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Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
October 2007
Working Paper Number:
CES-07-28
We construct a large customer-level database and use it to study electricity pricing patterns from 1963 to 2000. The data show tremendous cross-sectional dispersion in the electricity prices paid by manufacturing plants, reflecting spatial price differences and quantity discounts. Price dispersion declined sharply between 1967 and 1977 because of erosion in quantity discounts. To estimate the role of cost factors and markups in quantity discounts, we exploit differences among utilities in the purchases distribution of their customers. The estimation results reveal that supply costs per watt-hour decline by more than half over the range of customer-level purchases in the data, regardless of time period. Prior to the mid 1970s, marginal price and marginal cost schedules with respect to annual purchase quantity are remarkably similar, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. The evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts on the margin we study. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large, rises over time for smaller purchasers, and does not diminish as wholesale power markets expand in the 1990s.
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Efficiency Implications of Corporate Diversification: Evidence from Micro Data
November 2006
Working Paper Number:
CES-06-26
In this study, we contribute to the ongoing research on the rationales for corporate diversification. Using plant-level data from the U.S. Census Bureau, we examine whether combining several lines of business in one entity leads to increased productive efficiency. Studying the direct effect of diversification on efficiency allows us to discern between two major theories of corporate diversification: the synergy hypothesis and the agency cost hypothesis. To measure productive efficiency, we employ a non-parametric approach'a test based on Varian's Weak Axiom of Profit Maximization (WAPM). This method has several advantages over other conventional measures of productive efficiency. Most importantly, it allows one to perform the efficiency test without relying on assumptions about the functional form of the underlying production function. To the best of our knowledge, this study is the first application of the WAPM test to a large sample of non-financial firms. The study provides evidence that business segments of diversified firms are more efficient compared to single-segment firms in the same industry. This finding suggests that the existence of the so-called 'diversification discount' cannot be explained by efficiency differences between multi-segment and focused firms. Furthermore, more efficient segments tend to be vertically integrated with others segments in the same firm and to have been added through acquisitions rather than grown internally. Overall, the results of this study indicate that corporate diversification is value-enhancing, and that it is not necessarily driven by managers' pursuit of their private benefits.
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Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer-Employee Data
April 2006
Working Paper Number:
CES-06-12
Over the past twenty-five years, earnings inequality has risen dramatically in the US, reversing trends of the preceding half-century. Growing inequality is closely tied to globalization and trade through the arguments of Heckscher-Ohlin. However, with only few exceptions, empirical studies fail to show that trade is the primary determinant of shifts in relative wages. We argue that lack of empirical support for the trade-inequality connection results from the use of poor proxies for worker skill and the failure to control for other worker characteristics and plant characteristics that impact wages. We remedy these problems by developing a matched employer-employee database linking the Decennial Household Census (individual worker records) and the Longitudinal Research Database (individual manufacturing establishment records) for the Los Angeles CMSA in 1990 and 2000. Our results show that trade has a significant impact on wage inequality, pushing down the wages of the less-skilled while allowing more highly skilled workers to benefit from exports. That impact has increased through the 1990s, swamping the influence of skill-biased technical change in 2000. Further, the negative effect of trade on the wages of the less-skilled has moved up the skill distribution over time. This suggests that over the long-run, increasing levels of education may not insulate more skilled workers within developed economies from the impacts of trade.
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Import Price Pressure on Firm Productivity and Employment: The Case of U.S. Textiles
March 2006
Working Paper Number:
CES-06-09
Theoretical research has predicted three different effects of increased import competition on plant-level behavior: reduced domestic production and sales, improving average efficiency of plants, and increased exit of marginal firms. In empirical work, though, such effects are difficult to separate from the impact of exogenous technological progress (or regress). I use detailed plant-level information available in the US Census of Manufacturers and the Annual Survey of Manufacturers for the period 1983-2000 to decompose these effects. I derive the relative contribution of technology and import competition to the increase in productivity and the decline in employment in textiles production in the US in recent years. I then simulate the impact of removal of quota protection on the scale of operation of the average plant and the incentive to plant closure. The methodology employs a number of important innovations in examining the impact of falling import prices on the domestic production of an import-competing good. First, import competition is modeled directly through its impact on the relative prices of monopolistically competitive goods along the lines suggested by Melitz (2000). Second, the effect of technology is incorporated through structural estimation of plant-level production functions in four factors (capital, labor, energy and materials). Solutions to econometric difficulties related to missing capital data and unobserved productivity are incorporated into the estimation technique. The model is estimated for plants with primary product in SIC 2211 (broadwoven cotton cloth). Results validate modeling demand as for differentiated products. Technological coefficients are sensible, with exogenous technological progress playing a large role. In the simulations run, the effects of foreign price competition are orders of magnitude higher than those of technological progress for the period after quotas on imports are removed. The large-scale reduction in employment and output in the US is shown to be a combination of reduced employment and output at plants in continuous operation and of plant closures that exceed new entries.
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The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?
October 2005
Working Paper Number:
CES-05-29
We examine the effect of financial dependence on the acquisition and investment of single segment and conglomerate firms for different long-run changes in industry conditions. Conglomerates and single-segment firms differ in the investments they make. The main differences are in the investment in acquisitions rather than in the level of capital expenditure. Financial dependence, a deficit in a segment's internal financing, decreases the likelihood of acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries and also for firms that are publicly traded. In declining industries, plants of segments that are financially dependent are less likely to be closed by conglomerate firms. These findings persist after controlling for firm size and segment productivity. We also find that plants acquired by conglomerate firms in growth industries increase in productivity post-acquisition. The results are consistent with the comparative advantages of different firm organizations differing across long-run industry conditions.
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Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital
June 2005
Working Paper Number:
CES-05-06
Four decades ago, Nathan Glazer and Daniel Patrick Moynihan made the argument that the black family "was not strong enough to create those extended clans that elsewhere were most helpful for businessmen and professionals." Using data from the confidential and restricted access Characteristics of Business Owners Survey, we investigate this hypothesis by examining whether racial differences in family business backgrounds can explain why black-owned businesses lag substantially behind white-owned businesses in sales, profits, employment size and survival probabilities? Estimates from the CBO indicate that black business owners have a relatively disadvantaged family business background compared with white business owners. Black business owners are much less likely than white business owners to have had a self-employed family member owner prior to starting their business and are less likely to have worked in that family member's business. We do not, however, find sizeable racial differences in inheritances of business. Using a nonlinear decomposition technique, we find that the relatively low probability of having a self-employed family member prior to business startup among blacks does not generally contribute to racial differences in small business outcomes. Instead, the lack of prior work experience in a family business among black business owners, perhaps by limiting their acquisition of general and specific business human capital, negatively affects black business outcomes. We also find that limited opportunities for acquiring specific business human capital through work experience in businesses providing similar goods and services contribute to worse business outcomes among blacks. We compare these estimates to contributions from racial differences in owner's education, startup capital, geographical location and other factors.
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The Myth of Decline: A New Perspective on the Supply Chain and Changing Inventory-Sales Ratios
October 2004
Working Paper Number:
CES-04-18
There is a widely held perception that improved supply chain practices and new technologies have led to declines in the inventory-sales ratio. Our empirical analyses of 87 inventory-sales ratios in 45 manufacturing, wholesale distribution, and retail trade industries casts doubt on assumptions of widespread declines in these ratios. We find that less than half of the ratios showed statistically significant declines during the 12 year period from January 1992 through December 2003. Information technology may indeed have improved inventory management, but this improvement is not reflected in inventory-sales ratio data for many U.S. industries. Our detailed case study of the pharmaceutical supply chain also offers additional insights by showing how relevant technological investments led to an extended period in which inventory-to-sales ratios increased.
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The Effects of Low-Valued Transactions on the Quality of U.S. International Export Estimates: 1994-1998
August 2004
Working Paper Number:
CES-04-11
This paper uses data from the U.S. Census Bureau Annual Survey of Manufactures (ASM) to examine the effects that a growth of low-valued transactions likely has on the quality of export estimates provided in the U.S. International Trade in Goods and Services (FT-990) series. These transactions, valued at less than $2,500, do not legally require the filing of export declarations. As a result, they are often not captured in the administrative records data used to construct FT-990 estimates. By comparing industry-level estimates created from the ASM to related FT-990 estimates, this paper estimates that the undercounting of low-valued transactions in the FT-990 export series increases by roughly $30 billion over the period of 1994-1997. It also finds that regression analysis provides little insight into the undercounting issue as results are primarily driven by industries whose contributions to total manufacturing exports are small.
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Firms and Layoffs: The Impact of Unionization on Involuntary Job Loss
March 2003
Working Paper Number:
CES-03-09
This paper focuses on the impact of unionization on involuntary job loss using establishment data from the 1997 National Employer Survey (NES-II) and merging those data with contextual data at the industry level as well as with local labor market data. The estimated logit models included information on unionization rates and employment security provisions present in collective bargaining agreements as factors influencing layoff rates for individual establishments, controlling for establishment size, firm structure, use of non-regular employees, product/service demand and local employment. Results show that the impact of unionization is not significant except for (1) establishments that operate in the non-manufacturing sector; and (2) establishments operating in industries that have major collective bargaining agreements which contain moderate employment security provisions. Under those conditions, unionization decreases layoff rates; otherwise, unionization has no effect on layoff rates. These results provide some evidence that unions may have placed increased emphasis on employment security in order to protect members against involuntary job loss. This is in contrast to earlier studies which found a positive relationship between unionization and layoffs. In addition, establishments in Right-to-Work states have higher rates of involuntary job loss.
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Unlocking the Information in Integrated Social Data
May 2002
Working Paper Number:
tp-2002-21
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