Labour demand with heterogeneous workers: Migrations and unemployment

This paper provides a unified theory of the labour market in which the workforce is assumed to be heterogeneous. In the model, workers may be skilled or unskilled, natives or migrants, employed or unemployed. Each worker is characterised by a different productivity level and effort aversion. Moreover, the social costs of migrant integration and the costs of unemployment are also accounted for. The model derives the equilibrium wages and the demand for labour for all types of workers. It is then used to analyse the effects of different migration and unemployment policies. Should the government introduce quotas on the flows of skilled and/or unskilled migrant labour? How should the government subsidise the re-training of unemployed unskilled native workers? Are social goals consistent with private ones?