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Abstract:
We combine growth theory with US Census data on individual schooling and wages to estimate the aggregate return to human capital and human capital externalities in cities. Our estimates imply that a one-year increase in average schooling in cities increases their aggregate labor productivity by 8 to 11 percent. We find no evidence for aggregate human capital externalities in cities however, although we use three different approaches. Our main theoretical contribution is to show how human capital externalities can be identified (non-parametrically) even if workers with different levels of human capital are imperfect substitutes in production.

aggregate return to human capital, human capital externalities, decreasing returns to human capital, imperfect substitution, perfect substitution, scale externalities, cities

Abstract:
Using a comprehensive and newly organized dataset the present article shows that the human capital content of emigrants from Italy significantly increased during the 1990's. This is even more dramatically the case if we consider emigrating college graduates, whose share relative to total emigrants quadrupled between 1990 and 1998. As a result, since the mid-1990's the share of college graduates among emigrants from Italy has become larger than that share among residents of Italy. In the late nineties, between 3% and 5% of the new college graduates from Italy was dispersed abroad each year. Some preliminary international comparisons show that the nineties have only worsened a problem of "brain drain" that is unique to Italy, while other large economies in the European Union seem to experience a "brain exchange". While we do not search for an explanation of this phenomenon, we characterize such an increase in emigration of college graduates as pervasive across age groups and areas of emigration (the North and the South of the country). We also find a tendency during the 1990's towards increasing emigration of young people (below 45) and of people from Northern regions.

Abstract:
What are the economic consequences to US natives of the growing diversity of American cities? Is their productivity or utility affected by cultural diversity as measured by diversity of countries of birth of US residents? We document in this paper a very robust correlation: US-born citizens living in metropolitan areas where the share of foreign-born increased between 1970 and 1990, experienced a significant increase in their wage and in the rental price of their housing. Such finding is economically significant and survives omitted variable bias and endogeneity bias. As people and firms are mobile across cities in the long run we argue that, in equilibrium, these correlations are consistent only with a net positive effect of cultural diversity on productivity of natives.

Abstract:
We use data on wages and rents in different US cities to assess the amenity effects on production and consumption of cultural diversity as measured by diversity of countries of birth of city residents. We show that US-born citizens living in metropolitan areas where the share of foreign-born increased between 1970 and 1990 have experienced a significant average increase in their wage and in the rental price of their housing. Such finding is economically significant and robust to omitted variable bias and endogeneity bias. We then present a model in which cultural diversity may have both production and consumption amenity or disamenity effects. As people and firms are mobile across cities in the long run, the model implies that the joint results from the wage and rent regressions are consistent with a dominant production amenity effect of cultural diversity.

Cultural diversity, productivity, local amenities, urban economics

Abstract:
We use data on wages and rents in different U.S. cities to assess the amenity effects on production and consumption of cultural diversity as measured by diversity of countries of birth of city residents. We show that US-born citizens living in metropolitan areas where the share of foreign-born increased between 1970 and 1990 have experienced a significant average increase in their wage and in the rental price of their housing. Such finding is economically significant and robust to omitted variable bias and endogeneity bias. We then present a model in which cultural diversity may have both production and consumption amenity or disamenity effects. As people and firms are mobile across cities in the long run, the model implies that the joint results from the wage and rent regressions are consistent with a dominant production amenity effect of cultural diversity.

cultural diversity, productivity, local amenities, urban economics.

Abstract:
The diffusion of knowledge in the world generates positive externalities if knowledge flows increase the productivity of R&D. Our work analyzes knowledge diffusion and knowledge externalities in generating innovation and in determining productivity. We first estimate the determinants of knowledge flows across 141 sub-national regions in 19 countries of Europe and North America as revealed by patent citation between US-granted patents. Then we estimate the impact of these flows on productivity of R&D resources in generating innovation (patenting) and productivity (TFP). While we find that knowledge diffusion depends on geographical and technological distance and is well described by a pseudo-gravity model, we do not find evidence of significant positive externalities from existing knowledge.

Knowledge Flows, Innovation, Patent Citations Regions

Abstract:
The importance of innovation for the economic performance of industrialized countries has been largely stressed recently by the theoretical and empirical literature. Very few studies have carefully considered the determinants of European innovation, the productivity of its R&D and the existence of knowledge spillovers across regional boundaries. Here we develop a model which, emphasizing "the demand pull" as a key exogenous determinant of long-run innovation across regions, allows us to estimate the returns to regional R&D as a generator of innovation. We find that most of the cross-regional differences in innovation rates can be explained by their own R&D, even after correcting for the endogeneity bias. Moreover, significant spillovers are found among geographically close regions, especially if they are technologically similar.

Abstract:
The literature pioneered by Krugman (1991a) now known as "New economic geography" has developed very insightful models to understand phenomena as the agglomeration of economic activity and the specialization of regions. Nevertheless I think that the emphasis on the process of specialization, has been somewhat misleading both at a theoretical and empirical level. The attention of the literature has been focused on decreasing transport costs as the unique engine of the process. I develop a modified version of such models in which technological knowledge and its growth and spillovers are important forces at work, once agglomeration has taken place. I obtain the interesting result that after the dramatic tendency to specialization, driven by decreasing transport costs, local technological growth generates a tendency towards de-specialization, in the most advanced regions. This pattern fits the stylized facts relative to the last 40 years in the U.S. There, after a strong tendency towards industrial concentration, there has been a tendency, towards de-concentration. A first look at the data for European countries, for the last 30 years also shows a tendency to constant or slightly decreasing concentration of industries and de-concentration of innovative activity.

Abstract:
The aim of this paper is to estimate the effect of research externalities across space, in generating innovation. We do so by using R&D and patent data for eighty-six European Regions in the 1977-1995 period. We find that spillovers exist for regions within a distance of 300 Km from each other. The estimates are robust to simultaneity, omitted variable bias, different specifications of distance functions, country and border effects. The size of these spillovers is small, though. Doubling R&D spending in a region would increase the output of new ideas in other regions within 300 Km only by 2-3%, while it would increase the innovation of the region itself by 80-90%. Given the small size and the limited range of diffusion, we interpret these externalities as the result of local diffusion of non-codified knowledge, embodied in people and spreading via personal contacts. This interpretation is reinforced by the finding that the spillovers are somewhat weaker across national borders.

Innovation, R&D Spillovers, Europe, Regions

Abstract:
Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital externalities if and only if the marginal social product of workers with above-average human capital exceeds their wage. As an application, we estimate the strength of average-schooling externalities in US cities between 1970 and 1990.

Marginal social product of human capital, wages, human capital externalities, imperfect substitution, perfect substitution, cities

Abstract:
Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital externalities if and only if the marginal social product of workers with aboveaverage human capital exceeds their wage. As an application, we estimate the strength of average-schooling externalities in US cities between 1970 and 1990.

Marginal Social Product of Human Capital, Wages, Human Capital Externalities, Imperfect Substitution, Perfect Substitution, Cities

Abstract:
The standard empirical analysis of immigration, based on a simple labor demand and labor supply framework, has emphasized the negative impact of foreign born workers on the average wage of U.S.-born workers (particularly of those without a high school degree). A precise assessment of the average and relative effects of immigrants on U.S. wages, however, needs to consider labor as a differentiated input in production. Workers of different educational and experience levels are employed in different occupations and are therefore imperfectly substitutable. When taking this approach, one realizes that foreign-born workers are "complements" of U.S.-born workers in two ways. First, foreign-born residents are relatively abundant in the educational groups in which natives are scarce. Second, their choice of occupations for given education and experience attainments is quite different from that of natives. This implies that U.S.- and foreign-born workers with similar education and experience levels are imperfectly substitutable. Accounting carefully for these complementarities and for the adjustment of physical capital induced by immigration, the conventional finding of immigration's impact on native wages is turned on its head: overall immigration over the 1980-2000 period significantly increased the average wages of U.S.-born workers (by around 2%). Considering its distribution across workers, such an effect was positive for the wage of all native workers with at least a high school degree (88% of the labor force in year 2000), while it was null to moderately negative for the wages of natives without a high school degree.

Foreign-Born, Skill Complementarities, Wages, Gains from Migration

Abstract:
Recent influential empirical work has emphasized the negative impact immigrants have on the wages of US-born workers, arguing that immigration harms less educated American workers in particular and all US-born workers in general. Because US and foreign-born workers belong to different skill groups that are imperfectly substitutable, one needs to articulate a production function that aggregates different types of labor (and accounts for complementarity and substitution effects) in order to calculate the various effects of immigrant labor on US-born labor. We introduce such a production function, making the crucial assumption that US and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of US workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of US-born workers. We show evidence of this positive effect by estimating the impact of immigration on both average wages and housing values across US metropolitan areas (1970-2000). We also reproduce this positive effect by simulating the behavior of average wages and housing prices in an open city-economy, with optimizing US-born agents who respond to an inflow of foreign-born workers of the size and composition comparable to the immigration of the 1990s.

Foreign-born, skill complementarity, wages, gains from migration

Abstract:
Recent influential empirical work has emphasized the negative impact immigrants have on the wages of U.S.-born workers, arguing that immigration harms less educated American workers in particular and all U.S.-born workers in general. Because U.S. and foreign born workers belong to different skill groups that are imperfectly substitutable, one needs to articulate a production function that aggregates different types of labor (and accounts for complementarity and substitution effects) in order to calculate the various effects of immigrant labor on U.S.-born labor. We introduce such a production function, making the crucial assumption that U.S. and foreign-born workers with similar education and experience levels may nevertheless be imperfectly substitutable, and allowing for endogenous capital accumulation. This function successfully accounts for the negative impact of the relative skill levels of immigrants on the relative wages of U.S. workers. However, contrary to the findings of previous literature, overall immigration generates a large positive effect on the average wages of U.S.-born workers. We show evidence of this positive effect by estimating the impact of immigration on both average wages and housing values across U.S. metropolitan areas (1970-2000). We also reproduce this positive effect by simulating the behavior of average wages and housing prices in an open city-economy, with optimizing U.S.-born agents who respond to an inflow of foreign-born workers of the size and composition comparable to the immigration of the 1990s.

Abstract:
The recent dismal performance of overall job creation has left Italy, as of the end of the 90's, with very low participation and high unemployment rates. Moreover, Italy exhibits a large regional dispersion of those variables when compared to similar European Union economies. The present paper, using Census data on employment from 784 Local Labor Systems (LLS's), covering the whole Italian territory, analyzes job creation and its determinants for the 1981-1996 period. Local characteristics (input-output linkages, pool of local workers, technological spillovers), technological diffusion and infrastructure provision affect productivity in each LLS and, lacking wage flexibility, they determine differences in job creation across them. We analyze those characteristics across Italian LLS's and regions, developing measures for each of them and then we estimate their impact on job creation. The sizable (0.8% a year) difference in employment growth between the Northeast and the Southwest, as well as the overall differences across LLS's are explained up to one third by those characteristics. In particular, strong local input-output linkages across industries and fast growing transport infrastructures are shown to be important determinants of job creation. The southern Italian economy emerges in this analysis as rather differentiated within itself. Some parts of the Southeast show current characteristics compatible with good job creation, particularly if helped by investment in structures. Most of the Southwest, on the other hand, is still lacking local characteristics for self-sustained job creation and has been strongly penalized by the cut in public investment in the 90's.

Abstract:
The presence of foreign multinational enterprises (MNEs) can benefit local economies. In particular, if MNEs are very productive compared to domestic firms, they may promote learning and catch-up of local firms. Such a channel of spillovers from MNEs to local firms is known as the Veblen-Geschenkron effect. Rather than the overall density of MNEs in a region or sector, it is their initial productivity advantage on the local firm to determine the positive effect on domestic productivity growth. We test this hypothesis using firm level data for German and Italian companies during the 90's and we find evidence of a significant and robust Veblen-Gerschenkron effect.

Veblen-Gerschenkron, FDI, Spillovers, Productivity

Abstract:
The importance of innovation for the economic performance of industrialized countries has been largely stressed recently by the theoretical and empirical literature. Moreover the intensity of knowledge externalities in generating innovation, is the key parameter in determining sustained growth in a model with endogenous technological change. This paper takles the extremely important task of identifying and estimating a; production function; of innovation for European regions using Patent and R&D data, 1977-1995. After correcting for the endogeneity bias we find that the elasticity of innovative output to R&D employment is around 1, while knowledge externalities exist, are geographically localized in an area of 200 kms and are significant. Nevertheless these externalities are not strong enough to generate sustained growth, and therefore European regions; innovative activity is better represented by a model as Jones (1995) than by one as Romer (1990). Knowledge spillovers could be due to the similar technological specialization of close regions, as we find significant spillovers also in technological space.

Regions, R&D, spillovers, demand pull, endogenous innovation

Abstract:
Returns to scale to capital and the strength of capital externalities play a key role for the empirical predictions and policy implications of different growth theories. We show that both can be identified with individual wage data and implement our approach at the city-level using US Census data on individuals in 173 cities for 1970, 1980, and 1990. Estimation takes into account fixed effects, endogeneity of capital accumulation, and measurement error. We find no evidence for human or physical capital externalities and decreasing aggregate returns to capital. Returns to scale to physical and human capital are around 80 percent. We also find strong complementarities between human capital and labor and substantial total employment externalities.

Abstract:
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 adjustment 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 impact on the accumulation of skills are the "technological intensity" 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.

Abstract:
We investigate the existence of wage premium due to cultural diversity across U.S. cities. Using census data from 1970 to 1990, we find that at the urban level, richer diversity is systematically associated with higher average nominal wages for white U.S.-born males. We measure cultural diversity in a city using the variety of languages spoken by city-residents. While the positive correlation between wages and diversity survives a battery of robustness checks, it seems to be larger once foreign cultures have been assimilated. Finally, instrumental variable estimation hints at causation going from diversity to wages. Comparing real and nominal wages across cities, we interpret these results as evidence that diversity enhances productivity.

Cultural diversity, productivity, wages, metropolitan areas

Abstract:
We investigate the existence of wage premium due to cultural diversity across US cities. Using census data from 1970 to 1990, we find that at the urban level richer diversity is systematically associated with higher average nominal wages for white US-born males. We measure cultural diversity in a city using the variety of languages spoken by city-residents. While the positive correlation between wages and diversity survives a battery of robustness checks, it seems to be larger once foreign cultures have been assimilated. Finally, instrumental variable estimation hints at causation going from diversity to wages. Comparing real and nominal wages across cities, we interpret these results as evidence that diversity enhances productivity.

Cultural diversity, Productivity, Wages, Metropolitan areas

Abstract:
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.

Abstract:
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

Abstract:
This paper asks the following question: what was the effect of surging immigration on average and individual wages of U.S.-born workers during the period 1990-2004? We emphasize the need for a general equilibrium approach to analyze this problem. The impact of immigrants on wages of U.S.-born workers can be evaluated only by accounting carefully for labor market and capital market interactions in production. Using such a general equilibrium approach we estimate that immigrants are imperfect substitutes for U.S.- born workers within the same education-experience-gender group (because they choose different occupations and have different skills). Moreover, accounting for a reasonable speed of adjustment of physical capital we show that most of the wage effects of immigration accrue to native workers within a decade. These two facts imply a positive and significant effect of the 1990-2004 immigration on the average wage of U.S.-born workers overall, both in the short run and in the long run. This positive effect results from averaging a positive effect on wages of U.S.-born workers with at least a high school degree and a small negative effect on wages of U.S.-born workers with no high school degree.

Abstract:
In this article we estimate the long-run aggregate elasticity of substitution between skilled and unskilled workers. This is an important parameter as it allows us to compute the skill biased technological progress (SBTP) from the evolution of relative wages. However, it is hard to estimate because skill supply is endogenous. We tackle the task by using instruments proposed by the labor literature as sources of exogenous variation of schooling achievements across U.S. States. They are the state laws on Compulsory Schooling Attendance and on Child Labor. We then calculate SBTP and, using growth accounting, we calculate Hicks neutral technological progress (HNTP) for U.S. states in each decade between 1950 and 1990.

elasticity of substitution, skill biased technology, skilled and unskilled workers, U.S. states

Abstract:
I explore the dynamics of national production in a two-sector, two country model with cross-sector mobility and forward-looking agents, when trade costs fall or when the news of a boom in a sector is learned. Using the phase diagram method, introduced by Baldwin 1999 in this type of applications, I discover some important and interesting features of the equilibria and of their stability properties, which would have been completely overlooked by the "simple" static model as in Fujita et al.1999. In particular I find out that, lacking comparative advantage, specialization may not take place at all labor market rigidities are too high, while the existence of comparative advantage ensures full specialization for intermediate values of the trade cost even in the presence of high labor market rigidities.

Abstract:
In the transitional phase towards full economic integration, European countries have the possibility of re-shaping the continental geography of specialization. We develop a two-sector two-country model that shows formally how fiscal policy can be critical in promoting specialization in a phase where increasing returns are strong enough to sustain agglomeration but local barriers are too high for agglomeration to arise endogenously. We show that, in this intermediate phase, the optimal policy is to levy asymmetric taxes on the two sectors in order to induce agglomeration and therefore welfare benefits to both countries.

Abstract:
We estimate the aggregate long-run elasticity of substitution between more and less educated workers (the slope of the demand curve for more relative to less educated workers) at the US state level. Our data come from the (five) 1950-1990 decennial censuses. Our empirical approach allows for state and time fixed effects and relies on time and state dependent child labor and compulsory school attendance laws as instruments for (endogenous) changes in the relative supply of more educated workers. We find the aggregate long-run elasticity of substitution between more and less educated workers to be around 1.5.

Elasticity of substitution, education, U.S. states, skill biased technological change

Abstract:
This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (0.3%) and on average native wages (0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.

Less Educated Workers, Physical Capital Adjustment, Skill Complementarities and Wages

Abstract:
This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on nativeworkers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.

Less Educated Workers, Physical Capital Adjustment, Skill Complementarities, Wages

Abstract:
This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.

Abstract:
We adopt a general equilibrium approach in order to measure the effects of recent immigration on the Western German labor market, looking at both wage and employment effects. Using the Regional File of the IAB Employment Subsample for the period 1987-2001, we find that the substantial immigration of the 1990's had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labor market were as "flexible" as the UK labor market, it would be more efficient in dealing with the effects of immigration.

immigration, Skill Complementarities, Employment, Wages

Abstract:
In this paper we estimate the dynamic relationship between employment in R&D and generation of knowledge as measured by patent applications across OECD countries. In several recently developed models, known as `idea-based' models of growth, the afore mentioned "idea-generating" process is the engine of productivity growth. Moreover, in real business cycle models technological shocks are an important source of fluctuations. Our empirical strategy is able to test whether knowledge spillovers are strong enough to generate sustained endogenous growth and to estimate the quantitative impact of international knowledge on technological innovation of a country in the short and in the long run. We find that a country's stock of knowledge, its R&D resources and the stock of international knowledge move together in the long run. International knowledge has a very significant impact on innovation. As a consequence, a positive shock to R&D in the US (the largest world innovator) has a significant positive effect on the innovation of all other countries. Such a shock produces its largest effect on domestic and international innovation after five to ten years from its occurrence.

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Abstract:
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.

Abstract:
How will countries handle idiosyncratic national macroeconomic shocks under the European single currency? The ways in which European countries now react to internally asymmetric shocks provide a better forecast than do the regional response pattern of the United States. In this paper we compare the US with Germany, Italy, the United Kingdom, and also with Canada, which is closer to European than the US is in its labor market and fiscal institutions. Europe's (and to some extent Canada's) model of regional response differs from that of the US. Changes in relative regional real exchange rates are general small. Outside of the US, however, there is more reliance on interregional transfer payments, less on labor migration, and the pace of regional adjustment appears slower. The regional adjustment patterns currently prevailing within European currency unions--characterized by limited labor mobility and price inflexibility--seem likely to prevail at the national level under the single currency. If EMU aims to attain the economic and social cohesion of its constituent nations, it therefore may be hard to resist the eventual extension of existing EU mechanisms of income redistribution--a transfer union. We propose an alternative strategy based on a relaxed stability pact, further strictures against central EU borrowing, labor market and fiscal reform, and the issuance by individual member states of debt indexed to nominal GDP.

Abstract:
We adopt a general equilibrium approach in order to measure the effects of recent immigration on the Western German labor market, looking at both wage and employment effects. Using the Regional File of the IAB Employment Subsample for the period 1987-2001, we find that the substantial immigration of the 1990's had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labor market were as "flexible" as the UK labor market, it would be more effcient in dealing with the effects of immigration.

Immigration, Skill Complementarities, Employment, Wages

Abstract:
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.

Abstract:
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, it's 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, international R&D spillovers

Abstract:
Many workers with low levels of educational attainment immigrated to the United States in recent decades. In a simple model exploiting comparative advantage we show that if less-educated foreign and native-born workers specialize in performing different tasks, immigration will cause natives to reallocate their task supply, thereby reducing downward wage pressure. We merge occupational task-intensity data from the O*NET and DOT data sets with individual Census data across US states from 1960-2000 to demonstrate that foreign-born workers specialize in occupations that require manual and physical labor skills while natives pursue jobs more intensive in communication and language tasks. This increased specialization might explain why economic analyzes commonly find only modest wage and employment consequences of immigration for less-educated native-born workers across U.S. states.

Immigration, Less-Educated Labor, Manual Tasks, Communication Skills, Comparative

Abstract:
Many workers with low levels of educational attainment immigrated to the United States in recent decades. Large inflows of less-educated immigrants would reduce wages paid to comparably-educated native-born workers if the two groups compete for similar jobs. In a simple model exploiting comparative advantage, however, we show that if less-educated foreign and native-born workers specialize in performing complementary tasks, immigration will cause natives to reallocate their task supply, thereby reducing downward wage pressure. Using individual data on the task intensity of occupations across US states from 1960-2000, we then demonstrate that foreign-born workers specialize in occupations that require manual tasks such as cleaning, cooking, and building. Immigration causes natives - who have a better understanding of local networks, rules, customs, and language - to pursue jobs requiring interactive tasks such as coordinating, organizing, and communicating. Simulations show that this increased specialization mitigated negative wage consequences of immigration for less-educated native-born workers, especially in states with large immigration flows.

Abstract:
This paper contains three important contributions to the literature on international migrations. First, it compiles a new dataset on migration flows (and stocks) and on immigration laws for 14 OECD destination countries and 74 sending countries for each year over the period 1980-2005. Second, it extends the empirical model of migration choice across multiple destinations, developed by Grogger and Hanson (2008), by allowing for unobserved individual heterogeneity between migrants and non-migrants. We use the model to derive a pseudo-gravity empirical specification of the economic and legal determinants of international migration. Our estimates clearly show that bilateral migration flows are increasing in the income per capita gap between origin and destination. We also find that bilateral flows decrease when destination countries adopt stricter immigration laws. Third, we estimate the impact of immigration flows on employment, investment and productivity in the receiving OECD countries using as instruments the "push" factors in the gravity equation. Specifically, we use the characteristics of the sending countries that affect migration and their changes over time, interacted with bilateral migration costs. We find that immigration increases employment, with no evidence of crowding-out of natives, and that investment responds rapidly and vigorously. The inflow of immigrants does not seem to reduce capital intensity nor total factor productivity in the short-run or in the long run. These results imply that immigration increases the total GDP of the receiving country in the short-run one-for-one, without affecting average wages and average income per person.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
The identification of aggregate human-capital externalities is still not fully understood. The existing (Mincerian) approach confounds positive externalities with wage changes due to a downward sloping demand curve for human capital. As a result, the Mincerian approach yields positive externalities even when wages equal marginal social products. We propose an approach that identifies human-capital externalities, whether or not aggregate demand for human capital slopes downward. Another advantage of our approach is that it does not require estimates of the individual return to human capital. Applications to U.S. cities and states between 1970 and 1990 yield no evidence of significant average-schooling externalities.

Abstract:
The recent literature on local schooling externalities in the U.S. is rather mixed: positive external effects of average education levels are hardly to be found but, in contrast, positive externalities from the share of college graduates can often be identified. This paper proposes a simple model to reconcile this mixed evidence. The key idea is that advanced technologies are complementary to highly educated workers, as opposed to traditional technologies which are complementary to less educated workers. Our calibrated model predicts that workers with high school education or less are employed in the traditional sector, while more educated workers are employed in the advanced sector. As the advanced sector is associated with the production of differentiated goods and services this generates a positive pecuniary externality (positive TFP effect) of college educated workers. By contrast, as no externalities are associated with the traditional technology, high school education only increases private returns. The model predictions are tested using data on U.S. states. We use compulsory attendance and child labor laws, push-driven immigration of highly educated workers and the location of Land Grant colleges as instruments for schooling attainments of workers in different states. The empirical estimates confirm that an increase in college education, but not an increase in high school education, had significant positive production externalities in U.S. states during the period 1960-2000.

Abstract:
Books reviewed in this article:

Carl Abbott, Greater Portland: Urban Life and Landscape in the Pacific Northwest

Massimo Gastaldi and Aura Reggiani, New Analytical Advances in Transportation and Spatial Dynamics

Manfred M. Fischer and Josef Frohlich (eds.), Knowledge, Complexity and Innovation Systems

Marlon G. Boarnet and Randall Crane, Travel by Design: The Influence of Urban Form on Travel

Stephen Graham and Simon Marvin, Splintering Urbanism: Networked Infrastructures, Technological Mobilities and the Urban Condition

Wilbur R. Maki and Richard W. Lichty, Urban Regional Economics: Concepts, Tools, Applications

Gerald D. Nash, The Federal Landscape: An Economic History of the Twentieth-Century West

William G. Robbins and James C. Foster (eds.), Land in the American West: Private Claims And The Common Good

Geoffrey P. Meen, Modelling Spatial Housing Markets: Theory, Analysis, and Policy

William P. Browne, The Failure of National Rural Policy: Institutions and Interests

Martha Burt, Laudan Y. Aron, and Edgar Lee, with Jesse Valente, Helping America's Homeless: Emergency Shelter or Affordable Housing?

David Pitfield (ed.), Transport Planning, Logistics, and Spatial Mismatch: A Regional Science Perspective

Harvey J. Miller and Shih-Lung Shaw, Geographic Information Systems for Transportation: Principles and Applications

Boris A. Portnov and Evyatar Erell, Urban Clustering: The Benefits and Drawbacks of Location

Philip McCann, Urban and Regional Economics

Abstract:
In this article we estimate the dynamic relationship between employment in R&D and generation of knowledge as measured by patent applications across OECD countries. In several recently developed models, known as idea-based models of growth, the idea-generating process is the engine of productivity growth. Moreover, in real business cycle models technological shocks are an important source of fluctuations. Our empirical strategy is able to test whether knowledge spillovers are strong enough to generate sustained endogenous growth and to estimate the quantitative impact of international knowledge on technological innovation of a country in the short and in the long run.

Abstract:
Two prominent features of globalization in recent decades are the remarkable increase in trade and in migratory flows between industrializing and industrialized countries. Due to restrictive laws in the receiving countries and high migration costs, the increase in international migration has involved mainly highly educated workers. During the same period, technology in developed countries has become progressively more skill-biased, increasing the productivity of highly educated workers more than less educated workers. This paper extends a model of trade in differentiated goods to analyse the joint phenomena of migration and trade in a world where countries use different skill-specific technologies and workers have different skill levels (education). We calibrate the model to match the features of the Western European countries (EU-15) and the new Eastern European members of the EU. We then simulate the effects of freer trade and higher labor mobility between the two regions. Even in a free trade regime the removal of the restrictions on labor movements would benefit Europe as a whole by increasing the GNP of Eastern and Western Europe. Interestingly, we also find that the resulting skilled migration (the so-called "brain drain") from Eastern European countries would not only benefit the migrants but, through trade, could benefit the workers remaining in Eastern Europe as well.

Abstract:
Recent theoretical and empirical studies have emphasized the fact that the prospect of international migration increases the expected returns to skills in poor countries, linking the possibility of migrating (brain drain) with incentives to higher education (brain gain). If emigration is uncertain and some of the highly educated remain, such a channel may, at least in part, counterbalance the negative effects of brain drain. Moreover, recent empirical evidence seems to show that temporary migration is widespread among highly skilled migrants (such as Eastern Europeans in Western Europe and Asians in the U.S.). This paper develops a simple tractable overlapping generations model that provides an economic rationale for return migration and which predicts who will migrate and who will return among agents with heterogeneous abilities. We use parameter values from the literature and the data on return migration to simulate the model and quantify the effects of increased openness on human capital and wages of the sending countries. We find that, for plausible values of the parameters, the return migration channel is very important and combined with the incentive channel reverses the brain drain into significant brain gain for the sending country.

Abstract:
We adopt a general equilibrium approach in order to measure the effects of recent immigration on the Western German labor market, looking at both wage and employment effects. Using the Regional File of the IAB Employment Subsample for the period 1987-2001, we find that the substantial immigration of the 1990's had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labor market were as 'flexible' as the UK labor market, it would be more efficient in dealing with the effects of immigration.

Abstract:
Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technologial change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
We adopt a general equilibrium approach in order to measure the effects of recent immigration on the Western German labor market, looking at both wage and employment effects. Using the Regional File of the IAB Employment Subsample for the period 1987-2001, we find that the substantial immigration of the 1990's had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labour market were as 'flexible' as the UK labour market, it would be more efficient in dealing with the effects of immigration.

Employment, Immigration, Skill Complementarities, Wages

Abstract:
In this paper we document a strong positive correlation of immigration flows with changes in average wages and average house rents for native residents across U.S. states. Instrumental variables estimates reveal that the correlations are compatible with a causal interpretation from immigration to wages and rents of natives. Separating the effects of immigrants on natives of different schooling levels we find positive effects on the wages and rents of highly educated and small effects on the wages (negative) and rents (positive) of less educated. We propose a model where natives and immigrants of three different education levels interact in production in a central district and live in the surrounding region. In equilibrium the inflow of immigrants has a positive productive effect on natives due to complementarieties in production as well as a positive competition effect on rents. The model calibrated and simulated with U.S.-states data matches most of the estimated effects of immigrants on wages and rents of natives in the period 1990-2005. This validation suggests the proposed model as a useful tool to evaluate the impacts of alternative immigration scenarios on U.S. wages and rents.

housing prices, immigration, rents, U.S. States, wages

Abstract:
Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital externalities if and only if the marginal social product of workers with above-average human capital exceeds their wage. As an application, we estimate the strength of average-schooling externalities in US cities between 1970 and 1990.

Marginal social product of human capital, wages, human capital externalities, imperfect substitution, perfect substitution, cities