Immigrants Equilibrate Local Labor Markets:

Evidence from the Great Recession

Brian C. Cadena and Brian K. Kovak

Labor Economics

Javier Quintana

Motivation
Labor mobility increases the dynamism of an economy, and it tends to reduce inequality across space Research consistently shows that low-skilled workers (high school degree or less) are especially unlikely to move between cities or states in response to changing job prospects

Outline

Identification strategy and specification Results: geographic labor supply elasticities Robustness check Additional control variables Instrumental variables Results: Mexican mobility smooths employment outcome Conclusions

Identification strategy
How to estimate changes in labor demand?
downward-rigid nominal wages
around-zero inflation rate changes in labor demand

Changes in labor demand are reflected entirely through changes in employment

Measurable with high precision

Identification strategy
What if there is some correlation between employment and wage changes? If employment and wage changes are negatively correlated, these specifications will underestimate the independent effect of employment

Specification

where

with

Results: geographic labor supply elasticities

Each listed coefficient represents a separate regression for the proportional change in each different group.

 High-skilled natives respond much more strongly to labor market changes than do lessskilled individual. Less-skilled Mexican-born respond more than any other group. Native low-skilled responsiveness is not statistically significant from zero

Additional control variables

Instrumental variables

IV: Bartik instrument. Changes in local labor demand are proportional across cities based in each city composition of employment

Instrumental variables

IV: Household leverage level. Counties with more highly leveraged households experienced larger employment looses

Mexican Mobility Smooths Employment Outcome

Smoothing: degree to which migration equalizes workers expected earnings across space. With rigid wages changes in expected earnings is equal to changes in the probability of being employed In the absence labor supply changes, labor demand changes will be completely reflected in the employment ratio

Mexican Mobility Smooths Employment Outcome

With

Estimate separately for cities with above- and below-median Mexican-born population shares in 2006

Results: Mexican Mobility Smooths Employment Outcome

Summary
Paper examines mobility responses to geographic variation in the depth of Great Recession Main result: Reallocation of Mexican immigrants smooths local employment changes among natives by 40 percent