Rybczynski_Theorem_Factor_Price_Equalization_and_Immigration

Rybczynski_Theorem_Factor_Price_Equalization_and_Immigration...

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1 1 Introduction In recent decades rising immigration into the United States has steadily increased the share of immigrants in the total population. Borjas, Freeman, and Katz (1997) report that this share rose from 4.8% in 1970 to 6.2% in 1980 and to 7.9% in 1990. Recent immigrants tend to have much lower education levels that the typical U.S. worker (Borjas, 1994) and tend concentrate in states with relatively large populations of previous immigrants, such as California, Florida, New York, and Texas. A vast literature examines whether the U.S. regions that have had relatively large influxes of low-skilled immigrants have also had relatively low wage growth for low-skilled U.S. native workers. The near uniform finding is that immigration has, at most, a very small negative effect on native wages: there is a near zero correlation between regional immigrant inflows and changes in relative regional wages (see surveys in Borjas, 1994 and Friedberg and Hunt, 1995). In this paper we examine whether U.S. regions have absorbed immigrant inflows (or shocks to endowments more generally) by altering the mix of goods they produce, thus relieving pressure for wages to change. The focus on output mix is motivated by the Rybczynski Theorem (1955), a core result of Heckscher-Ohlin (HO) trade theory. This theorem states that when a region is open to trade with other regions, changes in regional relative factor supplies can be fully accommodated by changes in regional outputs without requiring changes in regional factor prices. An increase in the relative endowment of a factor increases the output of products which employ that factor relatively intensively and decreases the output of at least some other products. This shift in output mix increases the regional relative demand for the factor whose endowment has increased, thereby matching the increase in its regional relative supply and eliminating pressure on factor prices to change. Trade is essential for this mechanism to work, as regional output changes are accommodated by corresponding changes in regional exports and imports. So long as the region is sufficiently small, these output and trade-flow changes do not affect world prices and thus do not trigger Stolper-Samuelson (1941) factor-price effects. Our approach is to treat U.S. states as Heckscher-Ohlin regions and to examine changes over time in state factor endowments, output mix, and factor usage. The focus on output mix and
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2 factor usage distinguishes our work from the previous literature which concentrates on cross- region variation in wages. To think of a concrete example, over the last two decades many low- skilled immigrants settled in California. During this period, California expanded production and exports of nonskill-intensive goods, such as apparel, canned food products, and toys. California's shift towards these sectors may have helped accommodate its immigrant influx, partially or entirely obviating the need for California's factor prices to change relative to the rest of the
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Rybczynski_Theorem_Factor_Price_Equalization_and_Immigration...

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