The Dynamic Effects of Changes to Japanese Immigration Policy

This paper constructs a single-sector dynamic stochastic general equilibrium (DSGE) model for a trading economy. We are able to examine the effects on output, consumption, factor prices, and utility. We do this for both steady states and for transition paths. By including macroeconomic shocks, we are able to calculate confidence bands around our policy impulse response functions. We find that while the effects of immigration are likely to be observable in aggregate data, the welfare effects on households of all types is small relative to the natural fluctuations in utility coming from economic fluctuations at business cycle frequencies. The effects are also small relative to the upward trend in utility due to technical progress. We find that household utility rises most for immigration policies that favor skilled immigrants, though different types of domestic households will favor slightly different policies.