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Puebla Market for Maquiladora Labor, 1995-2000

Puebla Market for Maquiladora Labor, 1995-2000. ma·qui·la·do·ra : a n assembly plant in Mexico, which were originally located principally along the US border. .

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Puebla Market for Maquiladora Labor, 1995-2000

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  1. Puebla Market for Maquiladora Labor, 1995-2000 ma·qui·la·do·ra: an assembly plant in Mexico, which were originally located principally along the US border.

  2. A large number of immigrants moved to Puebla from other Mexican states over the years from 1995 to 2000. Can they use this information to identify the demand or supply curve for labor? Economists Atkinson and Ibarra (2007) use internal migration of Mexicans to estimate the wage elasticity of demand for low-skilled maquiladora labor.

  3. Suppose Puebla Market for Maquiladora Labor, 1995-2000 Wage ($ per week) Labor (thou. per week)

  4. Own Wage Elasticity of Demand ii Wage Demand Employees

  5. Own Wage Elasticity of Demand ii Wage ↑w ↑ w•L > Demand Employees

  6. Own Wage Elasticity of Demand ii Wage |η|> Elastic |η|= Unitary Elastic |η|< Inelastic η= Demand Employees

  7. ii

  8. Puebla Market for Maquiladora Labor, 1995-2000 Wage ($ per week) Labor (thou. per week)

  9. Economists Atkinson and Ibarra (2007) use data on the wages and numbers of Maquiladora workers (by Mexican states by year) to estimate a wage regression and wage elasticities. Their (2SLS) wage regression is Out-of-state immigrants (proportion of workforce) Interpretation of estimated coefficients:

  10. Economists Atkinson and Ibarra’s estimate of Unskilled Maquiladora Labor’s Own Wage Elasticity of Demand ^ Puebla = – 0.05 Unskilled,Unskilled Very inelastic! The decrease in the wage of unskilled maquiladora workers due to the increase in supply from internal Mexican migration had a very, very small impact on the number employed in assembly plants. Why so inelastic? According to Wikipedia, the city of Tehuacan in Puebla has hundreds of maquilas that “put together blue jeans for export to companies such as The Gap, Guess, Old Navy, and JC Penney.”

  11. Hicks-Marshall Laws of Derived Demand Holding other factors constant, the demand for unskilled maquiladora workers will be more inelastic: When the price elasticity of demand for the output of the assembly plants is low. Lower wages  lower price of assembling jeans sold to US companies  slightly lower price of jeans in American markets  not much of a change in orders. 2. When unskilled labor cannot easily be substituted for other factors of production. Three factors of production Unskilled labor Assembly lines of sewing machines Skilled labor (managers) Complements in production … little substitutability

  12. 3. When the supply of sewing machines is highly inelastic. Demanding more sewing machines for the additional low skilled workers quickly drives up the price of sewing machines. 4. When the cost of low-skilled labor is a small share of the total costs of production

  13. Cross–Wage Elasticity of Demand Unskilled labor: assembly-line workers Skilled labor: managers and supervisors Unskilled,Skilled Skilled,Unskilled

  14. Cross–Wage Elasticity of Demand Unskilled labor: assembly-line workers Skilled labor: managers and supervisors ^ ^ Puebla = 0.40 Unskilled,Skilled ^ ^ Puebla = 0.05 Skilled,Unskilled Both positive unskilled and skilled labor are gross substitutes

  15. Fill in the blanks: The estimates of ηUnskilled,Skilled and ηSkilled,Unskilled“indicate that _________ workers are at a higher risk of replacement by _________ workers than conversely. Firms may be able to reduce costs by training _______ workers to replace _______ workers.” (Atkinson and Ibarra, 2007, pp. 197-198)

  16. What impact a decrease in the wage of assembly workers (i.e., unskilled labor) at Maquiladoras plants in Mexico have on the demand for managers and supervisors (i.e., skilled labor) via the scale and substitution effects? • Scale Effect: The decrease in the cost of production will decrease the price of blue jeans bought by companies such as The Gap, Guess, Old Navy, and JC Penney, which will increase the quantity demanded. Higher levels of output will cause increases in the demand for managers and supervisors in the Mexican plants. 2. Substitution Effect: I would have thought that supervisors would be complements in production in the sense that hiring a lot of additional assembly workers would require plants to hire more supervisors. In this case, a decrease in the wage of unskilled labor would increase the number of assembly workers, requiring more supervisors to monitor them. Hence, I would have thought that they would be gross complements. The fact that they are gross substitutes implies that they are definitely substitutes in production

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