Luthando Mzilikazi Eco335 Essay

Topics: Economics, Immigration, Policy Pages: 10 (2372 words) Published: April 19, 2015

Table of Contents

1. Introduction2

2. The analytical framework: The Rybczynski theorem2

3. The application of the Rybczynski theorem: Zimbabwean immigration in South Africa3 3.1 Impact on production3
3.2 Impact on wage4

4. Emergent winners and losers from tightened immigration policy5 4.1 The winners resulting from the policy amendment5
4.2 The losers resulting from the policy amendment5

5. Concluding remarks6

6. Reference List7

7. Plagiarism declaration9

8. Turnitin Results10

1. Introduction
The recent xenophobic attacks in South Africa (SA) has raised questions concerning the potential welfare loss experienced by a host country as labour immigration increases. The most concerning welfare loss is that of increased SA labour unemployment and decreased wages for low skilled workers which is mainly attributed to increased high skilled immigrants (Consultancy Africa Intelligence, 2013). This essay aims to use the Rybczynski theory as the analytical framework to examine the change in production composition and wage variation in SA that can be attributed to immigration patterns. This essay is structured as follows; section two discusses the Rybczynski theory and its assumptions. Then, section three provides an application of the Rybczynski theory in the case of South Africa. This is followed by section four which covers a discussion on the winners and losers as a result of the tightened immigration laws in South Africa. Lastly, section five offers a conclusion to this essay. 2. The analytical framework: The Rybczynski theorem

The Rybczynski theory states that where there are two factors of production producing two different final goods at constant final prices, increased supply of a factor of production will increase the production of the good that uses this factor intensively. Thus, the production of the other good decreases provided production is in equilibrium (Rybczynski, 1955). The scholar refined his restrictions to a 2x2x2 model where trade is between two nations, producing two goods, using two different factor endowments for each good. In the case of SA, the two nations are SA and Zimbabwe where labour mobility is permitted between industries. Moreover, the two goods being produced will be referred to as primary sector production which intensively utilises low-skilled labour; and tertiary sector production, which intensively utilises high skilled labour. It is assumed that both sectors operate in a perfectly competitive market and exhibit constant returns to scale, where technology and demand structures are the same for both countries. The proposition of the Rybczynski theory is based on a factor constraint model as shown in figure 1. Figure 1: The change in production due to a change in factor endowment

Source: Rybczynski, 1955

The figure demonstrates labour as an input intensively used in the production of clothing and capital intensively used for manufactures, where an increase in the supply of labour is represented by outward shift of labour Production Possibility Frontier (PPF) from PPF1 to PPF2. Therefore, equilibrium has moved from point A to Point B where production of clothing (Qc) has increased from C1 to C2 and subsequently, production of manufactures (Qs) has decreased from S1 to S2. This is the Rybczynski model that will be used as the framework to analyse the impact of immigration on the composition of production and wage variation In SA. 3. The application of the Rybczynski theorem: Zimbabwean immigration in South Africa A large percentage (74 per cent) of the 13682 African immigrants in SA between 1990 and 1998 were holders of a ‘diploma or a degree’. Conversely, no African immigrant held a qualification ‘less than high’ school as depicted by figure 2 offered by Crush & Richmond (2000:13). Thus, for the simplicity of this essay, we will refer to the African immigrants as high skilled Zimbabwean immigrants. Figure 2: Highest...
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