In this paper, I analyse the consequences of immigration and protection for the host country when there is discrimination against immigrants in a dual labour market. Discrimination is of the type “equal pay for equal work, but unequal work”, and is caused by the employers’ preference for native workers, due to legal regulations or to the higher quit rates of immigrants. In that case, immigration enhances the natives’ chances of finding a good job and produces therefore an aggregate gain for natives. However, this gain should be put into balance with the increase in inequality that results from immigration of unskilled workers. Protection of sectors that use unskilled labour intensively has the opposite effects. These issues are discussed in the context of a small open economy, using an efficiency-wage model of the dual labour market. A simulation model for Switzerland is used to assess the impact of immigration and protection on the social welfare of natives, taking income distribution into account