Transcript Puebla Market for Maquiladora Labor, 1995-2000 Wage

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.
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.
Suppose
Puebla Market for Maquiladora Labor, 1995-2000
Wage
($ per week)
75
𝑺𝟏𝟗𝟗𝟓
𝑺𝟐𝟎𝟎𝟎
70
65
60
𝒘𝟏𝟗𝟗𝟓 55
𝒘𝟐𝟎𝟎𝟎 50
45
𝑫𝟏𝟗𝟗𝟓 = 𝑫𝟐𝟎𝟎𝟎
40
35
30
35
36
37
38
39
40
41
𝑳𝟏𝟗𝟗𝟓 𝑳𝟐𝟎𝟎𝟎
42
43
44
Labor
(thou. per week)
Own Wage Elasticity of Demand
∆𝐿
%∆𝐿𝑖
=
= 𝐿
∆𝑤
ii
%∆𝑤𝑖
𝑤
Wage
14
12
10
8
6
4
Demand
2
0
0
10
20
30
40
Employees
50
60
70
Own Wage Elasticity of Demand
∆𝐿
%∆𝐿𝑖
=
= 𝐿
∆𝑤
ii
%∆𝑤𝑖
𝑤
Wage
40 − 50
40 + 50
2
6−4
6+4
2
=
= −0.56
14
12
10
8
↑w  ↑ w•L
>
𝑤2 6
𝑤1 4
Demand
2
0
0
10
20
30
40
𝐿2
Employees
50
𝐿1
60
70
Own Wage Elasticity of Demand
∆𝐿
%∆𝐿𝑖
=
= 𝐿
∆𝑤
ii
%∆𝑤𝑖
𝑤
Wage
14
|η|> 1 Elastic
|η|=1 Unitary Elastic
12
10
8
|η|< 1 Inelastic
6
4
Demand
2
0
0
10
20
30
40
Employees
50
60
70
∆𝐿
%∆𝐿𝑖
=
= 𝐿
∆𝑤
ii
%∆𝑤𝑖
𝑤
=
40 − 39
40 + 39
2
50 − 55
50 + 55
2
= −0.27
Puebla Market for Maquiladora Labor, 1995-2000
Wage
𝑺𝟏𝟗𝟗𝟓
𝑺𝟐𝟎𝟎𝟎
($ per week) 70
60
𝒘𝟏𝟗𝟗𝟓
𝒘𝟐𝟎𝟎𝟎
50
40
𝑫𝟏𝟗𝟗𝟓 = 𝑫𝟐𝟎𝟎𝟎
30
20
10
0
0
4
8
12 16 20 24 28 32 36 40 44
𝑳𝟏𝟗𝟗𝟓 𝑳𝟐𝟎𝟎𝟎
Labor (thou. per week)
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
𝑙𝑜𝑔𝑊𝑎𝑔𝑒 = 6.15 + 0.058𝐸𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛 + 0.214𝑀𝑎𝑙𝑒 + 0.092𝑀𝑎𝑟𝑟𝑖𝑒𝑑 − 3.90 𝐼𝑀𝑀 + ⋯
(1.26)
0.0007
0.005
0.0043
Interpretation of estimated coefficients:
Out-of-state
immigrants
(proportion of workforce)
Economists Atkinson and Ibarra’s estimate of Unskilled
Maquiladora Labor’s Own Wage Elasticity of Demand
^
Puebla
Unskilled,Unskilled
= – 0.05
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.”
Hicks-Marshall Laws of Derived Demand
Holding other factors constant, the demand for unskilled
maquiladora workers will be more inelastic:
1.
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
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
Cross–Wage Elasticity of Demand
Unskilled labor: assembly-line workers
Skilled labor: managers and supervisors
Unskilled,Skilled
%∆𝐿𝑈𝑛𝑠𝑘𝑖𝑙𝑙𝑒𝑑
=
%∆𝑤𝑆𝑘𝑖𝑙𝑙𝑒𝑑
Skilled,Unskilled
%∆𝐿𝑆𝑘𝑖𝑙𝑙𝑒𝑑
=
%∆𝑤𝑈𝑛𝑠𝑘𝑖𝑙𝑙𝑒𝑑
Cross–Wage Elasticity of Demand
Unskilled labor: assembly-line workers
Skilled labor: managers and supervisors
^
Puebla
Unskilled,Skilled
^
Puebla
Skilled,Unskilled
^
%∆𝐿𝑈𝑛𝑠𝑘𝑖𝑙𝑙𝑒𝑑
=
= 0.40
%∆𝑤𝑆𝑘𝑖𝑙𝑙𝑒𝑑
^
%∆𝐿𝑆𝑘𝑖𝑙𝑙𝑒𝑑
=
%∆𝑤𝑈𝑛𝑠𝑘𝑖𝑙𝑙𝑒𝑑
= 0.05
Both positive unskilled and skilled labor are gross
substitutes
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)
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?
1. 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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