In order to examine the worsening of inequality between workers of different skill levels over the past three decades and to further motivate the theoretical discussion on this issue, we use the decomposition methodology to focus on the interaction of within- and between-industry changes of the relative skill intensity in U.S. manufacturing. Unlike previous work, we use more detailed levels of industry classification (5-digit SIC product codes), and we analyze the impact of plants switching industries as well as of plant births and deaths on these changes. Internal, plant-level data from the U.S. Census Bureau's Longitudinal Research Database and the new Longitudinal Business Database provide us with the requisite information to conduct these studies. Finally, our empirical conclusions are discussed in relation to the inspired theoretical inference, as they enrich the debate concerning the sources of the inequality by justifying the skill-biased character of technical change.
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Manufacturing Establishments Reclassified Into New Industries: The Effect Of Survey Design Rules
November 1992
Working Paper Number:
CES-92-14
Establishment reclassification occurs when an establishment classified in one industry in one year is reclassified into another industry in another year. Because of survey design rules at the Census Bureau these reclassifications occur systematically over time, and affect the industry-level time series of output and employment. The evidence shows that reclassified establishments occur most often in two distinct years over the life of a sample panel. Switches are not only numerous in these years, they also contribute significantly to measured industry change in industry output and employment. The problem is that reclassifications are not necessarily processed in the year that they occur. The survey rules restrict most change to certain years. The effect of these rules is evidenced by looking at the variance across industry growth rates which increases greatly in these two years. Whatever the reason for reclassifying an establishment, the way the switches are processed raises the possibility of measurement errors in the industry level statistics. Researchers and policymakers relying upon observations in annual changes in industry statistics should be aware of these systematic discontinuities, discrepancies and potential data distortions.
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Import Competition from and Offshoring to Low-Income Countries: Implications for Employment and Wages at U.S. Domestic Manufacturers
January 2017
Working Paper Number:
CES-17-31
Using confidential linked firm-level trade transactions and census data between 1997 and 2012, we provide new evidence on how American firms without foreign affiliates adjust employment and wages as they adapt to import competition from low-income countries. We provide stylized facts on the input sourcing strategies of these domestic firms, contrasting them with multinationals operating in the same industry. We then investigate how changes in firm input purchases from low-income countries as well as domestic market import penetration from these sources are correlated with changes in employment and wages at surviving domestic firms. Greater offshoring by domestic firms from low-income countries correlates with larger declines in manufacturing employment and in the average production workers' wage. Given the negative association, however, the estimated magnitudes are small, even for a narrow measure of offshoring that includes only intermediate goods. Import penetration of U.S. markets from these sources is associated with relatively larger changes in employment for arm's length importing firms, but has no significant correlation with employment changes at firms that do not trade. Given differences in the degree of both offshoring and import penetration, we find substantial variation across industries in the magnitude of changes associated with low-income country imports.
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Survival of the Best Fit: Competition from Low Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants
October 2002
Working Paper Number:
CES-02-22
We examine the relationship between import competition from low wage countries and the reallocation of US manufacturing from 1977 to 1997. Both employment and output growth are slower for plants that face higher levels of low wage import competition in their industry. As a result, US manufacturing is reallocated over time towards industries that are more capital and skill intensive. Differential growth is driven by a combination of increased plant failure rates and slower growth of surviving plants. Within industries, low wage import competition has the strongest effects on the least capital and skill intensive plants. Surviving plants that switch industries move into more capital and skill intensive sectors when they face low wage competition.
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Exporting and Productivity
May 2000
Working Paper Number:
CES-00-07
Exporting is often touted as a way to increase economic growth. This paper examines whether exporting has played any role in increasing productivity growth in U.S. manufacturing. Contemporaneous levels of exports and productivity are indeed positively correlated across manufacturing industries. However, tests on industry data show causality from productivity to exporting but not the reverse. While exporting plants have substantially higher productivity levels, we find no evidence that exporting increases plant productivity growth rates. However, within the same industry, exporters do grow faster than non-exporters in terms of both shipments and employment. We show that exporting is associated with the reallocation of resources from less efficient to more efficient plants. In the aggregate, these reallocation effects are quite large, making up over 40 percent of total factor productivity growth in the manufacturing sector. Half of this reallocation to more productive plants occurs within industries and the direction of the reallocation is towards exporting plants. The positive contribution of exporters even shows up in import-competing industries and non-tradable sectors. The overall contribution of exporters to manufacturing productivity growth far exceeds their shares of employment and output.
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Micro Data and the Macro Elasticity of Substitution
March 2012
Working Paper Number:
CES-12-05
We estimate the aggregate elasticity of substitution between capital and labor in the US manufacturing sector. We show that the aggregate elasticity of substitution can be expressed as a simple function of plant level structural parameters and sufficient statistics of the distribution of plant input cost shares. We then use plant level data from the Census of Manufactures to construct a local elasticity of substitution at various levels of aggregation. Our approach does not assume the existence of a stable aggregate production function, as we build up our estimate from the cross section of plants at a point in time. Accounting for substitution within and across plants, we find that the aggregate elasticity is substantially below unity at approximately 0.7. Lastly we assess the sources of the bias of aggregate technical change from 1987 to 1997. We find that the labor augmenting character of aggregate technical change is due almost exclusively to labor augmenting productivity growth at the plant level rather than relative growth in capital intensive plants.
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Reallocation and Technology: Evidence From The U.S. Steel Industry
March 2013
Working Paper Number:
CES-13-06
We measure the impact of a drastic new technology for producing steel -- the minimill -- on the aggregate productivity of U.S. steel producers, using unique plant-level data between 1963 and 2002. We find that the sharp increase in the industry's productivity is linked to this new technology, and operates through two distinct mechanisms. First, minimills displaced the older technology, called vertically integrated production, and this reallocation of output was responsible for a third of the increase in the industry's productivity. Second, increased competition, due to the expansion of minimills, drove a substantial reallocation process within the group of vertically integrated producers, driving a resurgence in their productivity, and consequently of the industry's productivity as a whole.
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Plant Exit and U.S. Imports from Low-Wage Countries
January 2016
Working Paper Number:
CES-16-02
Over the past twenty years, imports to the U.S. from low-wage countries have increased dramatically. In this paper we examine how low-wage country import competition in the U.S. influences the probability of manufacturing establishment closure. Confidential data from the U.S. Bureau of the Census are used to track all manufacturing establishments between 1992 and 2007. These data are linked to measures of import competition built from individual trade transactions. Controlling for a variety of plant and firm covariates, we show that low-wage import competition has played a significant role in manufacturing plant exit. Analysis employs fixed effects panel models running across three periods: the first plant-level panels examining trade and exit for the U.S. economy. Our results appear robust to concerns regarding endogeneity.
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International Trade and the Changing Demand for Skilled Workers in High-Tech Manufacturing
August 2007
Working Paper Number:
CES-07-22
This paper examines the effects of changing trade pressures on the demand for skilled workers in high-tech and traditional manufacturing industry groupings and in individual high-tech sectors. For industry groupings, changing import and export prices have mixed effects, with coefficients switching signs between wage share and employment share models. These findings suggest that changes in earnings and employment of skilled workers are not moving in the same direction in response to shifting trade pressures. For individual high-tech sectors, both price and orientation measures had significant effects, but the direction of these effects varied substantially by sector.
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U.S. Trade in Toxics: The Case of Chlorodifluoromethane (HCFC-22)
September 2009
Working Paper Number:
CES-09-29
This paper explores whether environmental regulation affects where pollution-intensive goods are produced. Here we examine chlorodifluoromethane (HCFC-22), a chemical designated as toxic in 1994 by the U.S. Environmental Protection Agency's Toxics Release Inventory (TRI). Trends show a decline in the number of domestic producers of this chemical, a decline in the number of manufacturing facilities using it, and an increase in the number (and share) of facilities claiming to import it. Transaction-level trade data show an increase in the import of HCFC-22 imports since its TRI listing ' an increase that is faster than that of all non-TRI listed chemicals. This is suggestive of a pollution haven effect. Meanwhile, we find that the vast majority of U.S. imports of HCFC-22 come from OECD countries. However, an increase in the share of imports from non-OECD countries since the chemical's listing suggests a shift of production to countries with more lax environmental standards. While the findings here are suggestive of regulatory effects, more rigorous analyses are needed to rule out other possible explanations.
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Downsizing, Layoffs and Plant Closure: The Impacts of Import Price Pressure and Technological Growth on U.S. Textile Producers
April 2006
Working Paper Number:
CES-06-10
Downsizing, layoffs and plant closure are three plant-level responses to adverse economic conditions. I provide a theoretical and empirical analysis that illustrates the sources of each phenomenon and the implications for production and employment in the textiles industry. I consider two potential causes of these phenomena: technological progress and increased import competition. I create a micro-founded model of plant-level decision-making and combine it with conditions for dynamic market equilibrium. Through use of detailed plant-level information available in the US Census of Manufacturers and the Annual Survey of Manufacturers for the period 1982-2001, along with price data on imports, I examine the relative contribution of technology and import competition to the decline in output, employment and number of plants in textiles production in the US in recent years. The market-clearing domestic price of textiles is identified as a crucial channel in transmitting technology or import price shocks to downsizing, layoffs and plant closure. The model is estimated on two 4-digit sectors of textiles production (SIC 2211, broadwoven cotton and SIC 2221, broadwoven man-made fiber). The results validate modeling the production sectors as monopolistically competitive, and the elasticity of substitution between foreign and domestic varieties is found to be quite high. The coefficients on the productive technology are sensible, as are the estimated parameters of the plant exit, entry and investment decision rules. In simulations for the broadwoven cotton industry, the effects of technological progress are shown to have a much larger impact on layoffs than on plant closure, with plant size as measured by output actually increasing. Falling foreign prices lead to greater relative magnitudes of plant closure than of downsizing or layoffs.
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