Labour movement across countries is an important feature of globalization. The native-born workers in the host countries, however, have concerns that the immigrants will compete with them for jobs in the labour market. Policy makers are divided on immigration, with some arguing that immigrants can make a significant positive contribution to the economy. You are required to write a report that provides an economic analysis of the impact of immigrants and makes policy recommendations to the Australian government. Your report should address the following questions: 1. Using a simple specific-factors model, illustrate how immigrants affect wages of native-born workers. Assume native-born workers are identical; immigrants are identical to native-born workers (e.g. they are substitutes for native-born workers). [14 marks] a) Clearly specify the assumptions in your specific-factors model. b) Draw a diagram to present a graphic analysis of the model. c) Explain how the wages of native-born workers change with an inflow of immigrants. 2. Repeat the steps b) and c) in Question 1 above. Now assume native-born workers are identical; immigrants are complements for native-born workers. 3. In real world, did wages of native-born workers change as predicted by your models above? Answer this question by drawing on existing economic studies of the US, EU, and Australia, respectively.

4. What immigration policies would you recommend to the Australian government? [6 marks]