RE SEARCH RAP A Wrap - Up of Recent Working

ABSORBING LOCAL SHOCKS IN LABOR SUPPLY Immigration to the U.S. in recent decades has been substantial and geographically concentrated. Nevertheless, research consistently finds little evidence that it has a major impact on the wages and employment rates of the native population in areas where immigrants settle. Though some recent evidence suggests that immigration may depress wages nationally, the mechanism by which local labor markets in the U.S. adjust to immigration remains largely a mystery. This paper evaluates two hypotheses that might explain the apparent lack of local impact of immigration. The first is that local markets adjust to immigration by specializing in traded industries that use immigrant skills — for example, apparel in low-skill immigrant areas. The second is that local markets adjust by adapting their production technology to the skills of the immigrants. Using detailed data, this paper tests these alternatives by examining how industries in U.S. metropolitan areas adapted to immigration-driven changes in the skill mix of their workers during the 1980s. The author shows that there was little industry specialization in response to immigration. Instead, industries in high immigration areas hired proportionately more of the type of labor supplied by local immigrants than the same industries did in other markets. In addition, a measure of skilled technological change — on-the-job computer use — grew more quickly over the 1980s (among otherwise similar workers) in metropolitan areas experiencing larger increases in the share of skilled workers. Working Paper No. 04-1, “Local Open Economies within the U.S.: How Do Industries Respond to Immigration?” Ethan Lewis, Federal Reserve Bank of Philadelphia