Immigrants and the Great Divergence

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2203 SS&H (Andrews Conference Room) | UC Davis

This paper extends the existing literature by using Census microdata to show that geographic sorting is also nativity-biased, and that immigrant workers sort into cities with higher wages and inelastic housing supplies. I use a spatial equilibrium model to predict worker sorting across housing supply elasticity in response to changes in local labor demand. 

Andrew J. Padovani
Andrew Padovani
PhD Student, Economics, UC Davis

Andrew J. Padovani was born and raised in California's Central Valley and earned a Bachelor's of Science in Economics, with a minor in Mathematics, from University of the Pacific in Stockton, CA. After graduating in 2008, Andrew spent 4 years working at the Center for Business and Policy Research (CBPR) at University of the Pacific. While at CBPR, he studied a wide range of topics in the Central Valley, including the 2008 housing crisis, demographic change, health care, and worker commuting.

Comments from Daniel Tapia-Jimenez
PhD Candidate, International Relations, UC Davis

In “Immigrants and The Great Divergence”, Andrew Padovani advances a persuasive argument concerning migration as a function of wage levels and housing supply elasticity. He finds that foreign-born workers, whether they are high- or low-skilled, are more inclined to reside in areas with higher wages despite higher housing costs. The same is true for high-skilled natives: they are largely located in cities with higher wages because they can bear the higher costs of housing. Low-skilled natives, however, are less willing to bear the higher costs of housing for the sake of higher wages. A key distinction between foreign-born and native workers is that the former has already invested in migration, and is therefore more mobile than the latter.

Andrew builds his case by first identifying empirical regularities between constrained housing supplies and the wages, rents, and ratios of high-skilled, foreign-born, and low-skilled foreign born workers in Metropolitan Statistical Areas (MSAs). All of which (wages, rents, and all ratios) are found to be higher in an MSAs with more constrained housing supplies. However, the population of low-skilled natives in these areas decline. Indeed, he also shows that migration of high-skilled native and high- and low-skilled foreign-born workers to cities has been increasing over time despite higher housing costs. Further, the foreign born-share of migration to MSAs with restricted-housing-supply tended to be higher.

Commentary by Vasco Yasenov
PhD Candidate, Economics, UC Davis

In this promising paper, Padovani explores the relationship between nativity-biased sorting, wages and the elasticity of housing supplies. The main finding is that local labor demand shocks go a long way in explaining the observed skill- and nativity-biased sorting when foreign-born are more mobile than natives. The paper is framed within the broad literature studying geographic income divergence in the United States. Previous research in the field has shown that high skill workers sort in high wage cities, with housing supply constraints playing an important role in this phenomenon. Moreover, we also know that migration is an important factor in equilibrating spatial wage disparities. Padovani links these two strands of research.

The author begins the analysis with eloquently establishing several stylized facts about migration to cities with different housing supply elasticities. They clearly convince the reader that cities with higher housing constraints are richer, have more foreign-born and high-skill workers, these groups grow faster and the migration to them is foreign-born biased. Motivated by these data patterns, Padovani then moves on to build a spatial general equilibrium model, generalizing the seminal paper by Moretti (2013). In so doing he separates the economic agents into natives and immigrants. His theoretical model predicts that labor demand shocks cause the wages of natives (immigrants, housing costs) and the immigrant-native ratio grow more slowly (faster) in cities with non-restricted housing supply. The author then presents empirically-based research which backs up the prediction of the developed model to further convince us that labor demand shocks do explain the observed sorting patterns.

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