A firm's production activities are often supported by non-production activities. Among these activities are administrative units including headquarters, which process information both within and between firms. Often firms physically separate such administrative units from their production activities and create stand alone Central Administrative Offices (CAO). However, having its activities in multiple locations potentially imposes significant internal firm face-to-face communication costs. What types of firms are more likely to separate out such functions? If firms do separate administration and production, where do they place CAOs and why? How often do firms open and close, or relocate CAOs? This paper documents such firms' decisions on their spatial organization by using micro-level data from the U.S. Census Bureau.
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Where Do Manufacturing Firms Locate Their Headquarters?
October 2005
Working Paper Number:
CES-05-17
Firms' headquarters [HQ] support their production activity, by gathering information and outsourcing business services, as well as, managing, evaluating, and coordinating internal firm activities. In search of locations for these functions, firms often separate the HQ function physically from their production facilities and construct stand-alone HQs. By locating its HQ in a large, service oriented metro area away from its production facilities, a firm may be better able to out-source service functions in that local metro market and also to gather information about market conditions for their products. However if the firm locates the HQ away from its production activity, that increases the coordination costs in managing plant activities. In this paper we empirically analyze the trade-off of these two considerations.
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Marshall's Scale Economies
December 2001
Working Paper Number:
CES-01-17
In this paper, using panel data, I estimate plant level production functions that include variables that allow for two types of scale externalities which plants experie nce in their local industrial environments. First are externalities from other plants in the same industry locally, usually called localization economies or, in a dynamic context, Marshall, Arrow, Romer [MAR] economies. Second are externalities from the scale or diversity of local economic activity outside the own industry involving some type of cross- fertilization, usually called urbanization economies or, in a dynamic context, Jacobs economies. Estimating production functions for plants in high tech industries and in capital goods, or machinery industries, I find that local own industry scale externalities, as measured specifically by the count of other own industry plants locally, have strong productivity effects in high tech but not machinery industries. I find evidence that single plant firms both benefit more from and generate greater external benefits than corporate plants. On timing, I find evidence that high tech single plant firms benefit from the scale of past own industry activity, as well as current activity. I find no evidence of urbanization economies from the diversity of local economic activity outside the own industry and limited evidence of urbanization economies from the overall scale of local economic activity.
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The Agglomeration of Headquarters
February 2004
Working Paper Number:
CES-04-02
This paper uses a micro data set on auxiliary establishments from 1977 to 1997 in order to investigate the determinants of headquarter agglomerations and the underlying economic base of many larger metro areas. The significance of headquarters in large urban settings is their ability to facilitate the spatial separation of their white collar activities from remote production plants. The results show that separation benefits headquarters in two main ways: the availability of di?erentiated local service input suppliers and the scale of other headquarter activity nearby. A wide diversity of local service options allows the headquarters to better match their various needs with specific experts producing service inputs from whom they learn, which improves their productivity. Headquarters also benefit from other headquarter neighbors, although such marginal scale benefits seem to diminish as local scale rises.
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Professional Employer Organizations: What Are They, Who Uses Them and Why Should We Care?
September 2010
Working Paper Number:
CES-10-22
More and more U.S. workers are counted as employees of firms that they do not actually work for. Among such workers are those who staffed by temporary help service (THS) agencies and leased employees who are on the payroll of professional employment organizations (PEOs) but work for PEOs' client firms. While several papers study firms' use of THS services, few examine firms' use of PEO services. In this article, we summarize PEOs' business practices and examine how the intensity of their use varies across industries, geographic areas, and establishment characteristics using both public and confidential data.
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Impacts of Central Business District Location: A Hedonic Analysis of Legal Service Establishments
July 2011
Working Paper Number:
CES-11-21
This analysis examines the business impacts on law firms of locating in Central Business Districts (CBDs) in major U.S. cities. Specifically, we measure the price premium that law firms pay to locate in CBDs. Using micro-level data from the 1992 and 2007 Census of Services, we find that after controlling for firm size, firm specialization characteristics, and MSA and county attributes, law firms within CBDs pay about 15 to 20 percent more in overhead compared to those firms outside CBDs ' a result consistent across time between 1992 and 2007. When including an important additional measure of firm quality, however, we find that this impact is reduced to about 7 to 9 percent, but still statistically significant. Additional results show that there is a significant correlation between firm quality and CBD location. We also find that firm size and firm specialization measures are important factors in the choice to locate within CBDs. We argue that these results indicate that CBD location for law firms may serve as networking, quality sorting, and branding mechanisms.
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Individual Social Capital and Migration
March 2018
Working Paper Number:
CES-18-14
This paper determines how individual, relative to community social capital affects individual migration decisions. We make use of non-public data from the Social Capital Community Benchmark Survey to predict multi-dimensional social capital for observations in the Current Population Survey. We find evidence that individuals are much less likely to have moved to a community with average social capital levels lower than their own and that higher levels of community social capital act as positive pull-factor amenities. The importance of that amenity differs across urban/rural locations. We also confirm that higher individual social capital is a negative predictor of migration.
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Networking Off Madison Avenue
October 2005
Working Paper Number:
CES-05-15
This paper examines the effect on productivity of having more near advertising agency neighbors and hence better opportunities for meetings and exchange within Manhattan. We will show that there is extremely rapid spatial decay in the benefits of having more near neighbors even in the close quarters of southern Manhattan, a finding that is new to the empirical literature and indicates our understanding of scale externalities is still very limited. The finding indicates that having a high density of commercial establishments is important in enhancing local productivity, an issue in Lucas and Rossi-Hansberg (2002), where within business district spatial decay of spillovers plays a key role. We will argue also that in Manhattan advertising agencies trade-off the higher rent costs of being in bigger clusters nearer 'centers of action', against the lower rent costs of operating on the 'fringes' away from high concentrations of other agencies. Introducing the idea of trade-offs immediately suggests heterogeneity is involved. We will show that higher quality agencies are the ones willing to pay more rent to locate in greater size clusters, specifically because they benefit more from networking. While all this is an exploration of neighborhood and networking externalities, the findings relate to the economic anatomy of large metro areas like New Yorkthe nature of their buzz.
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The Effect Of Takeovers On The Employment And Wages Of Central-Office And Other Personnel
June 1989
Working Paper Number:
CES-89-03
Recent high rates of takeover activity have stimulated considerable interest and concern among policymakers and the public about changes in corporate ownership, but relatively little evidence about the "read" (as opposed to financial) effects of takeovers has been available. This paper presents evidence concerning the effects of ownership change on the employment and wages of central-office workers -- according to some views, those likely to be most affected by takeovers -- and contracts them with the effects on manufacturing plant employees. The evidence is based on a large, longitudinal, plant-level data set derived from Census Bureau surveys of both administrative and production establishments. The major findings of the analysis are as follows. Central offices that changed owners between 1977 and 1982 had substantially lower -- about 16 percent lower -- employment growth during that period than central offices not changing owners. (There was, however, no significant difference in the growth of R&D employment.) They also had slower growth in wages -- about 9 percent lower. Changing owners had a much more negative effect on employment growth in central offices than it did in manufacturing plants: 16 percent compared to 5 percent. This implies that the ratio of central-office to plant employees declines about 11 percent in firms changing owners: about 7.2 administrators per 10-00 plant employees are eliminated. These findings are consistent with the view that reduction of administrative overhead is an important motive for changes in ownership. Failure to account for reductions in central-office employment results in a substantial (about 40 percent) underestimate of the productivity gains associated with ownership change. We also provide evidence concerning the relationship between firm size and administrative-intensity.
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The Evolution of National Retail Chains: How We Got Here
March 2015
Working Paper Number:
CES-15-10
The growth and dominance of large, national chains is a ubiquitous feature of the US retail sector. The recent literature has documented the rise of these chains and the contribution of this structural change to productivity growth in the retail trade sector. Recent studies have also shown that the establishments of large, national chains are both more productive and more stable than the establishments of single-unit firms they are displacing. We build on this literature by following the paths of retail firms and establishments from 1977 to 2007 using establishment- and firm-level data from the Census of Retail Trade and the Longitudinal Business Database. We dissect the shift towards large, national chains on several margins. We explore the differences in entry and exit as well as job creation and destruction patterns at the establishment and firm level. We find that over this period there are consistently high rates of entry and job creation by the establishments of single-unit firms and large, national firms, but net growth is much higher for the large, national firms. Underlying this difference is far lower exit and job destruction rates of establishments from national chains. Thus, the story of the increased dominance of national chains is not so much due to a declining entry rate of new single-unit firms but rather the much greater stability of the new establishments belonging to national chains relative to their single-unit counterparts. Given the increasing dominant role of these chains, we dissect the paths to success of national chains, including an analysis of four key industries in retail trade. We find dramatically different patterns across industries. In General Merchandise, the rise in national chains is dominated by slow but gradual growth of firms into national chain status. In contrast, in Apparel, which has become much more dominated by national chains in recent years, firms that quickly became national chains play a much greater role.
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Quality Sorting and Networking: Evidence from the Advertising Agency Industry
October 2005
Working Paper Number:
CES-05-16
This paper provides a model of knowledge sharing and networking among single unit advertising agencies and investigates the implications of this model in the presence of heterogeneity in agencies' quality. In a stylized screening model, we show that, under a modest set of assumptions, the separation outcome is a Pareto-undominated Nash equilibrium. That is, high quality agencies locate themselves in a high wage and rent area to sift out low quality agencies and guarantee their network quality. We identify a necessary condition for the separating equilibrium to exist and to reject the pooling equilibrium even in the presence of agglomeration economies from networking. We derive the maximum profit of an agency and show the condition has a directly testable implication in the empirical specification of the agency's profit function. We use a sample of movers'existing agencies that relocate among urban areas'in order to extract a predetermined measure of their quality prior to relocation. We estimate the parameters of the profit function, using the Census confidential establishment-level data, and show that the necessary condition for separation is met and that there is strong separation and sorting on quality among agencies in their location decisions.
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