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Cyclical Reallocation of Workers Across Employers by Firm Size and Firm Wage
June 2015
Working Paper Number:
CES-15-13
Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions.
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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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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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CAPITAL AND LABOR REALLOCATION INSIDE FIRMS
April 2013
Working Paper Number:
CES-13-22
We document how a plant-specific shock to investment opportunities at one plant of a firm ("treated plant") spills over to other plants of the same firm-but only if the firm is financially constrained. While the shock triggers an increase in investment and employment at the treated plant, this increase is offset by a decrease at other plants of the same magnitude, consistent with headquarters channeling scarce resources away from other plants and toward the treated plant. As a result of the resource reallocation, aggregate firm-wide productivity increases, suggesting that the reallocation is beneficial for the firm as a whole. We also show that-in order to provide the treated plant with scarce resources-headquarters does not uniformly "tax" all of the firm's other plants in the same way: It is more likely to take away resources from plants that are less productive, are not part of the firm's core industries, and are located far away from headquarters. We do not find any evidence of investment or employment spillovers at financially unconstrained firms.
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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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Soft Information and Investment: Evidence from Plant-Level Data
October 2010
Working Paper Number:
CES-10-38R
A reduction in travel time between headquarters and plants makes it easier for headquarters to monitor plants and gather 'soft' information--i.e., information that cannot be transmitted through non-personal means. Using a difference-in-differences methodology, I find that the introduction of new airline routes that reduce the travel time between headquarters and plants leads to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%. Consistent with the notion that a reduction in travel time makes it easier for headquarters to monitor plants and gather soft information, I find that my results are stronger: i) for plants whose headquarters are more time constrained; ii) for plants operating in soft-information industries; iii) during the earlier years of my sample period, when alternative, non-personal, means of monitoring and transmitting information were less developed; iv) for plants where information uncertainty is likely to be greater and soft information is likely to be more valuable, such as smaller plants and peripheral plants operating in industries that are not the firm's main industry.
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Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application
January 2010
Working Paper Number:
CES-10-02
This paper studies capital adjustment at the establishment level. Our goal is to characterize capital adjustment costs, which are important for understanding both the dynamics of aggregate investment and the impact of various policies on capital accumulation. Our estimation strategy searches for parameters that minimize ex post errors in an Euler equation. This strategy is quite common in models for which adjustment occurs in each period. Here, we extend that logic to the estimation of parameters of dynamic optimization problems in which non-convexities lead to extended periods of investment inactivity. In doing so, we create a method to take into account censored observations stemming from intermittent investment. This methodology allows us to take the structural model directly to the data, avoiding time-consuming simulation based methods. To study the effectiveness of this methodology, we first undertake several Monte Carlo exercises using data generated by the structural model. We then estimate capital adjustment costs for U.S. manufacturing establishments in two sectors.
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Information Technology, Capabilities and Asset Ownership: Evidence from Taxicab Fleets
November 2009
Working Paper Number:
CES-09-39
We examine how information technology (IT) influences asset ownership through its impact on firms' and agents' capabilities. In particular, we propose that when IT is a substitute for agents' industry-specific human capital, IT adoption leads to increased vertical integration. We test this prediction using micro data on vehicle ownership patterns from the Economic Census during a period when computerized dispatching systems were first adopted by taxicab firms. The empirical tests exploit exogenous variation in local market conditions, to identify the impact of dispatching technology on firm asset ownership. The results show that firms increase the proportion of taxicabs owned by 12% when they adopt new computerized dispatching systems. The findings suggest that firms increasingly vertically integrate when they acquire resources that substitute for their agents' capabilities.
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Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application
January 2007
Working Paper Number:
CES-07-03
Researchers have long recognized that the non-random sorting of individuals into groups generates correlation between individual and group attributes that is likely to bias naive estimates of both individual and group effects. This paper proposes a non-parametric strategy for identifying these effects in a model that allows for both individual and group unobservables, applying this strategy to the estimation of neighborhood effects on labor market outcomes. The first part of this strategy is guided by a robust feature of the equilibrium in the canonical vertical sorting model of Epple and Platt (1998), that there is a monotonic relationship between neighborhood housing prices and neighborhood quality. This implies that under certain conditions a non-parametric function of neighborhood housing prices serves as a suitable control function for the neighborhood unobservable in the labor market outcome regression. This control function converts the problem to a model with one unobservable so that traditional instrumental variables solutions may be applied. In our application, we instrument for each individual.s observed neighborhood attributes with the average neighborhood attributes of a set of observationally identical individuals. The neighborhood effects model is estimated using confidential microdata from the 1990 Decennial Census for the Boston MSA. The results imply that the direct effects of geographic proximity to jobs, neighborhood poverty rates, and average neighborhood education are substantially larger than the conditional correlations identified using OLS, although the net effect of neighborhood quality on labor market outcomes remains small. These findings are robust across a wide variety of specifications and robustness checks.
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Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices
July 2006
Working Paper Number:
CES-06-21
This paper looks at the reasons for and results of vertical integration, with specific regard to its possible effects on market power as proposed in the theoretical literature on foreclosure. It uses a rich data set on producers in the cement and ready-mixed concrete industries over a 34- year period to perform a detailed case study. There is little evidence that foreclosure effects are quantitatively important in these industries. Instead, prices fall, quantities rise, and entry rates remain unchanged when markets become more integrated. We suggest an alternative mechanism that is consistent with these patterns and provide additional evidence in support of it: namely, that higher productivity producers are more likely to vertically integrate, and as has been documented elsewhere, are also larger, more likely to grow and survive, and charge lower prices. We explore possible sources of vertically integrated producers' productivity advantage and find that the advantage is tied to firm size, possibly in part through improved logistics coordination, but not to several other possible explanations.
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