Do Local Relative Factor Supplies Affect Local Relative Factor Prices?

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Abstract

This paper examines whether local relative factor supplies affect local relative factor prices across US states. Using data on relative wages and relative labor supplies across the US, I find that state specific relative labor supplies significantly impact state specific relative wages across the US. Moreover, in an effort to reconcile my finding with that of Hanson and Slaughter (2000), I rerun their model and I prove that their interpretation is incorrect, and that in fact, differences in relative labor supplies across states determine relative wages and industry production techniques. These findings suggest that relative FPE does not hold across US states. In addition, the findings imply that immigration shocks to US states have a significant effect on relative wages, holding all else equal, as long as the immigrant inflows significantly impact states' relative labor supplies.

Original languageEnglish
Article number19
JournalB.E. Journal of Economic Analysis and Policy
Volume5
Issue number1
DOIs
StatePublished - 2005

Keywords

  • Immigration
  • Relative Factor Price Equalization

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