"Implications of the quantity (number) and quality (skill) of immigration on the destination economy are analyzed, including impacts on value added, wages, quasi rents, rates of return, and the skill distribution of the native labor force. Quantity-quality trade-offs are considered for both immigrant and native workers. Medium- and long-run labor-supply responses by natives to immigrant-induced changes in wage rates are shown to have second-order effects which subtantively affect the impacts of immigrants. The impact of immigration policy depends on the quality as well as quantity of immigrants, the time horizon, and the speed of factor market adjustment."

Because the relative quantities and prices of blue- and white-collar labor have changed dramatically over time, aggregation into a single factor of production distorts estimates of the substitutability between capital and labor. This distortion is a function of growth rates of human and nonhuman capital and the rate of shift of the labor force from blue- to white-collar occupations. Conventional methods of adjusting for labor quality may actually increase the problem. Previous estimates of unity or less for the elasticity of substitution between capital and aggregate labor are shown to be consistent with a production function with a constant elasticity of substitution of about 2.5.

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