Immigration, Labor Heterogeneity and Skill Formation with Unionization of a Host Country

We set up a theoretical model to investigate the impact of immigration under unionization in a two-sector economy that consists of unskilled labor and skilled labor. The effect of immigration on wages and skill formation as well as welfare is studied. We show that skilled immigration increases wage inequality of the two types of labor, unskilled immigration encourages skill formation, whereas skilled immigration discourages skill formation. We find that skilled immigration benefits the host country.