Winners and Losers of Immigration

We study the short-term effect of low-skill immigration in a general equilibrium search and matching model. We add the price channel to the standard complementarity/substitution channel (i.e., how immigration affects the relative prices of goods, wages, and profits). An application to Italy reveals a positive contribution of immigrants to gross domestic product, public revenues, and public goods and a relatively large immigration surplus. Winners are employers and employees in the high-skill-intensive market. In the low-skill-intensive market, employers face higher aggregate profits but lower profits per employee; employees experience a wage drop, which is fully compensated by the increased provision of public goods. Whether these effects persist in the long run remains an open question.