By exploiting establishment-level data for U.S. manufacturing, this paper sheds new light on the source of the changes in the structure of production, wages, and employment that have occurred over the last several decades. Based on recent theoretical work by Caselli (1999) and Kremer and Maskin (1996), we focus on empirically investigating the following two hypotheses. The first hypothesis is that the channel through which skill biased technical change works through the economy is via changes in the dispersion in wages and productivity across establishments. The second is that the increased dispersion in wages and productivity across establishments is linked to differential rates of technological adoption across establishments. We find empirical support for these hypotheses. Our main findings are that (1) the between plant component of wage dispersion is an important and growing part of total wage dispersion, (2) much of the between plant increase in dispersion is within industries, (3) the between plant measures of wage and productivity dispersion have indreased substantially over the last few decades, (4) industries with large changes in between plant wage dispersion also exhibit large changes n between plant productivity dispersion, (5) a substantial fraction of the rising dispersion in wages and productivity is accounted for by increasing wage and productivity differentials across high and low computer investment per worker plants and high and low capital intensity plants, and (6) Changes in dispersion accounted for by such observable characteristics yield predicted industry level changes in wage and productivity dispersion that are highly correlated.
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The Impact of Immigration on Firms and Workers: Insights from the H-1B Lottery
April 2024
Working Paper Number:
CES-24-19
We study how random variation in the availability of highly educated, foreign-born workers impacts firm performance and recruitment behavior. We combine two rich data sources: 1) administrative employer-employee matched data from the US Census Bureau; and 2) firm level information on the first large-scale H-1B visa lottery in 2007. Using an event-study approach, we find that lottery wins lead to increases in firm hiring of college-educated, immigrant labor along with increases in scale and survival. These effects are stronger for small, skill-intensive, and high-productivity firms that participate in the lottery. We do not find evidence for displacement of native-born, college-educated workers at the firm level, on net. However, this result masks dynamics among more specific subgroups of incumbents that we further elucidate.
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Climate Change, The Food Problem, and the Challenge of Adaptation through Sectoral Reallocation
September 2021
Working Paper Number:
CES-21-29
This paper combines local temperature treatment effects with a quantitative macroeconomic model to assess the potential for global reallocation between agricultural and non-agricultural production to reduce the costs of climate change. First, I use firm-level panel data from a wide range of countries to show that extreme heat reduces productivity less in manufacturing and services than in agriculture, implying that hot countries could achieve large potential gains through adapting to global warming by shifting labor toward manufacturing and increasing imports of food. To investigate the likelihood that such gains will be realized, I embed the estimated productivity effects in a model of sectoral specialization and trade covering 158 countries. Simulations suggest that climate change does little to alter the geography of agricultural production, however, as high trade barriers in developing countries temper the influence of shifting comparative advantage. Instead, climate change accentuates the existing pattern, known as 'the food problem,' in which poor countries specialize heavily in relatively low productivity agricultural sectors to meet subsistence consumer needs. The productivity effects of climate change reduce welfare by 6-10% for the poorest quartile of the world with trade barriers held at current levels, but by nearly 70% less in an alternative policy counterfactual that moves low-income countries to OECD levels of trade openness.
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Export Performance and State Industrial Growth
January 1990
Working Paper Number:
CES-90-03
This research examines whether state industrial growth over the past decade has occurred independently of changes in manufacturing exports and whether export employment growth responds to the same economic and locational forces as employment growth in domestic production. The empirical results indicate that employment and value added growth are not independent of export sales growth; however, a shift toward export markets is not strongly associated with higher manufacturing growth rates. Traditional factors account for a far greater proportion of the variation in domestic than export employment growth. The results suggest the need for additional research on the sources of state comparative advantage in export markets.
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Temperature and Local Industry Concentration
October 2023
Working Paper Number:
CES-23-51
We use plant-level data from the US Census of Manufacturers to study the short and long run effects of temperature on manufacturing activity. We document that temperature shocks significantly increase energy costs and lower the productivity of small manufacturing plants, while large plants are mostly unaffected. In US counties that experienced higher increases in average temperatures between the 1980s and the 2010s, these heterogeneous effects have led to higher concentration of manufacturing activity within large plants, and a reallocation of labor from small to large manufacturing establishments. We offer a preliminary discussion of potential mechanisms explaining why large manufacturing firms might be better equipped for long-run adaptation to climate change, including their ability to hedge across locations, easier access to finance, and higher managerial skills.
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Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry
September 2010
Working Paper Number:
CES-10-29
In the mid 1980s, the U.S. cement industry faced a large increase in foreign competition. Foreign cement producers began offering cement at very large discounts on U.S. prices. We show that productivity (measured by TFP) in the industry was falling during the 1960s and 1970s, but that following the increase in competition, productivity has reversed course and is growing strongly. When foreign competition was weak, productivity fell. When it was strong, productivity grew robustly. We explore the reasons for the large productivity increase. We argue that a large share of the productivity gains resulted from significant changes in management practices at plants.
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Modelling Technical Progress And Total Factor Productivity: A Plant Level Example
October 1988
Working Paper Number:
CES-88-04
Shifts in the production frontier occur because of changes in technology. A model of how a firm learns to use the new technology, or how it adapts from the first production frontier to the second, is suggested. Two different adaptation paths are embodied in a translog cost function and its attendant cost share equations. The paths are the traditional linear time trend and a learning curve. The model is estimated using establishment level data from a non-regulated industry that underwent a technological shift in the time period covered by the data. The learning curve resulted in more plausible estimates of technical progress and total factor productivity growth patterns. A significant finding is that, at the establishment level, all inputs appear to be substitutes.
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Manufacturing Plant Location: Does State Pollution Regulation Matter?
July 1997
Working Paper Number:
CES-97-08
This paper tests whether differences across states in pollution regulation affect the location of manufacturing activity in the U.S. Plant-level data from the Census Bureau's Longitudinal Research Database is used to identify new plant births in each state over the 1963-1987 period. This is combined with several measures of state regulatory intensity, including business pollution abatement spending, regulatory enforcement activity, congressional pro-environment voting, and an index of state environmental laws. A significant connection is found: states with more stringent environmental regulation have fewer new manufacturing plants. These results persist across a variety of econometric specifications, and the strongest regulatory coefficients are similar in magnitude to thos4e on other factors expected to influence location, such as unionization rates. However, a subsample of high-pollution industries, which might have been expected to show much larger impacts, gets similar coefficients. This raises the possibility that differences between states other than environmental regulation might be influencing the results.
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Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?
January 2016
Working Paper Number:
CES-16-47
This paper assesses the quantitative impact of firm-level idiosyncratic shocks on aggregate volatility in the U.S. economy and provides a microfoundation for the negative relationship between firm-level volatility and size. I argue that the role of firm-specific shocks through the granular channel plays a fairly limited role in the U.S. economy. Using a novel, comprehensive data set compiled from several sources of the U.S. Census Bureau, I find that the granular com-ponent accounts at most for 15.5% of the variation in aggregate sales growth which is about half found by previous studies. To bridge the gap between previous findings and mine, I show that my quantitative results require deviations from Gibrat's law in which firm-level volatility and size are negatively related. I find that firm-level volatility declines at a substantially higher rate in size than previously found. Hence, the largest firms in the economy cannot be driving a sub-stantial fraction of macroeconomic volatility. I show that the explanatory power of granularity gets cut by at least half whenever the size-variance relationship, as estimated in the micro-level data, is taken into account. To uncover the economic mechanism behind this phenomenon, I construct an analytically tractable framework featuring random growth and a Kimball aggrega-tor. Under this setup, larger firms respond less to productivity shocks as the elasticity of demand is decreasing in size. Additionally, the model predicts a positive (negative) relationship between firm-level mark-ups (growth) and size. I confirm the predictions of the model by estimating size-varying price elasticities on unique product-level data from the Census of Manufactures (CM) and structurally estimating mark-ups using plant-level information from the Annual Survey of Manufactures (ASM).
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Family-Leave Mandates and Female Labor at U.S. Firms: Evidence from a Trade Shock
September 2020
Working Paper Number:
CES-20-25
We study the role of family-leave mandates in shaping the gender composition at U.S. firms that experience a negative demand shock. In a regression discontinuity framework, we compare firms mandated to provide job-protected leave under the Family and Medical Leave Act (FMLA) and firms that are exempt from the law (non-FMLA) following the post-2001 surge in Chinese imports. Using confidential microdata on matched employers and employees in the U.S. non-farm private sector, we find that between 2000 and 2003, an increase in import competition decreases the share of female workers at FMLA compared to non-FMLA firms. The negative differential effect is driven by female workers in prime childbearing years, with less than college education, and is strongest at firms with all male managers. We find similar patterns in changes in the female share of earnings and promotions. These results suggest that, when traditional gender norms prevail, adverse shocks may exacerbate gender inequalities in the presence of job-protected leave mandates.
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Contrasting the Local and National Demographic Incidence of Local Labor Demand Shocks
July 2024
Working Paper Number:
CES-24-36
This paper examines how spatial frictions that differ among heterogeneous workers and establishments shape the geographic and demographic incidence of alternative local labor demand shocks, with implications for the appropriate level of government at which to fund local economic initiatives. LEHD data featuring millions of job transitions facilitate estimation of a rich two-sided labor market assignment model. The model generates simulated forecasts of many alternative local demand shocks featuring different establishment compositions and local areas. Workers within 10 miles receive only 11.2% (6.6%) of nationwide welfare (employment) short-run gains, with at least 35.9% (62.0%) accruing to out-of-state workers, despite much larger per-worker impacts for the closest workers. Local incidence by demographic category is very sensitive to shock composition, but different shocks produce similar demographic incidence farther from the shock. Furthermore, the remaining heterogeneity in incidence at the state or national level can reverse patterns of heterogeneous demographic impacts at the local level. Overall, the results suggest that reduced-form approaches using distant locations as controls can produce accurate estimates of local shock impacts on local workers, but that the distribution of local impacts badly approximates shocks' statewide or national incidence.
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