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Local, open economies within the U.S.: how do industries respond to immigration?

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Ethan Lewis
Abstract

A series of studies has found that relative wages and employment rates in different local labor markets of the US are surprisingly unaffected by local factor supplies. This paper evaluates two explanations for this puzzling empirical fact: (1) Interregional trade mitigates the local impact of supply shocks. (2) Production technology rapidly adapts to the local mix of workers. The author tests these alternative explanations by estimating the effect of increases in relative supplies of particular skill groups on the relative growth rates of different industries and on the relative utilization of these skill groups within industries. Labor supply shocks are identified with a component of foreign immigration driven by the historical regional settlement patterns of immigrants from different countries. Using establishment-level output and capital stock data from the Longitudinal Research Database, augmented with employment and labor force data from the 1980 and 1990 Censuses of Population, changes in local labor supply during the 1980s are shown to have had little influence on local industry mix. Instead, citywide increases in the relative supply of a particular skill group lead to increases in relative factor intensity, with little or no effect on relative wages. These patterns suggest that industries adapt their use of labor inputs to local supplies, as predicted by theoretical models of endogenous technological change. Consistent with this A series of studies has found that relative wages and employment rates in different local labor markets of the US are surprisingly unaffected by local factor supplies. This paper evaluates two explanations for this puzzling empirical fact: (1) Interregional trade mitigates the local impact of supply shocks. (2) Production technology rapidly adapts to the local mix of workers. The author tests these alternative explanations by estimating the effect of increases in relative supplies of particular skill groups on the relative growth rates of different industries and on the relative utilization of these skill groups within industries. Labor supply shocks are identified with a component of foreign immigration driven by the historical regional settlement patterns of immigrants from different countries. Using establishment-level output and capital stock data from the Longitudinal Research Database, augmented with employment and labor force data from the 1980 and 1990 Censuses of Population, changes in local labor supply during the 1980s are shown to have had little influence on local industry mix. Instead, citywide increases in the relative supply of a particular skill group lead to increases in relative factor intensity, with little or no effect on relative wages. These patterns suggest that industries adapt their use of labor inputs to local supplies, as predicted by theoretical models of endogenous technological change. Consistent with this interpretation, on-the-job computer use expanded most rapidly over the 1980s in cities where the relative supply of educated labor grew fastest.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 04-1.

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Date of creation: 2003
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Handle: RePEc:fip:fedpwp:04-1

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Keywords: Emigration and immigration;

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  31. David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," Working Papers 633, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Libertad González Luna & Francesc Ortega, 2007. "How do Very Open Economies Adjust to Large Immigration Flows? Recent Evidence from Spanish Regions," Economics Working Papers 1059, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  2. Christian Dustmann & Ian Preston & Francesca Fabbri, 2004. "Racial Harassment, Ethnic Concentration and Economic Conditions," CReAM Discussion Paper Series 0405, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
  3. Amuedo-Dorantes, Catalina & de la Rica, Sara, 2008. "Does Immigration Raise Natives’ Income? National and Regional Evidence from Spain," IZA Discussion Papers 3486, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Amuedo-Dorantes & Sara de la Rica, 2008. "Complements or Substitutes? Immigrant and Native Task Specialization in Spain," CReAM Discussion Paper Series 0816, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
  5. Leah Platt Boustan & Price V. Fishback & Shawn E. Kantor, 2007. "The Effect of Internal Migration on Local Labor Markets: American Cities During the Great Depression," NBER Working Papers 13276, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Paul Beaudry & Mark Doms & Ethan Lewis, 2006. "Endogenous skill bias in technology adoption: city-level evidence from the IT revolution," Working Paper Series 2006-24, Federal Reserve Bank of San Francisco. [Downloadable!]
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  7. Gonzalez, Libertad & Ortega, Francesc, 2008. "How Do Very Open Economies Absorb Large Immigration Flows? Recent Evidence from Spanish Regions," IZA Discussion Papers 3311, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Maude Toussaint-Comeau, 2007. "The impact of Mexican immigrants on U.S. wage structure," Working Paper Series WP-07-24, Federal Reserve Bank of Chicago. [Downloadable!]
  9. David Card, 2004. "Is the New Immigration Really So Bad?," CReAM Discussion Paper Series 0402, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
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  10. Catalina Amuedo-Dorantes & Sara de la Rica, 2007. "Regional Differences in the Labor Market Impact of Immigration: Evidence from Spain," Working Papers 0024, San Diego State University, Department of Economics. [Downloadable!]
  11. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "Rethinking the Gains from Immigration: Theory and Evidence from the U.S," Working Papers 2006.52, Fondazione Eni Enrico Mattei. [Downloadable!]
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  12. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
  13. Abigail Wozniak, 2006. "Educational Differences in the Migration Responses of Young Workers to Local Labor Market Conditions," IZA Discussion Papers 1954, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Paserman, Daniele, 2008. "Do High-Skill Immigrants Raise Productivity? Evidence from Israeli Manufacturing Firms, 1990-1999," IZA Discussion Papers 3572, Institute for the Study of Labor (IZA). [Downloadable!]
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