1 Immigration, Wage Equalization and Difference-in-Difference Estimator We will continue with the question from Problem Set 5, Problem 3. Suppose we have two cities: Miami and Atlanta. Individuals expect to

1 Immigration, Wage Equalization and Difference-in-Difference
Estimator
We will continue with the question from Problem Set 5, Problem 3. Suppose we have two
cities: Miami and Atlanta. Individuals expect to live 10 years, face an interest rate of 0%
per year. Workers in each city have a yearly labor supply given by h(w) = 8 (e.g., workers
always work 8 hours a year). Firms face competitive input and output markets and the
yearly production technology of firms in each city is f(E) = 2VE. Firms get $10 per unit
produced. Suppose that both Miami and Atlanta have initially 50 workers and 16 firms.
Suppose that there is an immigration wave raising the labor supply of Miami by 50 workers.
We showed in PS5 that the demand for labor is given by
ED (w) = 16 (P ) 2
Let t = 0 denote the time before the immigration wave. Let t = 1 denote the time when
immigrants come to Miami. Assume that there is no internal migration at time t = 1.
Let t = 2 denote the time of internal migration when some workers move from Miami to
Atlanta. In PS5, we computed wages in Miami and Atlanta at t = 0 and t = 1.
t = 0: Wo,Miami = Wo, Atlanta = 2
t = 1: W1,Miami = 1.41, w1, Atlanta = 2
Question 1.1 are the wages in Miami and Atlanta at time t = 2 if 16 workers move
from Miami to Atlanta?
Question 1.2 Show that after 16 workers move from Miami from Atlanta, nobody else
wants to move. The moving cost is $17.

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