Prejudice and Immigration

We study immigration policy in a small open receiving economy under self-selection of migrants. We show that the immigration policy choice affects and is affected by the migratory decisions of skilled and unskilled foreign workers. From this interaction multiple equilibria may arise, which are driven by the natives' expectations on the size and skill composition of the incoming migrant population (and, hence, on the welfare effects of immigration). In particular, pessimistic (optimistic) beliefs induce a country to impose higher (lower) barriers to immigration, which crowd out (crowd in) skilled migrants and thus confirm initial beliefs. This self-fulfilling mechanism sustains the endogenous formation of an anti or pro-immigration "prejudice".