RESEARCH PAPER NO. 853

ARE FOREIGN WORKERS RESPONSIBLE FOR THE INCREASING UNEMPLOYMENT RATE IN TAIWAN?

BY

HSIAO-CHUAN CHANG

AUGUST 2002

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

This paper investigates the current important issue in Taiwan that the impact of foreign workers on the rising unemployment by a dynamic intertemporal general equilibrium model.

The results show that the introduction of foreign workers plays a complementary role and reduces unemployment rate at the early stage, defined as the first period after the shock.  However, over time, the importation of foreign workers robs jobs from local unskilled labor and lifts the unemployment rate.  In contrast to existing literature, this paper supports the view that immigration increases the unemployment rate for nationals in the long run.

An appropriate policy regarding foreign workers for a small open economy like Taiwan needs to consider the state of the global economy. By considering the current ambiguity of world economic recovery and the high unemployment rate, a cautious policy for the Council of Labor Affairs to adopt is to maintain the current level of imported foreign workers.

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