Welfare Analysis of International Factor Movement

Assumptions Labor moves from China to U.S. After the immigration, some extra workers go to the China labor market. After the immigration, some extra workers exit the US labor market due to the declining market wages. After the immigration, some extra workers go to the China labor market.

W 5 4 c d 2 e 1 a b L L

Welfare Analysis US case: Consumer’s loss= c Producer’s gain=c+d Net gain=d Welfare improves!

Welfare Analysis China case: Consumer’s gain= a+(b+e) if immigrations are temporary. Producer’s loss =a+b Net gain=e Welfare improves! Worldwide welfare improves=d+e

Welfare Analysis-II China case II: Consumer’s gain= a if immigrations are permanent. Producer’s loss =a+b Net gain= -b Welfare loss in China! But US welfare gains a lot=d+(b+e) Worldwide welfare improves=d+e Free immigration fosters welfare improvement