From Jeanne Lafortune, José Tessada, Ethan Lewis:
This paper empirically tests if the Second Industrial Revolution changed the way inputs were used in the manufacturing sector, as has been argued by historical research. To do this, we estimate the impact of immigration-induced changes in skill mix in local areas in the United States between 1860 and 1940 on input ratios within manufacturing industries in these areas. Combining this and our model, we find evidence that the production functions were strongly altered over the period under study: capital began our period as a q-substitute for high skill workers and a strong complement of low-skill workers. This changed around the turn of the twentieth century when capital became a complement of skilled workers and decreased its complementary with low-skilled workers. We find that within-industry changes in production technique were the dominant manner in which areas adapted to immigration driven skill shocks, and find little movement of industry mix. We nevertheless fail to find significant impact of changes in skill mix on wages.