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Tradability and the Labor-Market Impact of Immigration: Theory and Evidence from the U.S

Listed author(s):
  • Ariel Burstein
  • Gordon Hanson
  • Lin Tian
  • Jonathan Vogel

In this paper, we show that labor-market adjustment to immigration differs across tradable and nontradable occupations. Theoretically, we derive a simple condition under which the arrival of foreign-born labor crowds native-born workers out of (or into) immigrant-intensive jobs, thus lowering (or raising) relative wages in these occupations, and explain why this process differs within tradable versus within nontradable activities. Using data for U.S. commuting zones over the period 1980 to 2012, we find that consistent with our theory a local influx of immigrants crowds out employment of native-born workers in more relative to less immigrant-intensive nontradable jobs, but has no such effect within tradable occupations. Further analysis of occupation wage bills is consistent with adjustment to immigration within tradables occurring more through changes in output (versus changes in prices) when compared to adjustment within nontradables, thus confirming the theoretical mechanism behind differential crowding out between the two sets of jobs. We then build on these insights to construct a quantitative framework to evaluate the consequences of counterfactual changes in U.S. immigration. Reducing inflows from Latin America, which tends to send low-skilled immigrants to specific U.S. regions, raises local wages for native-born workers in more relative to less-exposed nontradable occupations by much more than for similarly differentially exposed tradable jobs. By contrast, increasing the inflow of high-skilled immigrants, who are not so concentrated geographically, causes tradables and nontradables to adjust in a more similar fashion. For the nontradable-tradable distinction in labor-market adjustment to be manifest, as we find to be the case in our empirical analysis, regional economies must vary in their exposure to an immigration shock.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23330.

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Date of creation: Apr 2017
Handle: RePEc:nbr:nberwo:23330
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  1. Caliendo, Lorenzo & Dvorkin, Maximiliano & Parro, Fernando, 2015. "Trade and Labor Market Dynamics," Working Papers 2015-9, Federal Reserve Bank of St. Louis, revised 03 Jul 2015.
  2. Giovanni Peri & Chad Sparber, 2009. "Task Specialization, Immigration, and Wages," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 135-169, July.
  3. Gandal, Neil & Hanson, Gordon H. & Slaughter, M.J.Matthew J., 2004. "Technology, trade, and adjustment to immigration in Israel," European Economic Review, Elsevier, vol. 48(2), pages 403-428, April.
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  7. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January.
  8. Robert C. Feenstra, 2015. "Advanced International Trade: Theory and Evidence Second Edition," Economics Books, Princeton University Press, edition 2, number 10615, March.
  9. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  10. Hanson, Gordon H. & Slaughter, Matthew J., 2002. "Labor-market adjustment in open economies: Evidence from US states," Journal of International Economics, Elsevier, vol. 57(1), pages 3-29, June.
  11. Owen Zidar & Juan Carlos Serrato & Eduardo Morales & Pablo Fajgelbaum, 2015. "State Taxes and Spatial Misallocation," 2015 Meeting Papers 877, Society for Economic Dynamics.
  12. David Lagakos & Michael E. Waugh, 2013. "Selection, Agriculture, and Cross-Country Productivity Differences," American Economic Review, American Economic Association, vol. 103(2), pages 948-980, April.
  13. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
  14. Gihoon Hong & John McLaren, 2015. "Are Immigrants a Shot in the Arm for the Local Economy?," NBER Working Papers 21123, National Bureau of Economic Research, Inc.
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