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Friday, April 27, 2007

Microeconomics quiz of the week - Part II

From ProfessorJournal.com:
The article reports on the effect of the slowing U.S. housing industry on the economies of Latin America. "The slowing U.S. housing market already has taken a bite out of the U.S. economy. Now, the fallout is spreading to Latin America. That's because home construction is the principal gateway industry for immigrants entering the U.S. labor market. Those immigrants contribute the lion's share of the estimated $50 billion in cash sent annually from the U.S. to family members and others in countries south of the border. That tide of cash appears to be ebbing. Monthly remittances from the U.S. to Mexico have dropped every month since their peak of $2.6 billion in May 2006 -- shortly before new-home construction in the U.S. plunged. In February 2007, the latest month for which data are available, remittances to Mexico had slowed to $1.7 billion." In addition to the reduced remittances to Latin America, the slowing U.S. housing market has affected illegal border crossings as well as immigrant employment levels in other industries. "Data showing what appear to be fewer illegal crossings at the U.S.-Mexico border adds to the evidence of a housing-related plunge in remittances. Apprehensions of attempted crossers are down just over 10% during the first quarter of this year from the same period in 2006, according to federal law enforcement. The Bush administration claims the decrease is because of tighter border security. But those on the Mexican side say traffic has slowed for a simpler reason: There are fewer jobs waiting for those who make it across." With increased mortgage rates, in large part causing the housing slowdown, homeowners are cutting back on services, such as housecleaning and landscaping, which employ large numbers of immigrants.

QUESTIONS:
1.) How does the performance of the U.S. housing market affect spending in Latin American economies?

2.) How does the U.S. unskilled job market conditions affect the number illegal border crossings from Mexico into the U.S.?

3.) What is the effect of increased mortgage rates on the demand for housecleaners and landscapers?


Reviewed By: James Dearden, Lehigh University
The answer to question 2 might seem obvious, but it is not.

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