25074 In this paper we analyze the economic effects of changing immigration policies in a realistic institutional set-up, using a search model calibrated to the migrant flows between the US and the rest of the world. We explicitly differentiate among the most relevant channels of entry of immigrants to the US: family-based, employment-based and undocumented. Moreover we explicitly account for earning incentives to migrate and for the role of immigrant networks in generating job-related and family-related immigration opportunities. Hence, we can analyze the effect of policy changes in each channel, accounting for the response of immigrants in general equilibrium. We find that all types of immigrants generate higher surplus for US firms relative to natives, hence restricting their entry has a depressing effect on job creation and, in turn, on native labor markets. We also show that substituting a family-based entry with an employment-based entry system, and maintaining the total inflow of immigrants unchanged, job creation and natives' income increase.

We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public-sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.

We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as non-meritocratic hiring in the public sector, on unemployment, rent seeking and education decisions. Wages and employment of skilled and unskilled public-sector workers affect educational attainment; the extent of that effect depends on the structure of the labor market and how non-meritocratic public-sector hiring is. Conditional on inefficiently high public-sector wages, less-meritocratic hiring in the public sector lowers the unemployment rate and might raise welfare because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.

In this paper we analyze the economic effects of changing immigration policies in a realistic institutional set-up, using a search model calibrated to the migrant flows between the US and the rest of the world. We explicitly differentiate among the most relevant channels of entry of immigrants to the US: family-based, employment-based and undocumented. Moreover we explicitly account for earning incentives to migrate and for the role of immigrant networks in generating job-related and family-related immigration opportunities. Hence, we can analyze the effect of policy changes in each channel, accounting for the response of immigrants in general equilibrium. We find that all types of immigrants generate higher surplus for US firms relative to natives, hence restricting their entry has a depressing effect on job creation and, in turn, on native labor markets. We also show that substituting a family-based entry with an employment-based entry system, and maintaining the total inflow of immigrants unchanged, job creation and natives' income increase.