Foreign worker participation in labor markets and the economy's welfare

Using a small open economic model with dual labor markets, we investigate how changes in foreign workers' accessibility to labor markets affect the economy's welfare, i.e., the sum of the union's and policy authority's utilities. We assume that only a part of foreign workers can participate in labor markets due to impediments. We show that the economy's welfare increases as more unskilled foreign workers enter the secondary labor market in both cases of non-cooperation and cooperation between the union and the policy authority, while it does not always increase as more skilled foreign workers enter the primary labor market. (c) 2005 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.