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THE URBAN DENSITY PREMIUM ACROSS ESTABLISHMENTS
October 2014
Working Paper Number:
CES-14-43
We use longitudinal microdata to estimate the urban density premium for U.S. establishments, controlling for observed establishment characteristics and dynamic establishment behavior. Consistent with previous studies, we estimate a density premium between 6 and 10 percent, even after controlling for establishment composition, local skill mix, and the endogeneity of location choice. More importantly, we find that the estimated density premium is realized almost entirely at birth and is constant over the life of establishments. We find little evidence that the endogenous entry or exit of establishments can account for any of the estimated density premium. We interpret our results as implying that the returns to agglomeration diffuse within a city through a reallocation channel rather than through an increase in the productivity of existing firms.
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REALLY UNCERTAIN BUSINESS CYCLES
March 2014
Working Paper Number:
CES-14-18
We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.
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FLUCTUATIONS IN UNCERTAINTY
March 2014
Working Paper Number:
CES-14-17
This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.
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GLOBALIZATION AND TOP INCOME SHARES
February 2014
Working Paper Number:
CES-14-07
How does globalization affect the income gaps between the rich and the poor? This paper presents a new piece of empirical evidence showing that access to the global market, either through exporting or through multinational production, is associated with a higher executive-to-worker pay ratio within the firm. It then builds a model with heterogeneous firms, occupational choice, and executive compensation to model analytically and assess quantitatively the impact of globalization on the income gaps between the rich and the poor. The key mechanism is that the 'gains from trade' are not distributed evenly within the same firm. The compensation of an executive is positively linked to the size of the firm, while the wage paid to the workers is determined in a country- wide labor market. Any extra profit earned in the foreign markets benefits the executives more than the average worker. Counterfactual exercises suggest that this new channel is quantitatively important for the observed surge in top income shares in the data. Using the changes in the volume of trade and multinational firm sales, the model can explain around 33 percent of the surge in top income shares over the past two decades in the United States.
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The Surprisingly Swift Decline of U.S. Manufacturing Employment
December 2013
Working Paper Number:
CES-13-59
This paper finds a link between the sharp drop in U.S. manufacturing employment beginning in 2001 and a change in U.S. trade policy that eliminated potential tariff increases on Chinese imports. Industries where the threat of tariff hikes declines the most experience more severe employment losses along with larger increases in the value of imports from China and the number of firms engaged in China-U.S. trade. These results are robust to other potential explanations of the employment loss, and we show that the U.S. employment trends differ from those in the EU, where there was no change in policy.
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REALLOCATION IN THE GREAT RECESSION: CLEANSING OR NOT?
August 2013
Working Paper Number:
CES-13-42
The high pace of output and input reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. Resources are shifted away from low productivity producers towards high productivity producers. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are 'cleansing' is an open question. That is, are recessions periods of increased reallocation that move resources away from lower productivity activities towards higher productivity uses? It could be recessions are times when the opportunity cost of time and resources are low implying recessions will be times of accelerated productivity enhancing reallocation. Prior research suggests the recession in the early 1980s is consistent with an accelerated pace of productivity enhancing reallocation. Alternative hypotheses highlight the potential distortions to reallocation dynamics in recessions. Such distortions might arise from many factors including, for example, distortions to credit markets. We find that in post-1980 recessions prior to the Great Recession, downturns are periods of accelerated reallocation that is even more productivity enhancing than in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose (due to the especially sharp decline in job creation) and the reallocation that did occur was less productivity enhancing than in prior recessions.
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ENVIRONMENTAL REGULATION AND INDUSTRY EMPLOYMENT: A REASSESSMENT
July 2013
Working Paper Number:
CES-13-36
This paper examines the impact of environmental regulation on industry employment, using a structural model based on data from the Census Bureau's Pollution Abatement Costs and Expenditures Survey. This model was developed in an earlier paper (Morgenstern, Pizer, and Shih (2002) - MPS). We extend MPS by examining additional industries and additional years. We find widely varying estimates across industries, including many implausibly large positive employment effects. We explore several possible explanations for these results, without reaching a satisfactory conclusion. Our results call into question the frequent use of the average impacts estimated by MPS as a basis for calculating the quantitative impacts of new environmental regulations on employment.
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EVIDENCE OF AN 'ENERGY-MANAGEMENT GAP' IN U.S. MANUFACTURING:
SPILLOVERS FROM FIRM MANAGEMENT PRACTICES TO ENERGY EFFICIENCY
April 2013
Working Paper Number:
CES-13-25
In this paper we merge a well-cited survey of firm management practices into confidential U.S. Census microdata to examine whether generic, i.e. non-energy specific, firm management practices, 'spillover' to enhance energy efficiency in the United States. We find the relationship in U.S. plants to be more nuanced than past research on UK plants has suggested. Most management techniques have beneficial spillovers to energy efficiency, but an emphasis on generic targets, conditional on other management practices, results in spillovers that increase energy intensity. Our specification controls for industry specific effects at a detailed 6-digit NAICS level and shows that this result is stronger for firms in energy intensive industries. We interpret the empirical result that generic management practices do not necessarily spillover to improved energy performance as evidence of an 'energy management gap.'
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RACE-SPECIFIC AGGLOMERATION ECONOMIES: SOCIAL DISTANCE AND THE BLACK-WHITE WAGE GAP
April 2013
Working Paper Number:
CES-13-24
We demonstrate a striking but previously unnoticed relationship between city size and the black-white wage gap, with the gap increasing by 2.5% for every million-person increase in urban population. We then look within cities and document that wages of blacks rise less with agglomeration in the workplace location, measured as employment density per square kilometer, than do white wages. This pattern holds even though our method allows for non-parametric controls for the effects of age, education, and other demographics on wages, for unobserved worker skill as proxied by residential location, and for the return to agglomeration to vary across those demographics, industry, occupation and metropolitan areas. We find that an individual's wage return to employment density rises with the share of workers in their work location who are of their own race. We observe similar patterns for human capital externalities as measured by share workers with a college education. We also find parallel results for firm productivity by employment density and share college-educated using firm racial composition in a sample of manufacturing firms. These findings are consistent with the possibility that blacks, and black- majority firms, receive lower returns to agglomeration because such returns operate within race, and blacks have fewer same-race peers and fewer highly-educated same-race peers at work from whom to enjoy spillovers than do whites. Data on self-reported social networks in the General Social Survey provide further evidence consistent with this mechanism, showing that blacks feel less close to whites than do whites, even when they work exclusively with whites. We conclude that social distance between blacks and whites preventing shared benefits from agglomeration isa significant contributor to overall black-white wage disparities.
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INNOVATION, REALLOCATION AND GROWTH
April 2013
Working Paper Number:
CES-13-23
We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 53 of GDP reduces welfare by about 1.53 because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 53 improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry.
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