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How Do Industries and Firms Respond to Changes in Local Labor Supply?

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  • Dustmann, Christian

    () (University College London)

  • Glitz, Albrecht

    () (Universitat Pompeu Fabra)

Abstract

In this paper, we investigate how changes in the skill mix of local labor supply are absorbed by the economy. We distinguish between three adjustment mechanisms: through factor prices, through an expansion in the size of those production units that use the more abundant skill group more intensively, and through more intensive use of the more abundant skill group within production units. We investigate which of these channels is dominant. We contribute to the existing literature by analyzing these adjustments on the level of firms, rather than industries, and by assessing the role of new firms in the absorption process of labor supply shocks. Our analysis is based on administrative data, comprising the entirety of firms in Germany over a 10 years period. We find that, while factor price adjustments are important in the non-tradable sector, labor supply shocks do not induce factor price changes in the tradable sector. In this sector, most of the adjustment to changes in relative factor supplies takes place within firms by changing relative factor intensities. Given the non-response of factor prices, this finding points towards changes in production technology. Our results further show, that firms that enter and exit the market are an important additional channel of adjustment. Finally, we demonstrate that an industry level analysis is likely to over-emphasize technology-based adjustments.

Suggested Citation

  • Dustmann, Christian & Glitz, Albrecht, 2011. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," IZA Discussion Papers 6257, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6257
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    Cited by:

    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.
    2. Richard Blundell & David A. Green & Wenchao (Michelle) Jin, 2016. "The UK wage premium puzzle: how did a large increase in university graduates leave the education premium unchanged?," IFS Working Papers W16/01, Institute for Fiscal Studies.
    3. Ted Mouw, 2016. "The Impact of Immigration on the Labor Market Outcomes of Native Workers: Evidence using Longitudinal Data from the LEHD," Working Papers 16-56, Center for Economic Studies, U.S. Census Bureau.
    4. Mette Foged & Giovanni Peri, 2016. "Immigrants' Effect on Native Workers: New Analysis on Longitudinal Data," American Economic Journal: Applied Economics, American Economic Association, vol. 8(2), pages 1-34, April.
    5. Elsner, Benjamin, 2013. "Emigration and wages: The EU enlargement experiment," Journal of International Economics, Elsevier, pages 154-163.
    6. Eliason, Marcus & Hensvik, Lena & Kramarz, Francis & Nordström Skans, Oskar, 2017. "The causal impact of social Connections on firms' outcomes," Working Paper Series 2017:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. Libertad González & Francesc Ortega, 2008. "How Do Very Open Economies Absorb Large Immigration Flows? Recent Evidence from Spanish Regions," Economic Reports 06-08, FEDEA.
    8. Anthony Edo & Hillel Rapoport, 2017. "Minimum Wages and the Labor Market Effects of Immigration," CESifo Working Paper Series 6547, CESifo Group Munich.
    9. Abdih, Yasser & Chami, Ralph & Dagher, Jihad & Montiel, Peter, 2012. "Remittances and Institutions: Are Remittances a Curse?," World Development, Elsevier, vol. 40(4), pages 657-666.
    10. Christian Dustmann & Albrecht Glitz & Tommaso Frattini, 2008. "The labour market impact of immigration," Oxford Review of Economic Policy, Oxford University Press, vol. 24(3), pages 478-495, Autumn.
    11. Rowena Gray & Giulia Montresor & Greg C. Wright, 2017. "Processing Immigration Shocks: Firm Responses on the Innovation Margin," CESifo Working Paper Series 6624, CESifo Group Munich.
    12. Antonio Ciccone & Giovanni Peri, 2011. "Schooling supply and the structure of production: Evidence from US States 1950-1990," Economics Working Papers 1295, Department of Economics and Business, Universitat Pompeu Fabra.
    13. Antonio Accetturo & Matteo Bugamelli & Andrea Lamorgese, 2012. "Welcome to the machine: firms' reaction to low-skilled immigration," Temi di discussione (Economic working papers) 846, Bank of Italy, Economic Research and International Relations Area.
    14. Ljubica Nedelkoska & Ricardo Hausmann, 2017. "Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment," CID Working Papers 330, Center for International Development at Harvard University.
    15. Braun, Sebastian & Weber, Henning, 2016. "How do regional labor markets adjust to immigration? A dynamic analysis for post-war Germany," Kiel Working Papers 2025, Kiel Institute for the World Economy (IfW).
    16. repec:spr:jlabrs:v:50:y:2017:i:1:d:10.1007_s12651-017-0220-x is not listed on IDEAS
    17. repec:eee:jmacro:v:52:y:2017:i:c:p:118-134 is not listed on IDEAS
    18. De Arcangelis, Giuseppe & Di Porto, Edoardo & Santoni, Gianluca, 2015. "Migration, labor tasks and production structure," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 156-169.
    19. Christian Dustmann & Uta Schönberg & Jan Stuhler, 2016. "The Impact of Immigration: Why Do Studies Reach Such Different Results?," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 31-56, Fall.
    20. Guido Matias Cortes & Andrea Salvatori, 2016. "Delving into the Demand Side: Changes in Workplace Specialization and Job Polarization," Working Paper series 16-21, Rimini Centre for Economic Analysis.
    21. Hausmann, Ricardo & Nedelkoska, Ljubica, 2017. "Welcome Home in a Crisis: Effects of Return Migration on the Non-Migrants’ Wages and Employment," Working Paper Series rwp17-015, Harvard University, John F. Kennedy School of Government.
    22. González, Libertad & Ortega, Francesc, 2011. "How do very open economies adjust to large immigration flows? Evidence from Spanish regions," Labour Economics, Elsevier, vol. 18(1), pages 57-70, January.
    23. Ortega, Javier & Verdugo, Gregory, 2016. "Moving Up or Down? Immigration and the Selection of Natives across Occupations and Locations," IZA Discussion Papers 10303, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    immigration; endogenous technological change; firm structure;

    JEL classification:

    • F1 - International Economics - - Trade
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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