Immigrants' Complementarities and Native Wages: Evidence from California

As of 2004 California employed almost 30% of all foreign born workers in the U.S. and was the state with the largest percentage of immigrants in the labor force. It received a very large number of uneducated immigrants so that two thirds of workers with no schooling degree in California were foreign-born in 2004. If immigration harms the labor opportunities of natives, especially the least skilled ones, California was the place where these effects should have been particularly strong. But is it possible that immigrants raised the demand for California's native workers, rather than harming it? After all immigrants have different skills and tend to work in different occupations then natives and hence they may raise productivity and the demand for complementary production tasks and skills. We consider workers of different education and age as imperfectly substitutable in production and we exploit differences in immigration across these groups to infer their impact on US natives. In order to isolate the "supply-driven" variation of immigrants across skills and to identify the labor market responses of natives we use a novel instrumental variable strategy. Our estimates use migration by skill group to other U.S. states as instrument for migration to California. Migratory flows to other states, in fact, share the same "push" factors as those to California but clearly are not affected by the California-specific "pull" factors. We find that between 1960 and 2004 immigration did not produce a negative migratory response from natives. To the contrary, as immigrants were imperfect substitutes for natives with similar education and age we find that they stimulated, rather than harmed, the demand and wages of most U.S. native workers.

The Dynamics of R&D and Innovation in the Long Run and in the Short Run

In this paper we estimate the dynamic relationship between resources used in R&D by some OECD countries and their innovation output as measured by patent applications. We first estimate a long-run cointegration relation using recently developed tests and panel estimation techniques. We find that the stock of knowledge of a country, its R&D resources and the stock of international knowledge move together in the long run. Then, imposing this long-run relation across variables we analyze the impulse response of new ideas to a shock to R&D or to a shock to innovation by estimating an error correction mechanism. We find that internationally generated ideas have a very significant impact in helping innovation in a country. As a consequence, a positive shock to innovation in a large country as the US has, both in the short and in the long run, a significant positive effect on the innovation of all other countries.Innovation, Panel Cointegration, Error Correction Mechanism

Knowledge Flows and Productivity

National and international flows of knowledge are fundamental determinants of technological progress. In this article we review the existing literature on knowledge flows and we propose a method for estimating them, based on patent citations. Citations are links between inventions that reveal a learning process at the technological frontier. We use data for the period 1975-1996 for 147 subnational regions in Europe and North America. We find that geographical distance and technological differences constitute major barriers to knowledge flows. We also show that these flows may have positive, but small, effect on total factor productivity.

Young People, Skills and Cities

Young highly educated workers developed in the 70’s and 80’s a preference for working in larger cities. As a consequence highly educated young workers in 1990 were over-represented in cities, in spite of the lower wage premium they earned for working in crowded metropolitan areas if compared to their older colleagues. This can be an equilibrium only if young workers enjoy some benefits in cities and are willing to pay for them. In our model, the extra-benefit of working in cities is given by a dynamic externality of human capital. Agglomerations of educated workers arise endogenously, as workers are attracted to dense areas, which improve their learning from others. If the skills accumulated in cities are easily transferable, it is efficient for educated people to work in dense areas while they are young and move to less dense areas when they become mature workers. Once the ”learning period” is over, workers are attracted to smaller and less dense locations where there is less competition from other skilled workers and housing price is lower. Our model explains why young workers were attracted into large cities in the 70’s and 80’s: this was the era of increased flexibility, of the success of versatility rather than specificity of skills. Small firms thrived, and therefore the transferability of skills increased. The model also gives an account of why, once they accumulated their human capital, some of the workers moved to smaller towns.

Catching-Up to Foreign Technology? Evidence on the "Veblen-Gerschenkron" Effect of Foreign Investments

The presence of foreign multinational enterprises may benefit local economies. In particular, highly productive foreign-owned firms may promote technological catch-up of local firms. Such channel of spillovers is defined as "Veblen-Geschenkron" effect of Foreign Direct Investments and is analyzed in this article. Rather than the overall density of foreign-owned plants in a region or sector, it is their productivity advantage that determines the positive effect on domestic firms in geographical and technological proximity. We test this hypothesis using new firm-level data for German and Italian manufacturing firms during the 90's. We find evidence of a significant Veblen-Gerschenkron effect which is robust to different ways of measuring total factor productivity (TFP) of firms and to different empirical specifications.

Social Variables and Economics Success: The Case of Italian Industrial Development

Italy makes for a very interesting case study of the impact of social variables on economic performance. Across its provinces, differences in social and cultural attitudes seem associated to large differences in economic development. We analyze the importance of some social variables on industrialization and on employment creation across 95 Italian provinces during the period 1951-1991. On one hand we find little evidence that civic involvement (Social Capital) was associated with industrial and economic development. On the other hand we find strong evidence that organized crime, measured as high murder rates, was negatively correlated with industrial and economic development. We use measures of murder rates in the distant past to suggest that the correlation captures, at least in part, a stable and possibly causal link between organized crime and lack of employment growth.Industrial Development, Regional Productivity, Italian Provinces, Civic Spirit, Murder Rates

The Effects of Immigration on California's Labor Market

As of 2004 California employed almost 30% of all foreign born workers in the U.S. and was the state with the largest percentage of immigrants in the labor force. It also received a very large number of Mexican and uneducated immigrants during the recent decades. If immigration harms the labor opportunities of natives, especially the least skilled ones, in the form of downward wage pressure, pressure to move out of the state or increased likelihood to loose their jobs, California was the place where these effects should have been stronger. By analyzing the behavior of population, employment and wages of U.S. natives in California in the period 1960-2004 we address this issue. We consider workers of different education and age as imperfectly substitutable in production and we exploit the differences in immigration across these groups to infer their impact on US natives. Our estimates use international migration to other U.S. states as instrument for international migration to California to isolate the ”supply-driven” variation of immigrants across skills and identify the labor market responses of natives. We find that in the considered period immigration did not produce significant migratory response or loss of jobs of natives. Moreover we find that immigrants were imperfect substitutes for natives of similar education and age, hence they stimulated, rather than harmed the demand and wages of U.S. native workers.Immigration, Skill Complementarities, Employment, Inter-state migration, wage effects.

Local Human Capital Externalities: An Overlapping Generation Model and Some Evidence on Experience Premia

In an interesting and influential paper Robert Lucas (1993) considering the experience of East Asian small economies, suggests that 'on the job' learning could be the principal engine of their miraculous growth in the last 20 years. In this paper I develop an overlapping generation model where on the job learning, via local spillovers and local interactions, is the main channel of human capital accumulation in small open economies (as cities). The model predicts that skills' accumulation, due to experience in the local environment, has an effect on the experience premia of the workers and on the dispersion of their wages. I find the balanced growth path of the model and I simulate the adj ustment path after a technological shock. The second part of the paper conveys some suggestive evidence on what local characteristics affect the accumulation of skills, using data from 236 U.S. cities. Local characteristics which seem to have a strong imp act on the accumulation of skills are the \rdblquote technological intensity\rdblquote of the local manufacturing sector, the average level of education and the density of teachers in the city. This seems to confirm that the 'quality' of local environments is very important for skills' accumulation.

Immigration Accounting: U.S. States 1960-2006

Different U.S. states have been affected by immigration to very different extents in recent years. Immigration increases available workers in a state economy and, because of its composition across education groups, it also increases the relative supply of less educated workers. However, immigration is more than a simple labor supply shock. It brings differentiated skills and more competition to the labor market and it may induce efficient specialization and affect the choice of techniques. Immigrants also affect investments, capital accumulation, and the productivity of more and less educated workers. Using a production function-based procedure and data on gross state product, physical capital and hours worked we analyze the impact of immigration on production factors (capital, more and less educated labor), and productivity over the period 1960-2006 for 50 U.S. states plus D.C. We apply growth accounting techniques to the panel of states in order to identify the changes in factors and productivity associated with immigration. To identify a causal impact we use the part of immigration that is determined by supply shifts in countries of origin and the geographical location of U.S. states or historical immigrants' settlements. We find that immigration significantly increased the relative supply of less educated workers, that it did not affect much the level of capital per worker and that it significantly increased the productivity of highly educated workers and, even more, less educated workers. These channels together explain the small effect of immigrants on wages of less educated workers and the significant positive effects on wages of more educated workers.