Trade, Immigration exercise
3. Consider an economy comprised of 100 cities. Each city initially contains 1 million each of high school dropoouts, high school graduates, workers with some college, and college graduates. There is free mobility across cities, so that no matter what happens, wages for each category of worker are equalized across cities. Suppose that the equilibrium in the labor market works in such a way that the response of wages for high school dropouts to immigration flows is given by: hsg e eg -3 + + + Lhsg L SC Lcg where Awhsd whed Athad Lhad whad is the wage for high school dropouts, A indicates a change, Thod is the number of high school dropouts in the national immigrant pool, and Lhed is the number of high school dropouts in the existing national labour force so... dropouts. Lhat represents the proportional immigrant supply shock for high school Similarly, the other three terms measure the immigrant supply shock for high school graduates (hsg), workers with some college (sc), and for college gradu- ates (cg), respectively. Suppose that the wage response of the other groups is Anh symmetrie, so that for each group the response is given by Awhag Athug hsd Arse eg whag =-3 + + + Lh59 Lhad Lc Leg + wse Lg Ah89 u8o 8c Alhed Alhag =-3 cg + + Lsc I had Ihsg Aw9 A1c9 Ahad --3 AIC weg + Lg + + Lhsd Lh8g LSC In other words, for each category of worker, the "own effect" of that immigration is three times the size of, and opposite in sign to, the "cross effect." a. Suppose that 100,000 high school dropouts immigrate, landing in city number 12, thereby raising the number of high school dropouts in city 12 by 10%. What will be the effect on the wages of high school dropouts in city 12? In the rest of the country? b. Now, suppose 100,000 high school dropouts immigrate into every city at the same time. What will be the effect on the wages of high school dropouts? Discuss your answer in light of existing research studies on local-impact of immigration and national labour market studies of immigration. c. Now suppose that 100,000 workers of each category immigrate to each city, adding 10% to the total labour force. What happens to all wages? Comment on the tension between the empirical findings of Borjas (2003) and Ottaviano and Peri (2008) 3. Consider an economy comprised of 100 cities. Each city initially contains 1 million each of high school dropoouts, high school graduates, workers with some college, and college graduates. There is free mobility across cities, so that no matter what happens, wages for each category of worker are equalized across cities. Suppose that the equilibrium in the labor market works in such a way that the response of wages for high school dropouts to immigration flows is given by: hsg e eg -3 + + + Lhsg L SC Lcg where Awhsd whed Athad Lhad whad is the wage for high school dropouts, A indicates a change, Thod is the number of high school dropouts in the national immigrant pool, and Lhed is the number of high school dropouts in the existing national labour force so... dropouts. Lhat represents the proportional immigrant supply shock for high school Similarly, the other three terms measure the immigrant supply shock for high school graduates (hsg), workers with some college (sc), and for college gradu- ates (cg), respectively. Suppose that the wage response of the other groups is Anh symmetrie, so that for each group the response is given by Awhag Athug hsd Arse eg whag =-3 + + + Lh59 Lhad Lc Leg + wse Lg Ah89 u8o 8c Alhed Alhag =-3 cg + + Lsc I had Ihsg Aw9 A1c9 Ahad --3 AIC weg + Lg + + Lhsd Lh8g LSC In other words, for each category of worker, the "own effect" of that immigration is three times the size of, and opposite in sign to, the "cross effect." a. Suppose that 100,000 high school dropouts immigrate, landing in city number 12, thereby raising the number of high school dropouts in city 12 by 10%. What will be the effect on the wages of high school dropouts in city 12? In the rest of the country? b. Now, suppose 100,000 high school dropouts immigrate into every city at the same time. What will be the effect on the wages of high school dropouts? Discuss your answer in light of existing research studies on local-impact of immigration and national labour market studies of immigration. c. Now suppose that 100,000 workers of each category immigrate to each city, adding 10% to the total labour force. What happens to all wages? Comment on the tension between the empirical findings of Borjas (2003) and Ottaviano and Peri (2008)
